INTERNATIONAL INVESTMENT CONSULTING

Representative office

Whereby a foreign company wishes to get a feel for the Italian market before locating a business or aims to promote its business, a representative office may be opened in Italy.

Current Italian legislation does not provide an official definition of “representative office”. It is therefore standard practice to refer to the OECD Model Convention to avoid double taxation and prevent tax evasion (affecting Article 162 of the Italian so-called Revenue Tax Consolidated Act, Presidential Decree no. 917/1986).

And it is always standard interpretative practice to distinguish between a “mere” representative office and a representative office that does not merely perform representation functions.

representativeoffice

What is a “mere” representative office?

It is the fixed place of business of a foreign company in Italy engaged only and exclusively in marketing and promotional activities, or scientific or market research, or other information gathering activities. In other words, a “mere” representative office merely plays an auxiliary or preparatory role for the foreign company to enter the Italian market, and may not conduct production-related or commercial activities.

As such, for tax purposes, a “mere” representative office is not considered a “permanent establishment” of the foreign company and is therefore not subject to taxation. Accordingly, such an office is not required to keep books, publish financial statements or file income tax or VAT returns. It is, however, required to maintain ordinary accounts in order to document expenses (e.g. personnel costs, office equipment, etc.) to be covered by the foreign company’s head office.

The establishment of a “mere” representative office shall be simply reported to the relevant REA based on the location where the concerned office is to be started. The filing shall be carried out by the legal representative of the foreign company, endowed with an Italian Fiscal Code (or by an attorney-in-fact with special power of attorney and Italian Fiscal Code), through Single Notification. Upon receipt by REA, the Revenue Agency will provide the “mere” representative office with ad-hoc Fiscal Code.

WHAT DISTINGUISHES A
REPRESENTATIVE OFFICE THAT DOES NOT MERELY PERFORM whatdistinguish

First, while such an office may not engage in production-related or commercial activities, it, unlike a mere representative office, may provide third parties with non-commercial or preparatory services to the company’s business (i.e. display, purchasing and storing goods, Doing Business in Italy 16/17  gathering information, advertising, research, and other ancillary or preparatory activities). Of course, governance of the relationship between this kind of representative office and third parties shall be agreed between the third party and the foreign company establishing the office.

Consequently, it is standard interpretative practice to consider such a non-mere representative office as a permanent establishment and thus subject to taxation. As such, in addition to being registered with the competent REA and possessing a Fiscal Code, the office shall also obtain a VAT number from the competent Revenue Agency office. The filing shall be carried out by the legal representative of the foreign company endowed with an Italian Fiscal Code (or by an attorney-in-fact with special power of attorney and Italian Fiscal Code) through Single Notification. Upon receipt by REA, the Revenue Agency will provide the “non-mere” representative office with ad-hoc Fiscal Code.

Unlike a “mere” representative office, it shall also keep separate books, file VAT and income tax returns each year and file the foreign company annual report with the relevant Chamber of Commerce.