Establishing a foreign company in Italy can be a solution to improve the corporate structure of large companies.
After writing how to open a company and do business in Italy, now I’ll tell you the things you can do with a foreign company in Italy:
- •Reduce bureaucracy;
- •Internationalize the activity of the Italian company;
- •set up a foreign legal fund;
- •Protect assets;
- •Meet the need for privacy and confidentiality.
With a foreign company in Italy it is not possible:
- •reduce the tax burden of the corporate group;
- •work in Italy and pay taxes abroad.
The right strategy for the good operation of the foreign company in Italy.
The purpose of this short guide is to identify a strategy, to avoid the fictitious location abroad of a residence for tax purposes of a company. To avoid or prevent any error, it is advisable to develop a preventive strategy to identify the factual residence of the companies, before acquiring shares abroad or thinking about the appointments of the CDA or the CEO.
The list of questions to be answered in order to draw up the right strategy and to avoid the fictitious foreign residence of the company are as follows:
- When is it better to register company shares for the acquisition of a foreign company, to a S.r.l. in Italy? When it is necessary to issue invoices for services carried out in Italy, for companies resident abroad?
- What are the financial relationship of a company that works both abroad and in Italy? It is necessary to distinguish the income produced abroad from that produced in Italy.
- What is a foreign dressed company? The fictitious residence for tax purposes abroad, of a company that works in Italy.
Globalization has significantly changed the market that is no longer localized but, in fact, global. However, the amount of taxation to be paid for the income produced is local. Therefore, it is necessary to know in which State the income is produced.
It is not difficult to establish a company abroad and instead carry out the activity envisaged by the corporate purpose in Italy. The expression “foreign dressed company” means the fictitious location abroad of the residence for tax purposes of a company that, in fact, has its activity and pursues the purpose of the company in Italy.
This can also happen accidentally when:
- the company is abroad but contracts with customers and suppliers are concluded in Italy, either physically, either by phone or by email;
- the administration of the company abroad is coordinated by its administrative bodies in Italy, also through emails, phone calls, video calls.
In these cases, the income produced by the foreign company is to be attributed to activities carried out in Italy. In the case of this kind, the company may not pay the tax return, VAT and other taxes to be paid in Italy.
The company can also be fined (or sanctioned) by the Italian tax authorities.
When it is possible to set up companies abroad.
Establishing companies abroad is not prohibited by law. There are cases in which it is possible to carry out activities in Italy, on behalf of companies that are not tax resident abroad. But in case of tax assessment, the burden of proof lies with the company under control. But in the event of tax assessment, the burden of proof lies with the company under control. In these cases it is necessary:
- Prove not to have worked in Italy on behalf of the foreign company;
- Demonstrate that the foreign company has worked without the involvement of capital or business from Italy;
- Invoicing any activity carried out regularly in Italy.
The last suggestion is the most important one because, in a simple way, it allows to avoid the phenomenon of the foreign dressed company. it is important to identify the work performed in Italy on behalf of a foreign company and to pay taxes on income and VAT according to the Italian tax law.
How to declare the income produced in Italy on behalf of foreign companies.
In these cases, it is sufficient to pay the shares of the foreign company to a company in Italy and invoice the services performed in Italy according to the points indicated above. All the rest of the work done abroad is invoiced by the foreign company, without any negative repercussions in Italy.
The work done in Italy is taxed in Italy. The work done abroad is taxed at the expense of the foreign company. This type of taxation can also be implemented through an already existing Srl in Italy. it is sufficient to register the shares of the foreign company with the company registered in Italy and regularly invoice the work carried out in Italy, on behalf of the foreign company.
Ask for legal advice to set up a Srl or a foreign company in Italy