Subsidiary is a general name for every Italian company owned by a foreign company. If your foreign company setup an Italian limited company (SRL) or an Italian joint stock company (SPA) or an Italian partnership (SAS) or any other form of company, these companies are all called “subsidiaries”.
In short a Subsidiary is not a special form of company, but a word used to describe that an Italian company is fully owned by a foreign company.
Sometimes the word “Branch” is used instead, and this is where the confusion starts. In fact a true Italian Branch is something very different from a Subsidiary.
Opening a Subsidiary in Italy vs. Opening an Italian Branch
In its true meaning, a “Subsidiary” is a NEW Italian company owned by a foreign company. For instance, the Italian subsidiary of Microsoft Corporation is Microsoft SPA.
On the contrary, a true “Branch” is the Italian office of a foreign company. The legal name in Italian is “Sede secondaria di società estera” (Secondary office of a foreign company). It’s NOT a new and different company, but the Italian branch of the SAME company.
Confused? I agree, it’s confusing. Let’s see the practical differences, so you can understand which solution is best for you.
Name of a Subsidiary in Italy vs. Name of an Italian Branch
Back to our example, if Microsoft Corporation setup a subsidiary in Italy (as they did) they can choose any name because the subsidiary is a NEW and DIFFERENT company. They can call the Italian company “Microsoft” (as they did) or use any other name they want. They can call the company “Piccolo Software” (the direct translation of Microsoft in Italian, not quite appealing for marketing purpose) or any other name they want.
They also have to choose a company type: a prestigious and more expensive Italian joint stock company (as they did) or a smaller and cheaper Italian limited company, or any other company type they want. The USA and Italian company are two different companies, remember? That’s why they are completely autonomous.
On the contrary, if Microsoft Corporation setup a (true) branch in Italy, the name is fixed by law and it’s – guess what? – “Microsoft Corporation (Italia)”. It’s the same company that opened an Italian office and get a specific Italian company number and a specific Italian VAT tax number.
They also DON’T need to choose a company type, because a branch is itself a company type. If you have a branch you can’t have a limited company or a joint stock company. In fact you have a … branch.
Subsidiary in Italy vs. Italian Branch – Practical differences
So what are the practical differences between an Italian Subsidiary and an Italian Branch? Besides the name, the major difference is in the responsibility.
In our example, if the branch Microsoft Corporation (Italia) can’t pay its debts, Microsoft Corporation USA has to pay. In fact they are the same company.
On the contrary, if Microsoft SPA can’t pay its debts, it can go bankrupt. The shareholders will lose their share capital, but no more.
From this point of view, a Subsidiary is better than a Branch.
When opening an Italian Branch is better than opening an Italian Subsidiary
Your foreign company is responsible for any debt of your Branch. That’s the weakness of a branch but it can be its major strong point as well, especially when you deal with banks.
It’s very difficult – if not impossible – for a new company to get a loan from a bank, especially an Italian bank. You will have the same issue if you request an overdraft, or if you ask to discount your invoices (in Italian “Factoring” the same word used in English).
So we suggested to many of our clients to setup a branch, especially in the fashion and textile business. In fact, your branch is an office of your foreign company, and your foreign company is responsible for any debt of the branch. Knowing so, the bank will be more willing to help your (young and unknown) branch because they feel guaranteed by your (aged and more prestigious) foreign mother company.
Moreover you can ask support from the banks in your own country, because they know your company, and use the money in your Italian office. You can’t do that with a subsidiary, because the subsidiary is a SRL or SPA or another company, completely Italian and legally autonomous from your foreign company.
What company is best for you in Italy?
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