A foreign company that wants to open a new business in Italy may choose between a subsidiary and a branch. These two options have pros and cons, but what is the difference?

  • A subsidiary in an independent legal entity owned and controlled by a holding or a parent company, which owns the units or the shares. The subsidiary operates in a separate way from the parent company. The subsidiary has different accounts and independent financial statements.
  • A branch is a part of the same business and it is not an independent legal entity. It is directly controlled by the head office of the company. This type of organization may have joint or separate accounting depending on the company structure, but the financial statement has to be the same from a fiscal point of view. The branch, basically, is part of the same business and carries out the same operations and actions, but in a different area or country.

Pros and cons of subsidiary vs. branch

There are pros and cons regarding these two different options. Open a branch might means more control, less expenses, and more flexibility. Nevertheless, the foreign company is responsible for all the liabilities of the Italian unit. This may be a great risk for the main organization and more accountability.

However, open a subsidiary is frequently more convenient and less risky in many situations. For example, if the subsidiary suffers a loss or has any legal issues, this effects only the subsidiaries itself and its managers. The legal entity of the Italian subsidiary can be a S.R.L., S.P.A., or S.A.P.A. These are limited liabilities companies with minimum capital of Euro 10,000.00 for S.R.L., Euro 50,000.00 for S.P.A. and S.A.P.A. A subsidiary, with of these company form, carries out its operations directly and it is completely liable for its debts.

System of taxation

The main differences regarding the tax system are related to the agreements between Italy and foreign countries. Because there are several deals with different countries, called “Convention between Italy and the foreign country for the avoidance of double taxation”. There are some exceptions for the Member States of the European Union, which the taxation system is regulated by an EU (European Union) regulation.

Subsidiaries: these organizations are companies under the Italian law, despite being controlled or owes by a foreign entity. These subsidiaries must pay the taxes in Italy on their Italian income; the main corporate taxes for limited companies are IRES (24%) and IRAP (3.9%). Furthermore, these companies must file their financial statements to the Chamber of Commerce and comply with all the Italian company requirements according to the law.

There is also an additional withholding tax for the dividends that are paid by the Italian subsidiary to the foreign holding company, but the percentage of that tax depends on the home country of the holding. For EU countries, it is possible to apply for the exception of payment for the withholding tax related to the dividend distributed to a holding or the reduced withholding tax related to the dividends paid to a foreign company. However, if the holding is located in a non-EU country, the percentage of that tax depends on the specific agreement between Italy and its foreign counterpart.

Branches: These organizations are parts of companies located in foreign countries. Since this entity is not independent, its income is included in the balance sheet of the foreign company. However, the branch will also have to pay taxes in Italy for the income produced there. Furthermore, it is not mandatory to file and publish the financial statements of the Italian branch; however, it must submit its annual tax return in Italy and fulfill all its tax obligations in Italy.

The income produced by the branch could therefore suffer double taxation in Italy and then in the country of origin (since the income of the branch flows into the income of its parent company). It should be noted that it is possible that the two countries calculate the tax base and determine the taxable income in different ways. Finally, it is mandatory to have a double accounting system, because the branch must keep separate accounts, according to the Italian system and that of the country of origin. However, special provisions and rules may be provided for in specific Conventions to avoid double taxation between Italy and the state of residence of the foreign company.

Why subsidiaries are preferred?

Our firm, MGI Vannucci & Associate, has conducted several consultations concerning this matter and, according to our experience, we usually advise to evaluate both options. At first glance, the branch option may be more performing and efficient, but after a deeper analysis, our clients prefer to open a subsidiary with a different legal entity.

There are no big differences concerning the corporate tax treatment between the two options, branch or subsidiary, but it mainly depends on whether it is applicable the specific convention with that foreign country. However, we have to remark that the use of an Italian branch may be subject to a double taxation according to the Italian law and it depends on the specific agreement between the Italian Tax Agency and the foreign authorities.


Strengths Weaknesses
Limitation of financial liability High corporate and governance costs
Limitation of legal liability Dividends taxed in Italy
Possibility of applying for the tax benefits Interests taxed in Italy
Possibility of applying for a reduced withholding tax Requirements to publish the financial statement



Strengths Weaknesses
Low corporate and governance costs Full financial liability
Simplified structure Full legal liability
Incomes taxed in the home country Separate accounting
No requirements to publish the financial statement Possibility of applying a double taxation


Opening a new business: what can we can do for you

Studio Frisacco boasts many years of qualified experience in the field of national and international tax planning. Thanks to our professionalism and experience, we can advise you on how to open a new business in Italy. Furthermore, we can provide the best tailor-made solution according to your features.

Our tax & legal unit is made up by young and qualified experts in the tax and corporate consultancy sector, offering consultancy and qualified assistance for the management of companies’ growth, development and reorganization projects.


Best regards

Studio Frisacco


Dottore Commercialista e Revisore Legale dei Conti, Membro effettivo del Collegio Sindacale, Revisore Legale dei conti, Curatore Fallimentare, Iscritto nell'Elenco dei Revisori degli Enti Locali, Consulente nella gestione dei rapporti di lavoro legge 12/1979, Iscritto all'Ordine dei Dottori Commercialisti ed Esperti Contabili di Treviso, Iscritto al Registro Nazionale dei Revisori Legali.

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