Detailed Guide to Setting Up a Subsidiary in Italy

Italy is a significant economic force in Europe and a terrific place to start a business. Italy is the eighth-largest economy in the world and the third-largest economy in Europe, making it an attractive economy for investment. The country has no explicit requirements for foreigners, and traveling to other European Union (EU) countries is hassle-free. 

The country’s prime location at the center of the Mediterranean sea provides Italy access to European, Middle Eastern, and Northern American consumers. The government offers numerous tax incentives and credits to attract FDI, including tax credits for employment and tax deductions on energy. Its open economy welcomes investors to establish operations in the country. 

The most common form a company can take in Italy is a subsidiary. A subsidiary requires less paperwork and is easy to form. A subsidiary provides complete independence to the newly set up company in Italy. The parent firm is a holding company and aims to benefit from the Parent-Subsidiary EU Directive.

The following guide discusses all you must know about setting up a subsidiary in Italy.

What are the Types of Subsidiaries in Italy?

Before setting up a subsidiary system in Italy, you must know the types of subsidiaries. They are discussed below:

Wholly owned subsidiary

The parent company entirely owns a wholly-owned subsidiary. It controls the subsidiary, including all voting rights and board seats.

Partly owned subsidiary

Its parent company does not entirely control a partly-owned subsidiary. Its share of ownership of stock varies from 1% to 49%. However, the parent company has the controlling votes in critical decisions.

Joint venture subsidiary

Two companies create a joint venture subsidiary in Italy. Each of them owns half of the subsidiary’s stock. Note that each parent company hires only half of the board members and has one vote in crucial decisions.

These subsidiaries can further take the form of the following companies:

General partnership

1. Italian and foreign citizens, companies, or non-corporate entities can establish a general partnership. 
2. It can be used for commercial as well as non-commercial purposes. 
3. There is no minimum partnership capital required. 
4. Management costs of a general partnership are also reduced due to the simplified accounting regime. 

Limited Partnership

1. A limited partnership in Italy can be set up by two or more partners. 
2. It includes two types of partners –
   1. Managing partners are responsible for administration and management. They are liable for the fulfillment of partnership obligations. 
   2. Limited partners are liable for partnership obligation fulfillment spending upon their shares. 
3. There is no minimum capital needed to set up limited partnerships in Italy.   

Limited Liability Company (LLC)

1. Limited liability company (S.r.L) is one of Italy’s most commonly used business forms. 
2. An LLC provides organizational flexibility and limited liability to its owners. 
3. The company’s shareholders and founders can work as the governing body in Italy. The transfer of shares is possible in this form of business. However, it is a lengthy and tedious process. 
4. The minimum capital required for LLC is EUR 10,000. Companies should pay at least 25% of the funds upon the company’s incorporation. 

Joint Stock Company (S.p.A)

1. A joint stock company requires a minimum capital of EUR 50,000. 
2. To set up S.p.A, parent companies need at least one shareholder and director.
3. Companies setting up S.p.A should hold:
   1. Shareholders meeting
   2. Have an administrative body
   3. A supervisory board  
   4. How to Establish a Subsidiary in Italy?

The following steps will help you in setting up a subsidiary in Italy.

 Step 1: Select a company type

• Firstly, you must select a company type based on the company’s operations. 
• The available choices are Joint Stock Corporation, Limited partnership, General partnership, and Limited partnership. 

Step 2: Select the trade name

• Select a company name and register it in the commercial register. 
• Ensure the company name you choose is distinguishable from other company names to retain uniqueness.

Step 3: Registration of the subsidiary

• The subsidiary should be registered with the Registro delle Imprese (Register of Enterprises).
• Companies should inform the Register of Enterprises of any applicable changes in the company within 30 days. The changes can be related to the number of members, any decrease or increase in the capital or the company’s verdict to issue bonds.
• Moreover, your Italian subsidiary must be registered for value-added tax (VAT) (if required). You also have to register the employees with the social insurance system.
• The Labor Office in Italy should be informed when the company appoints employees.

Step 4: Board members and auditors

• Appoint directors and shareholders to set up subsidiaries in Italy. 
• The shareholders are expected to visit Milano for company incorporation in Italy with an Italian public notary. If they can not travel, you must give a power of attorney translated into Italian or English. 
• Moreover, all directors and shareholders must hold a tax identification number. 

Step 5: Open an Italian bank account and make a deposit

• The next step is depositing 25% of the capital in an Italian bank account.
• Once the capital is deposited, companies will receive the certificate of deposit.

Step 6 – Execute articles of association

• Italian law states that the foundation deeds, the articles of association, and the decision to set up a subsidiary in Italy should be notarized. A registration tax also must be paid.
• The founder should purchase the corporate and accounting books and pay the government grant tax.

 Step 7 – Company VAT number

• Once articles of association are executed, you will receive the company VAT number. 
• This is issued by Agenzia delle entrate.

Step 8  – Certificate of incorporation

• The last step is to receive a certificate of incorporation (Visura). 
• For this, companies should file all incorporation documents to the Chamber of Commerce. The list of documents includes the Article of Association, bylaws, VAT number, and tax identification number. 

Companies can complete establishing a subsidiary in Italy within six days if all necessary documents are submitted and all the requirements are met. The founders should note that within 30 days of the decision of incorporation, the company should register itself with the Italian Company Register. 

Benefits of Setting Up an Italy Subsidiary

Setting up a subsidiary company in Italy comes with its unique benefits, which are as follows:

• Setting up a subsidiary in Italy requires less paperwork. It is the easiest way to enter a new market to expand your business. 
• A subsidiary is a separate legal entity from its parent company. It permits the subsidiary to develop a structure that suits Italy’s workplace practices and culture. 
• The parent company mitigates financial risk when they enter a new market as a subsidiary in Italy. As subsidiaries have their own legal identity, their loss is not directed toward the parent company.
• In liability, a subsidiary is beneficial as an autonomous unit from the foreign parent company. Hence, shareholders have no charge for the undertakings or debts of the subsidiary.
• A subsidiary in Italy may publish or transfer shares to third parties, i.e, stockholders, partners, managers, employees, or other group companies in a joint venture or reorganization setup. 
• Companies setting up subsidiaries can easily merge or sell companies.

Documents to Prepare When Opening a Subsidiary in Italy

In addition to the subsidiary’s incorporation documents, the foreign company should prepare other paperwork too. You must submit those documents to the Trade Register. These documents include the following:

• Information about the parent company, including the company’s legal address in the foreign nation.
• A lease agreement for the Italian subsidiary’s registered address (you can consider a virtual office).
• Details about the foreign company’s representative in the Italian subsidiary.
• Information about the subsidiary’s share capital (including a bank receipt that shows the deposit).
• Setting up the Italian company resolution describing the company.
• Powers provided to legal representatives.
• Appointment of the legal councils in Italy as well as members of the Italian board
• Appointment of the people permitted to attend before the notary on account of the parent company’s legal representative.

What Business Forms can Subsidiaries in Italy Take?

There are two common business forms that Italian subsidiaries can take.

• Joint Stock Company/ Società per azioni (S.p.A.)
• Limited Liability Company/Società a responsabilità limitata (S.r.l.)

Compared to S.p.A, an S.r.l provides more flexibility and sovereignty for its members. An S.p.A always requires the appointment of a board of statutory auditors. In the case of an S.r.l, the appointment of a board of statutory auditors is mandatory only if certain conditions are fulfilled.

Subsidiary Laws in Italy 

Italian subsidiary laws differ depending on the type of business you decide to set up.

• When framing subsidiary laws, the company can recruit a managing director or board of directors. 
• Maintaining account records, including the original documents being transferred, ensures better fulfillment of subsidiary laws. It must retain the relevant accounting documents for a minimum of ten years.
• Although all Italy subsidiaries don’t need an audit, your S.r.l will require it in case you meet several conditions about the total assets, number of personnel, etc.

Post Incorporation Compliance

Go through the post-incorporation compliance checklist for incorporation of foreign subsidiaries in Italy here.

• Obtain the certificate of incorporation from the Registrar of companies
• Collect the unique company number
• Send all the required details of the shareholders to the Registrar.
• Publish the share certificates to all the shareholders (if it is a public company) after getting the subscription money from the subscribers
• Onboard an auditor for the company

Taxes on Subsidiaries in Italy

A subsidiary in Italy is subject to corporate income tax. As of 2022, companies are liable to pay the following:

• IRES (@ 24% rate of taxable income) 
• Regional tax IRAP (@3.9% rate of taxable income).

Tax Incentives for Firms Setting Up a Subsidiary in Italy

If the interest is issued to a tax treaty for dividends, Italy’s tax rate is reduced. If a company receives foreign income from more than one country, the foreign tax credit is individually imposed on each nation. 

Along with this, other tax incentives are announced. They include: :

• Financial endowment for buying new factories, machines, digital tools, and software 
• Procurement of reusable plastic products
• Energy rehabilitation of buildings
• Holdings in revolutionary start-ups
• Offerings to finance agencies on lands and civil buildings

Other Important Considerations

To set up a subsidiary system in Italy, it is vital to focus on insurance, residence permits, applying for any licenses (if required), and registration with the federal tax administration.

Companies must invest their money and time to set up subsidiaries in Italy. Other sectors that need licenses include health care, education, employment agencies, energy, gambling, public transport, etc.

How can Multiplier’s Employer of Record Help You Hire & Expand in Italy?

It demands significant time and capital to extend a business in foreign countries. Conforming to a country’s labor rules and industry standards can be challenging. You can use services from a third-party service company like Multiplier to set up a subsidiary system in Italy effortlessly. 

Multiplier EOR supervises all the formalities, including onboarding talent, payroll processing, etc., when entering a new market; you need not set up an entity. Moreover, Multiplier assists you in onboarding local and global talent while ensuring adherence to Italy’s regulations and labor laws.