Srl or branch? Choosing an Italian entity for your foreign subsidiary

Foreign companies that want to hire in Italy usually ask the same question first. Should we open an Srl or a branch? This FAQ gives short answers. It is not legal advice. Check the details with an Italian adviser before you decide.

What is an Srl?  

An Srl (società a responsabilità limitata) is an Italian limited liability company. It is a separate legal entity. Your foreign company becomes the quotaholder. The Srl has its own name, tax number, bank account and accounts.

It is the usual choice for a foreign group that plans a real, lasting presence in Italy.

What is a branch?  

A branch is called a sede secondaria in Italian. It is not a separate legal entity. It is an extension of the foreign company, registered in Italy. The foreign company is the legal party in every contract the branch signs.

What is the main difference?  

Liability. With an Srl, the Italian company is liable for its own debts. Your parent company is generally exposed only up to what it invested, unless it gives guarantees or acts improperly.

With a branch, the foreign company is directly liable for the branch’s obligations. There is no shield between the two.

Which one is faster to set up?  

Neither is instant. Both need paperwork and a registration in the Italian company register.

An Srl needs a notarial deed of incorporation, a registered office, a tax number, and named administrators. A branch needs the parent’s documents, usually translated and legalised, plus a person appointed to represent it in Italy.

The branch can look lighter on paper. In practice, the document chain from the parent country often takes as long as the Srl steps.

How are they taxed?  

An Srl is taxed in Italy on its own income. A branch is taxed in Italy on the income attributable to its Italian activity. In both cases you need to plan transfer pricing, VAT, and how profit moves back to the parent.

The tax treatment between your home country and Italy depends on the treaty in force. Ask a tax adviser who knows both sides.

Can both hire employees?  

Yes. Both can employ people directly. In both cases the entity must register with the Italian social security and workplace insurance bodies. It must run monthly payroll and apply the correct national collective agreement (CCNL) for the sector. It must also handle employment contracts in Italian, health and safety duties, and the rules on termination.

This is where many foreign companies underestimate the effort. The legal form matters less than the fact that you become an Italian employer, with all the duties that follow.

What about accounts and reporting?  

An Srl keeps statutory accounts and files them every year. A branch must also keep Italian accounting records for its activity. It may need to file the parent’s accounts as well.

Both need a local accountant. Do not plan to manage this from abroad without Italian support.

Which one is easier to close?  

A branch is usually simpler to wind down, because there is no separate company to liquidate. But the parent stays liable for what happened while it ran.

Closing an Srl follows a formal liquidation. It takes more steps, but it keeps your parent’s risk contained.

Which one should we choose?  

A rough guide:

• Choose an Srl if you want liability protection, plan to grow a team, sign local contracts, or want a clear Italian identity for clients and partners.
• Choose a branch if you are an established company, accept direct liability, and want a simple extension of your existing legal structure.

Most foreign groups that hire several people in Italy end up with an Srl.

Do we need either one to hire in Italy?  

Not always. If you want to test the market, hire one or a few people, or avoid the setup and ongoing compliance, you can use an Employer of Record (EOR). The EOR is the legal employer in Italy. It runs payroll, contracts, social security and compliance. You direct the daily work.

Many companies start with an EOR. They open an Srl later, when the Italian team and revenue justify it. Moving employees from an EOR to your own entity is a normal step, but plan it with care.

What should we decide before choosing?  

Ask yourself these questions:

• How many people will you hire in Italy, and how fast?
• Will you sign contracts with Italian customers?
• Does your parent company accept direct liability?
• Do you need Italian visas or relocation for your staff?
• Do you want to commit to a long-term local structure now?

If the answers are unclear, do not rush into an entity. A flexible start costs less to undo.

Find the EmployItaly country site for your market, or request a quote.