Expanding into Italy offers businesses access to one of Europe’s largest economies, a strategic gateway to the Mediterranean, and a market of over 59 million people. However, choosing the right structure for your business is crucial. International companies generally decide between opening a branch office or establishing a subsidiary in Italy.
While both allow foreign firms to operate in the Italian market, they differ significantly in terms of legal personality, liability, taxation, and compliance requirements. This guide explores the key differences between a branch and a subsidiary in Italy so you can make the best choice for your expansion strategy.
What is a Branch in Italy?
A branch is an extension of the foreign parent company. It does not have a separate legal identity but can carry out commercial activities in Italy. Legally, the branch is part of the parent company, meaning all obligations, liabilities, and profits flow back to the head office abroad.
Key points
- Dependent on the parent company.
- Not a separate legal entity.
- Parent company assumes all liabilities.
- Registered with the Italian Companies Register.
What is a Subsidiary in Italy?
A subsidiary in Italy is a legally independent company, even though it is controlled by a foreign parent. Most foreign businesses choose the form of an S.r.l. (Società a responsabilità limitata, Limited Liability Company) when setting up a subsidiary.
Key points
- Separate legal entity from the parent company.
- Owns assets, incurs liabilities, and pays taxes in Italy.
- Limited liability protection for shareholders.
- Offers greater autonomy in operations.
Legal Personality and Liability
Branch – Has no separate legal personality. The parent company is fully liable for the debts and obligations of the branch.
Subsidiary in Italy – Independent legal entity with limited liability. The parent company’s liability is restricted to its capital investment.
If your business wants to limit risk exposure, setting up a subsidiary in Italy is generally the safer option.
Branch Registration Steps
- File with the Italian Companies Register (Registro delle Imprese).
- Provide notarised corporate documents of the parent company (translated into Italian).
- Appoint a legal representative in Italy.
- Obtain an Italian tax code (codice fiscale) and VAT number.
Subsidiary Registration Steps
- Draft and notarise the Articles of Association in Italian.
- Deposit minimum share capital (as little as €1 for an S.r.l., though higher amounts are recommended).
- Register with the Companies Register.
- Obtain a VAT number and tax code.
- Open a local bank account.
Subsidiary setup involves more steps, but offers greater independence and credibility.
Taxation
Branch
A branch in Italy is considered an extension of the foreign parent company and does not have its own separate tax identity.
- Taxed only on Italian-source income.
- Profits are attributed directly to the parent company.
- May benefit from double taxation treaties.
Subsidiary in Italy
A subsidiary in Italy is treated as a resident company and enjoys full access to the Italian tax system and incentives.
- Taxed as a resident Italian company on worldwide income.
- Corporate income tax (IRES) is 24%.
- Regional tax on production (IRAP) is around 3.9%.
- Eligible for Italian tax incentives such as R&D credits and investment grants.
If your operations are long-term and substantial, a subsidiary in Italy provides access to incentives unavailable to branches.
Accounting and Compliance
Branch – Must keep separate accounts for Italian operations, but can consolidate reporting with the parent. Compliance obligations are lighter.
Subsidiary – Must maintain full statutory accounts under Italian GAAP and file annual returns. Subject to Italian corporate governance rules.
Employment and HR Regulations
- A branch hires employees under Italian labour law, but the parent company is ultimately responsible for employment obligations.
- A subsidiary in Italy is the formal employer, giving more flexibility in recruitment, contracts, and HR compliance.
- Both structures must register with local labour authorities and pay social security contributions.
Business Credibility and Market Perception
Branch – Seen as an extension of a foreign entity. It may be less attractive to Italian banks, suppliers, and customers.
Subsidiary in Italy – Perceived as a committed local company, which improves credibility, builds trust, and makes it easier to secure financing or government support.
Cost Comparison
| Feature | Branch | Subsidiary in Italy |
| Setup Cost | Lower (no share capital) | Higher (share capital & notary fees) |
| Registration Time | Faster | Slower |
| Liability | Unlimited (parent responsible) | Limited to capital invested |
| Tax Scope | Italian income only | Worldwide income |
| Incentives | Limited access | Full access to Italian grants & tax reliefs |
Advantages of a Branch
- Simple setup process.
- Lower initial costs.
- Profits are taxed only on Italian activities.
- Suitable for testing the market or limited operations.
Advantages of a Subsidiary in Italy
- Independent legal entity with limited liability.
- Access to local tax benefits and government incentives.
- Greater credibility with partners, banks, and clients.
- Better suited for long-term, large-scale operations.
Which Structure Should You Choose?
If your business aims for a quick, low-cost entry into Italy with limited operations and no long-term commitments, opening a branch may be the most suitable option. A branch allows you to test the Italian market before making larger investments. On the other hand, if you are looking for complete liability protection, long-term operations, and the establishment of a strong local presence, then setting up a subsidiary in Italy is the better choice. A subsidiary also provides access to Italian tax incentives and grants, while enhancing your credibility with banks, partners, and other stakeholders.
How Can We Help?
At Open a European Company, we assist international businesses in establishing either a branch or a subsidiary in Italy. Our services include
- Advising on the best structure for your goals.
- Handling all incorporation paperwork and compliance.
- Assisting with VAT, tax, and social security registrations.
- Opening local bank accounts.
- Providing ongoing legal, accounting, and HR support.
With our multilingual team and expert guidance, we ensure your Italian expansion is seamless from start to finish.
Conclusion
The choice between a branch and a subsidiary in Italy depends on your business strategy, level of commitment, and risk appetite. A branch offers speed and simplicity but leaves the parent company fully liable. A subsidiary provides legal independence, tax benefits, and stronger market credibility, making it the preferred structure for long-term growth. No matter which option you choose, working with experienced advisors ensures compliance with Italian regulations and smooth market entry.
