Definition. An Italian subsidiary, in law a società controllata (controlled company), is an independent legal entity incorporated in Italy and wholly or partly owned by a foreign parent, the società controllante. It answers for its own obligations with its own assets, unlike a branch, which is not a separate entity at all but an extension of the parent it belongs to.
Subsidiary or Branch: Why the Legal Structure Decides Who Is Liable
Two structures answer the same commercial need, an Italian presence, and only one of them insulates the parent that sets it up.
What "independent legal entity" means under Italian law
Italy's own investment-promotion portal draws the line plainly: a subsidiary is an independent legal entity under Italian law, wholly or partly controlled by the foreign investor, while a branch does not act as an independent legal entity at all, only as an extension of the parent company (Invest in Italy: setting up a company). The Civil Code backs the same distinction from the other direction. A company acquires legal personality on entry in the Register of Companies, not on signature (Normattiva: Codice civile, Art. 2331). Before that entry there is a deed. After it, there is a company, and the foreign shareholder's own balance sheet is no longer the same thing as the Italian company's.
The S.r.l.'s liability shield, and its narrow exceptions
An S.r.l. answers for its obligations only with its own assets. Article 2462(1) of the Civil Code states it in one line, and the exceptions are narrow rather than open-ended. Unlimited liability reaches a sole member only where the contributions were never actually paid in, or where the publicity a change of sole-member status requires was never carried out. Outside those two situations, a creditor of the Italian company has no claim on the foreign parent's own balance sheet.
Why a branch offers no equivalent shield
A branch is registered, not incorporated. Its Italian obligation is publicity: the name, the date and place of birth of its permanent representatives and their powers, filed for each secondary seat (Art. 2508(1) c.c.). No separate patrimony sits behind that publicity. Where the branch belongs to a foreign company of a type falling outside the Italian Code, the S.p.A. rules on registration and directors' liability apply to it directly (Art. 2509 c.c.), and nothing in that regime builds a wall between the branch's conduct in Italy and the parent standing behind it.
The cost signal: EUR 66 against EUR 100 to 120 a year
The annual chamber fee, the diritto annuale (annual chamber-of-commerce duty), marks the same divide in euros. A branch pays EUR 66.00 a year. A newly incorporated società di capitali (capital company), the vehicle behind a subsidiary, pays EUR 100.00 at the national rate, rising to EUR 120.00 where a regional surcharge applies (Camera di Commercio delle Marche: diritto annuale 2026). Cheaper registration and no liability shield travel together. Neither figure is a fee for our own services: both are amounts the chamber of commerce itself sets and collects.
Column A, Subsidiary (S.r.l. or S.p.A.): legal personality yes, a separate entity. Liability of the parent limited to what the subsidiary itself owns. Register formality full incorporation. Annual chamber fee EUR 100 to 120. Column B, Branch: legal personality no, an extension of the parent. Liability of the parent not shielded, the S.p.A. liability rules apply directly. Register formality publicity only, no incorporation. Annual chamber fee EUR 66.
Which Italian Company Form a Subsidiary Normally Takes
Two Italian company forms carry a subsidiary in practice, and the choice between them almost always comes down to one figure.
S.r.l. as the default vehicle, EUR 10,000 capital
Invest in Italy names the società per azioni (S.p.A.) and the società a responsabilità limitata (S.r.l.) as the two forms through which a foreign investor normally incorporates a subsidiary. In practice the S.r.l. does most of the work: minimum capital of EUR 10 000, fixed by Article 2463(2)(4) of the Civil Code, against nothing more to organise beyond that figure and the deed itself. Quotas, corporate bodies and the low-capital variant have their own page, the Italian S.r.l., and are not developed here.
S.p.A. as the alternative, EUR 50,000 capital
An S.p.A. asks for five times the capital, EUR 50 000 under Article 2327 of the Civil Code, and brings with it a governance regime built for shares, a board of statutory auditors in some cases, and, where relevant, access to outside capital markets. A subsidiary defaults to the S.r.l. unless one of those features is actually needed. Where it is, the S.p.A.'s own mechanics again sit outside this page.
Incorporation by unilateral deed, full payment on incorporation
A single foreign parent incorporates the subsidiary by unilateral deed, the single-member route the Code allows. One consequence follows that a founder used to the ordinary rule misses: where the company is formed by unilateral deed, the whole of the cash contribution has to be paid in at incorporation, not the 25% that applies where there is more than one founder (Art. 2464(4) c.c.). A sole foreign shareholder funds the company in full from day one, with nothing deferred to a later call.
Notifying a change in sole-member status
Bringing in a second shareholder later, or the reverse, is not a private matter between the parties. A change in sole-member status has to be filed with the Register within 30 days of the change (Art. 2470(4)-(7) c.c.). Miss that window, and the narrow liability exception described above starts to apply.
What the Foreign Corporate Shareholder Itself Has to Produce
Before any of the tax questions arise, the foreign parent has to get its own paperwork in front of an Italian notary, and this is the step no competitor page prices in euros.
Reciprocity applies to a foreign company, not only individuals
Article 16 of the preliminary provisions to the Civil Code conditions a foreigner's civil rights on reciprocity, and the same article is read to extend to foreign legal persons, not only to individuals. A foreign company setting up an Italian subsidiary is itself the subject the rule addresses, not merely the individuals who sign on its behalf.
The apostille's actual legal basis
Corporate documents coming from abroad, a certificate of incorporation, a board resolution, an extract from a foreign register, need to reach the Italian notary in a form Italian law recognises. Italy ratified the 1961 Hague Apostille Convention through a dedicated statute, Law 1253 of 20 December 1966. Where the document's country of origin is also a party to that Convention, an apostille (apostille certification) placed there replaces consular legalisation. No single official checklist tells a foreign parent exactly which of its own documents need one. Apostille, sworn translation and a power of attorney are the three pieces that recur, each sourced independently below, and none of them should be read as an exhaustive list.
Sworn translation through the Register's own channel
A document in a language the Register does not read still has to be usable there. Corporate acts subject to mandatory Register filing, an S.p.A., an S.a.p.a. or an S.r.l., may be published in another official EU language through the Register's own multilingual section, with a traduzione giurata (sworn translation) attached (Art. 2250(5)-(6) c.c.). A discrepancy between the Italian version and that translation cannot be relied on against a third party, though a third party is free to rely on the translation itself.
Power of attorney, and its filing cost
Where the parent's own signatory cannot attend the deed in Italy, a procura (power of attorney) is the practical route, and it has a specific price tag rather than a vague "official charges apply". Filing a company's power of attorney with the Register costs EUR 30.00 of stamp duty through the MUI channel, plus a further EUR 59.00 to 65.00 of Register stamp duty. That amount is a state charge, not a fee for our own work.
Why the online video-conference route does not automatically cover a foreign founder
Italy's online incorporation platform lets an individual founder sign an S.r.l. by video conference without travelling. That route does not automatically extend to a foreign corporate founder. An in-kind contribution, an S.p.A., or a party seated abroad still needs physical presence at the deed or a notarised, apostilled power of attorney. A subsidiary founded by a foreign company should plan for one of those two routes, rather than assume the fully remote option open to an individual cash-funding an S.r.l.
The EU Parent-Subsidiary Withholding Relief: The Corrected Figures
Once the subsidiary exists and starts paying dividends up to its foreign owner, one figure decides more than any other how much of that dividend actually leaves Italy. It is also the figure most English-language guides get wrong.
The right to a refund, or relief at source
A qualifying EU parent has the right, on request, to a refund of the dividend withholding charged under Article 27, commi 3, 3-bis and 3-ter of D.P.R. 600/1973 (Normattiva: D.P.R. 600/1973, Art. 27-bis). That right, a ritenuta (withholding tax) relief, sits at the border of the tax system. It changes what actually leaves Italy, not what the subsidiary owes on its own profit.
The threshold today is 10%, not 20%
Correction. The printed text of Article 27-bis still reads "not less than 20%". An amending provision cut that threshold to 15% for profits distributed from 1 January 2007, and to 10% for profits distributed from 1 January 2009 onward (D.Lgs. 6 February 2007 n. 49, Art. 2 comma 2). A distribution made today is tested against 10%, not against the article's own printed wording.
Generic explainers of the EU direttiva madre-figlia (parent-subsidiary directive) that circulate the original 20% figure are describing a text Italy itself moved away from in two steps, fifteen years ago.
The four cumulative conditions
Four conditions apply together, not as alternatives:
- the parent takes a form listed in the annex to Directive 90/435/EEC;
- it is tax resident in an EU member state, and is not treated as resident outside the EU under a third-country treaty;
- it is subject to one of the corporate income taxes the article lists, without benefiting from an option or exemption that removes that tax entirely;
- it has held the qualifying shareholding uninterruptedly for at least one year (Art. 27-bis(1)(a)-(d) D.P.R. 600/1973).
The holding period is one year, not two
Correction. The two-year figure that circulates in generic descriptions of the EU parent-subsidiary directive is the optional backstop the directive allows a member state to set in its own domestic law. Italy did not set it at two years. Article 27-bis(1)(d) fixes the Italian holding period at one year, held without interruption by the parent.
Print two years for this jurisdiction, and the reader is planning around a rule that does not apply here.
The documentary proof required
Proof of the first three conditions comes from outside the company: a certification issued by the competent tax authority of the parent's own state. Proof of the fourth condition, the holding period, comes from the company itself, in the form of its own declaration. Two different sources of proof for two different kinds of fact.
Applying the relief at source, not only as a refund
The relief does not have to wait for a refund claim filed after the event. On request, the Italian payer may not apply the withholding at all, provided the documentation described above is obtained by the date the dividend is paid and kept on file until the assessment period for that year lapses. Getting the paperwork in order before the payment date, rather than after it, is what turns this into relief at source instead of a refund claim months later.
The Baseline Withholding Where the Relief Does Not Apply
Not every EU parent qualifies on day one, and every payment to a non-EU parent falls outside Article 27-bis entirely. Three different rates apply depending on where the recipient sits.
The 26% baseline, and the 11/26 refund
Absent the Article 27-bis relief, Article 27 of D.P.R. 600/1973 sets a final withholding of 26% on dividends paid to non-residents, with a partial refund of up to 11/26 of that withholding available to qualifying EU and EEA residents (Art. 27(1) and 27(3) D.P.R. 600/1973). Comma 3's own printed text still reads 27 per cento, but comma 1 of the same article states 26% expressly, and a refund fraction with 26 as its denominator only makes sense against a 26% rate: the operative figure is the 26% introduced by Article 3 of D.L. 66/2014, and the printed "27" in comma 3 is a drafting relic the legislator never went back to correct.
The 1.20% flat rate for an EU/EEA parent outside Article 27-bis
A separate, much lower rate exists for an EU or EEA parent that does not, or does not yet, meet the Article 27-bis conditions: a flat 1.20% withholding under Article 27(3-ter), in force from 1 January 2026. A parent still short of the one-year holding period, for instance, sits here rather than at the 26% baseline while the remaining months run out.
Royalty withholding at 30%
Royalties paid to the foreign parent sit under a different article altogether. Outside a tax treaty or the EU interest-and-royalties regime, Article 25(4) of D.P.R. 600/1973 charges a final withholding of 30% on royalties paid to non-residents. Nothing in Article 27-bis reaches royalties. That relief is built for dividends specifically.
The rates side by side
| Payment or scenario | Rate | Condition | Article |
|---|---|---|---|
| Dividends, baseline (no relief applied) | 26%, refund up to 11/26 | Non-resident shareholder, Article 27-bis not applied | Art. 27(1) and 27(3) D.P.R. 600/1973 |
| Dividends, EU parent-subsidiary relief | Refund, or no withholding at source | At least 10% held for at least one year, plus the form, residence and tax conditions | Art. 27-bis D.P.R. 600/1973 |
| Dividends, EU/EEA parent outside the relief | 1.20% flat | EU/EEA corporate taxpayer not meeting Article 27-bis | Art. 27(3-ter) D.P.R. 600/1973, from 1 January 2026 |
| Royalties to the foreign parent | 30% final | Outside a tax treaty or the EU interest-royalties regime | Art. 25(4) D.P.R. 600/1973 |
| The subsidiary's own profit | 24% (IRES) | Standard rate on Italian-source profit | Agenzia delle Entrate |
Transfer Pricing Between the Subsidiary and Its Foreign Parent
The arm's-length rule, and when it applies
Income from a cross-border transaction with a company that controls the Italian subsidiary, is controlled by it, or is controlled by the same controller, is measured against the valore normale (arm's-length value), what independent parties would have agreed in comparable circumstances, wherever that measure increases the subsidiary's taxable income (Normattiva: TUIR, Art. 110). The rule works in one direction only. It raises taxable income where the actual price falls short of the arm's-length figure; it does not exist to lower it.
Which transactions it reaches
The standard reaches ordinary related-party dealings in either direction of control: management fees charged by the parent, intra-group loans and the interest on them, royalties for a licensed trademark or technology, and cost-sharing arrangements across the group. A sister company under the same foreign parent falls inside the same rule, not only the parent itself.
Penalty protection for adequate documentation
A transfer-pricing adjustment does not have to end in a penalty. Adequate, contemporaneous documentazione idonea (adequate documentation), prepared in the form the Agenzia delle Entrate prescribes, exempts the taxpayer from the ordinary penalty where it is produced during an audit (Art. 1(6) D.Lgs. 471/1997). The documentation has to exist before the audit starts. Producing it afterwards, once the question has already been raised, is a weaker position.
Consolidated Reporting: When the Group, Not Just the Subsidiary, Has to Report
The three size thresholds, and the two-year test
A parent is exempt from preparing a bilancio consolidato (consolidated financial statement) for a small group where none of three limits is exceeded, on a consolidated basis, for two consecutive years: EUR 25 000 000 in total assets, EUR 50 000 000 in total revenue, 250 average employees (Normattiva: D.Lgs. 127/1991, Art. 27). All three limits apply together, and the test runs at group level, not at the level of any one company inside it.
The 20% uplift on an aggregate basis
Where the group calculates the same three limits on an aggregate, non-netted basis, rather than after eliminating intra-group transactions, each of the three figures may be raised by 20%. A group close to the netted thresholds is not necessarily close to the aggregate ones.
A single small subsidiary does not by itself trigger the duty
One Italian subsidiary, on its own, does not create a consolidation duty. The test sits at the level of the group's own parent, measured across everything that parent controls, rather than at the level of any single subsidiary considered alone.
The extended 180-day accounts-approval deadline
Where consolidation applies, the parent gets more time to approve its own accounts: up to 180 days, against the ordinary 120, where the company is required to prepare consolidated financial statements (Art. 2364(2) c.c.). The extension belongs to the parent's own accounts, not to the subsidiary's.
What Happens to the Subsidiary's Profit Once It Is Earned
IRES at 24% on the subsidiary's own Italian profit
Before any withholding question arises at all, the subsidiary pays its own tax on its own Italian profit. The standard IRES rate is 24%, confirmed on the Agenzia delle Entrate's own page on corporate income tax. IRAP and the full filing calendar sit on their own page, corporate tax in Italy, named here only for context.
The 95% PEX exclusion through an Italian holding layer
A different mechanism applies where an Italian holding company sits between the subsidiary and the ultimate foreign parent, rather than the parent holding the subsidiary directly. Dividends received by that Italian holding layer are 95% excluded from its own taxable income, and qualifying capital gains on the shareholding are 95% exempt, under the PEX (participation exemption) regime (Art. 89(2) and Art. 87(1) TUIR). This is a structuring fact about an Italian holding layer, not a substitute for the Article 27-bis withholding relief described above. PEX reduces what an Italian recipient reports as income, while Article 27-bis changes what is withheld at the border. The two mechanisms answer different questions, and they are not stacked on the same flow of money.
Node 1, Italian subsidiary: pays IRES at 24% on its own profit, then distributes what remains. Node 2, optional, Italian holding layer: if profit passes through here before reaching the foreign parent, 95% of the dividend is excluded from this company's own taxable income. Node 3, Foreign parent: the ultimate recipient. Direct leg, subsidiary to foreign parent: withholding applies here, at 26% baseline with an 11/26 refund, or at the Article 27-bis rate once the 10% and one-year conditions are met, or at the flat 1.20% for an EU/EEA parent outside Article 27-bis. Indirect leg, through the Italian holding layer: the 95% PEX exclusion applies inside Italy, on the way into the holding company, a different point in the flow from the withholding on the direct leg.
Subsidiary, Branch or Representative Office: Choosing the Right Form of Presence
When a subsidiary is the right call
A subsidiary earns its cost where the foreign group wants an entity that trades in its own name, borrows in its own name, and answers for its own debts before the parent's balance sheet is ever reached. That is the liability shield described at the start of this page, and it is usually the reason the extra registration cost and the ongoing tax mechanics above are worth carrying.
When a branch or a representative office fits better instead
A lighter footprint sometimes answers the same commercial need without the same commitment. Where the goal is a limited, testing presence rather than full trading in Italy, branch office in Italy sets out the publicity duties, the timeline and the chamber fee of that alternative in full. Where the goal is narrower still, market research or liaison with no trading activity at all, our page on what a representative office may and may not do in Italy draws that boundary.
A ready-made company as a faster route to the same S.r.l. shell
Incorporating a new S.r.l. from scratch is not the only way to reach the same result. A foreign parent in a hurry can buy an existing, clean Italian S.r.l. instead and take a transfer of its quota, closing a timeline gap that a fresh incorporation cannot avoid. Our current inventory lists what is available now.
Where the full company-forms comparison lives
Every Italian legal form, side by side on capital, liability, governing bodies and audit duty, sits in one table on Italian company types, rather than repeated here.
Working With Our Team on an Italian Subsidiary
What the engagement covers
The work on a subsidiary splits into three parts that run in sequence: reviewing the foreign parent's own documents before anything is sent to the notary, the apostille, the sworn translation, the power of attorney where one is needed; coordinating the notarial deed itself and the filing with the Register of Companies; and, once the subsidiary is registered, referring the VAT registration that follows. Pricing is on request, through the contact form, once we understand the parent's own documentation position.
From our practice
From our practice
The document a foreign parent's own legal department forgets most often is not the certificate of incorporation. It is the board resolution authorising the signatory, and it is usually the one nobody thought to apostille until the notary asked for it. A power of attorney is frequently the faster route even where a director is, in principle, willing to travel, once flight timing is weighed against the notary's own calendar. Groups routinely assume the EU relief threshold is still 20% and the holding period two years, because that is what most English-language explainers of the underlying directive still say, and the correction usually lands later than it should. Raising the transfer-pricing question before the first invoice passes between the subsidiary and the parent, rather than after several have, is the difference between a policy that is designed and one that is reconstructed under pressure.
Giulia Mancini, Head of Corporate Formation, Milan
Author and reviewer signature
This page is written by Giulia Mancini, Head of Corporate Formation, Milan office, and reviewed by Alessandro Ferri, Tax and Accounting Lead, Rome office. Neither is a notary, and neither drafts the atto costitutivo (deed of incorporation) personally. The work described above is coordination with the notary who does.
Next step
Once the subsidiary is registered, Italian VAT registration is usually the next filing on the list. To begin the documentation review, start the onboarding form.
Frequently Asked Questions
What is the difference between a subsidiary and a branch in Italy?
A subsidiary is an independent Italian legal entity, normally an S.r.l. or S.p.A., that the foreign company owns. A branch is not a separate legal entity: it is an extension of the parent, registered only for publicity, under the S.p.A. rules on liability.
Does a subsidiary protect the foreign parent from the Italian company's debts?
Yes, as a general rule. An Italian S.r.l. answers for its own obligations only with its own assets, with narrow sole-member exceptions. A branch offers no equivalent shield: the foreign parent itself carries the exposure for what the branch does in Italy.
Which Italian company form does a subsidiary normally take?
Usually an S.r.l., minimum capital EUR 10,000. An S.p.A., minimum capital EUR 50,000, is used only where its governance regime, a board of statutory auditors or access to bond finance, is specifically needed. The mechanics of each form are covered on their own pages.
Do foreign corporate documents need an apostille to be used in Italy?
Italy ratified the 1961 Hague Apostille Convention through a dedicated statute, Law 1253/1966. An apostille placed on the foreign parent's corporate documents replaces consular legalisation, wherever the document's country of origin is also a party to that Convention, before the document reaches the Italian notary.
Do foreign-language corporate documents need translation for the Italian Register?
The Register of Companies has a dedicated multilingual channel: an S.r.l. or S.p.A. act subject to mandatory filing may be published in another official EU language with a sworn translation. A discrepancy in that version cannot be relied on against third parties.
Can the foreign parent sign by power of attorney instead of attending in Italy?
Yes. Filing a company's power of attorney with the Register costs EUR 30.00 of stamp duty through the MUI, plus EUR 59.00 to 65.00 of Register stamp duty, the practical route where the parent's own signatory cannot attend in Italy in person.
What withholding relief exists for a qualifying EU parent?
A refund, or relief at source on request, under Article 27-bis of D.P.R. 600/1973: the parent must hold at least 10% of the subsidiary's capital, uninterruptedly, for at least one year, and meet the form, residence and tax conditions of that article.
Is the EU parent-subsidiary withholding threshold 20%?
No. The article's printed text still reads 20%, but an amending provision cut that to 15% for profits distributed from 2007 and to 10% for profits distributed from 2009 onward. The 10% figure is what applies to a distribution made today.
Is the minimum holding period for the EU relief two years?
No. The two-year figure belongs to the optional backstop that the EU parent-subsidiary directive allows member states to set in their own domestic law. Italy's own implementing text, Article 27-bis(1)(d) of D.P.R. 600/1973, sets the holding period at one year, held uninterruptedly by the parent.
Does transfer pricing apply between an Italian subsidiary and its foreign parent?
Yes. Cross-border transactions with a company that controls the subsidiary, is controlled by it, or is controlled by the same parent, such as management fees, loans and royalties, are priced at arm's length wherever this increases the subsidiary's taxable income.
Can a transfer-pricing penalty be avoided on an adjustment?
Yes. Adequate, contemporaneous transfer-pricing documentation, prepared in the form the Agenzia delle Entrate prescribes by its own measure, exempts the taxpayer from the ordinary penalty for an incorrect return, provided it is handed over during a tax audit, access or inspection.
Does an Italian subsidiary have to be included in a consolidated financial statement?
Only where the group, tested at the level of the parent preparing the accounts, exceeds for two consecutive years EUR 25,000,000 in assets, EUR 50,000,000 in revenue and 250 average employees. A single small Italian subsidiary does not by itself create that duty.
By Giulia Mancini, Head of Corporate Formation, Milan office. Giulia Mancini leads company formation for founders who are not resident in Italy. She started out preparing incorporation deeds in a Milan notary practice and has spent twelve years on the same problem since: reconciling what a foreign shareholder can sign remotely with what the notary and the Register of Companies will actually accept.
Reviewed by Alessandro Ferri, Tax and Accounting Lead, Rome office. Updated 11 September 2026.