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Pros and cons to set up a branch in Italy for foreign companies (Ltd)

There are many options available to set up a branch in Italy for foreign companies (Ltd) that would like to conduct business in different countries.

For example, the UK/EU Agreement to overcome the Brexit impasse has ensured trade without duties and with free quotas between the two blocs. Specifically, under the Agreement food and goods imported into the UK from third countries and then shipped to the EU will be subject to new tariffs. Moreover, new customs controls and bureaucratic procedures to be carried out at the border were introduced.

On this point, the Department of International Trade (DIT) advised small businesses in the UK that the best way to get around the border problems and VAT problems that have accumulated since 1 January is to register new company within the EU single market, from which they can distribute their goods much more freely.

Several reforms have been made to simplify the procedures required to start and manage a business in Italy and to establish a secondary office with permanent representation (Italian branch).

The Italian branch has full tax personality and it will be mandatory to keep accounting records for the activity carried out on the Italian territory.

PROS

  1. The Italian branch allows the implementation of production directly in a different country/market, guaranteeing the parent company to carry out adequate quality control and a more specific study of the needs of the market as well as those of new target clients.
  2. Furthermore, the direct management of the branch will enable the parent company to build solid relationships with clients.
  3. In addition, it will be easier for the parent company to provide technical assistance product.
  4. The Italian branch’s income taxation will be proved in the foreign Country where the company has its headquarters. In this way, the parent company will avoid taxation in both countries as established by the International Conventions against Double Taxation.

CONS

  1. First of all, starting a business in Italy can take less time (about a week on average) than other EU’s country, but it costs more than the EU average. Indeed, Italy ranks 58th for overall ease of doing business and 98th for starting a business, out of 190 economies. About 75% of the cost is for the required notary fees, for drafting the company deed and preparing other formation documents.
  2. However, the choice to establish a secondary office in a foreign country involves not only costs of setting up/starting the business office, but also the management costs of that office, with the annexed need to expand the workforce significantly.
  3. In this regard, tax payments each year, including corporate income tax (IRES), regional production tax (IRAP), social security, real estate, and VAT have to been considered.
  4. Moreover, the execution of final judgments is a very lengthy judicial procedure with a substantial variability between regions, given that Italian courts are swamped with backlogs, adjournments, delays in issuing sentences. Furthermore, there is a shortage of qualified staff.
  5. In addition, regional regulations and procedures for the same business activities can be different between the municipalities of Italy as a consequence of the power of the local authorities to determine how to implement national laws and regulations.

The Italian Lawyer with its staff of specialists offers assistance to companies that would like to set up a branch in Italy and open a line of business in the country.

Contact us by emailing to info@theitalianlawyer.com to receive further information about how to set up a branch in Italy and avoid inconvenience.

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