Opening a company abroad represents a key strategic component in the processes of internationalization of enterprises. However, such a choice requires a thorough multidisciplinary analysis that includes not only financial, but also legal, tax and organizational aspects. Insufficient or inadequate planning could expose the company to significant risks, including disputes related to esterovestizione, a phenomenon in which the company, while registering in a foreign country, actually operates in Italy, contravening domestic tax law. This is regulated by Article 73 of the Consolidated Income Tax Act (TUIR) and is an area of increasing attention by tax authorities.
In addition to tax compliance, it is essential to structure an organizational plan that considers the‘operational efficiency and compliance with local regulations. Internationalization requires specific skills in business law, in-depth knowledge of labor regulations, and appropriate human capital management. Failure to harmonize internal operating models with local practices can undermine the effectiveness of expansion, generating economic and reputational inefficiencies.
In the landscape of options available for international expansion, corporate structures are mainly divided into subsidiaries, representative offices, partnerships and corporations, each characterized by specific legal and tax implications.
Branches and representations
Branches constitute extensions of economic activity in another state and are subject to taxation in the country in which they operate, in accordance with the “permanent establishment” principle enshrined in international treaties against double taxation (e.g., the OECD Model Tax Convention). It is crucial to verify the presence of a local tax base resulting from ongoing activities or the appointment of a tax representative.
Partnerships
Partnerships, like general partnerships and limited partnerships, have different management peculiarities and legal responsibilities. In general partnerships, partners have unlimited liability for corporate obligations, while in limited partnerships liability is modulated according to the capital invested. In addition, the way in which shares are transferred varies significantly between the two types, affecting the flexibility of corporate governance.
Corporations
Corporations, such as limited liability companies (LLCs) and joint stock companies (S.P.A.s), are legal entities that are separate from shareholders, with a limited liability regime. In Italy, Article 25 of Law 218/1995 determines the applicable law based on the registered office of the company, unless the effective management is located in Italy, in which case Italian law applies. Significant differences between LLCs and SPAs include the minimum share capital required and the methods of management and control, making it necessary to carefully consider the choice of corporate vehicle in relation to the strategic objectives of the enterprise.
In a global environment of ever-changing regulations, the assistance of experienced professionals in international corporate law, transnational taxation, and strategic planning is an essential element in ensuring sound business expansion that complies with local and international regulations.
When you decide to open a company abroad, it is crucial to check whether you meet the necessary requirements to avoid tax issues such as the increasingly common corporate esterovestification. According to the’Article 73 of the TUIR, two conditions are crucial:
These are the basic requirements, but there are also specific conditions that must be verified in order to avoid the presumption of esterovestification, as provided for precisely in TUIR Art. 73, para. 5-bis.
Many entrepreneurs mistakenly believe that online businesses, being without a physical location, can be easily established abroad without tax implications. In any case, even the digital export through a e-commerce, must meet the requirements described above. If the location is foreign but the site is intended for the Italian market, the activity could be considered to be carried out in Italy, with the associated tax implications.
The same esterovestification rules also apply in the case of foreign real estate and holding companies, which require special attention to avoid tax issues related to this phenomenon. One option for avoiding the risk of esterovestification is the creation of a multinational group, where the entrepreneur entrusts the management of the business to a manager residing in the country in which the registered office of the company is located. In this way, the entrepreneur remains a capital partner but does not directly manage the business.
This solution, although effective, may be more challenging to sustain for new businesses, which may not have sufficient resources to deal with the costs associated with establishing a multinational group. Therefore, it is considered a more suitable strategy for established businesses.
To identify the best country for a process of internationalization of the enterprise, it is essential to consider the following aspects:
Opening a company abroad is a choice that therefore requires careful study. More and more companies, in fact, are seeking to expand into new international markets, and this can be accomplished by opening a foreign office while maintaining their base of operations in Italy. This scenario represents an ideal context for starting an export process, which is usually implemented when the company already has a solid base in the domestic market.
In particular, the’internationalization becomes a natural step when the company has reached a certain maturity and can invest resources to expand abroad, either with a subsidiary or with branches. The stage of business maturity is, therefore, a fundamental prerequisite for the success of this operation.
For entrepreneurs wishing to transfer, merge, or dissolve a company, it is important to know European regulations, such as the EU Directive 2019/2121, which facilitates the transfer of economic activities between EU countries, and the EU Directive 2017/1132, which regulates cross-border mergers. Cross-border demerger, on the other hand, has no uniform regulation and is still being discussed.
Setting up a company abroad can certainly bring tax and operational advantages, and take advantage of all the opportunities that the international environment offers. It is therefore an option that many Italian companies are pursuing, in order to penetrate the market of target countries more effectively.
Octagona, a leader in the internationalization strategies, offers personalized counseling aimed at ensuring the most suitable paths for open a company abroad, and full compliance with evolving international regulations. For more comprehensive information, we invite you to contact us through the appropriate form.
Expatriation occurs when a company registers in a foreign country but in fact operates in Italy, violating national tax regulations. It is governed by Article 73 of the TUIR. To avoid it, it requires a truly foreign administrative headquarters and an activity actually carried out in the country chosen as the tax residence.
Article 73 of the TUIR requires two fundamental conditions. The administrative headquarters must be physically located abroad, with offices and decision-making bodies operating in the chosen country. The activity must also be carried out in that country. If the company is foreign but operates in Italy, the tax residence remains Italian. Paragraph 5-bis also provides for a presumption of extraterritoriality.
No, not automatically. The requirements of Article 73 of the TUIR also apply to digital exports through e-commerce. If the headquarters are abroad but the website is intended for the Italian market, the activity can be considered carried out in Italy, with the associated tax consequences. Believing that the absence of a physical location eliminates the obligations is a widespread error.
The main options are branches, representative offices, partnerships and limited liability companies. Branches are taxed in the country where they operate under the principle of stable organization. In general partnerships, the partners are liable without limit, while SRL and SPA are entities distinct from the partners with limited liability and a different minimum capital.
It is advisable when the company already has a solid base in the domestic market and a certain level of maturity, such as to invest resources in foreign expansion through a subsidiary or branch. Company maturity is a prerequisite for success. First, it is necessary to analyze the market, legal and fiscal aspects, agreements against double taxation, labor regulations, and the impact on the supply chain.
EU Directive 2019/2121 facilitates the transfer of economic activities between countries of the European Union, while EU Directive 2017/1132 governs cross-border mergers. Cross-border division, however, does not have uniform regulation and is still subject to discussion, therefore it requires careful evaluation with expert advisors in international corporate law.
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