An Israeli Company Operating in Italy: Branch, Subsidiary or Representative Office, Permanent Establishment, VAT, Employees and Reporting Calendar

Israeli companies enter Italy in different ways: a software company selling to Italian customers, a manufacturer working with a distributor, a services company placing an employee on the ground. Each route creates different legal and tax obligations. This guide explains the options, when a permanent establishment arises, what VAT registration requires, what the employer's obligations are and what the reporting calendar looks like. Setting up an Italian subsidiary is covered in a separate guide on opening a company in Italy.

1In what ways can an Israeli company operate in Italy?

In four main ways: direct sales from Israel, a representative office, a registered branch (sede secondaria) or an Italian subsidiary, usually an S.R.L. The decision depends on the scale of the activity, the need for people and an office in Italy, how customers and banks will view the arrangement, and whether the company is prepared to bear the liabilities of the activity there directly. The table summarises the differences.

2Can you sell to Italy without opening anything there?

Yes. An Israeli company can enter into contracts with Italian customers and supply them with goods or services from Israel. The main tax risk is creating a permanent establishment without noticing: a fixed place of business at the company's disposal in Italy, or a person who acts there on its behalf and habitually concludes contracts in its name. When selling goods, VAT registration in Italy may also be required, for example when the goods are stored there before the sale.

3When does an Israeli company create a permanent establishment in Italy?

Usually when it has a fixed place of business in Italy through which the activity is carried on, such as an office, a branch or a factory, or when a dependent agent concludes contracts on its behalf. A permanent establishment (stabile organizzazione) is defined in Article 5 of the Israel-Italy tax treaty and in Italian law. A building or installation site creates a permanent establishment only after a period set in the treaty. Preparatory and auxiliary activities, such as storage for display or collecting information, do not usually create a permanent establishment.

• An employee living in Italy: an employee who works from home in Italy and negotiates with customers from there may create a permanent establishment. The risk depends on their role and powers.
• An agent or distributor: an independent distributor who buys and sells in its own name does not usually create a permanent establishment. An agent who signs on the company's behalf, or whose work leads to contracts being signed without changes, may create one.
• A project on site: an installation or construction team working in Italy over time requires checking the project's duration against the treaty.

If a permanent establishment arises, Italy may tax the profit attributed to it under IRES and IRAP, and the Israeli company must keep books and file returns there. In Israel, that profit is still taxable, with a credit for the Italian tax under the treaty. Our tax guide for Italy sets out the rates.

4What is the difference between a branch and a subsidiary in Italy?

The main difference is liability: a branch (sede secondaria) is not a separate legal entity, and the Israeli company itself is liable for all of its obligations, whereas a subsidiary is a separate Italian entity whose liability is limited to its own capital. Under article 2508 of the Civil Code, a company incorporated abroad that opens a branch in Italy with a permanent representative is subject to the Italian disclosure rules: registration in the Companies Register, publication of the details of the persons who represent it in Italy and their powers, and stating the registration number in documents and correspondence. An Israeli company whose legal form is not recognised under Italian law is subject to the S.p.A. rules as regards the registration of documents (article 2509).

A subsidiary, usually an S.R.L., is a separate Italian entity. Liability is limited to its capital, it signs contracts in its own name, employs staff and pays tax as an Italian company. It is more familiar to banks, suppliers and tenders, but it requires incorporation before a notaio, capital, full financial statements and reporting by the parent company in Israel.

5Do you need a local director or representative in Italy?

Not always: in a subsidiary the director need not be Italian or resident in Italy, while a branch must register and publish a permanent representative in Italy. For a branch, the law requires publication of the details of the persons who permanently represent the company in Italy and of their powers. In practice, appointing a representative who is available in Italy makes it easier to open a bank account, receive official notices and deal with the authorities. In a subsidiary, the director does not have to be Italian or resident in Italy, but the place where decisions are made affects the company's tax residence, and every director needs a registered personal PEC address.

6How does an Israeli company register for VAT in Italy?

Usually through a fiscal representative (rappresentante fiscale), where the company has no permanent establishment in Italy. A foreign business that is liable to VAT in Italy but has no permanent establishment there may, under Italian law, appoint a fiscal representative (rappresentante fiscale, article 17 of Presidential Decree 633/1972) or register directly (identificazione diretta, article 35-ter). Direct registration is open to businesses from the European Union, and to businesses from non-EU countries only where there is a mutual assistance agreement on the recovery of indirect taxes. An Israeli company therefore usually appoints a fiscal representative, who is jointly liable with it towards the Italian tax authority.

An Israeli company with a permanent establishment in Italy, for example a branch, registers through it. An Italian subsidiary receives its own VAT number on incorporation. According to PwC, the Italian e-invoicing obligation does not apply to a foreign business that is not established in Italy, even if it is registered for VAT through a representative or by direct registration. The standard VAT rate in Italy is 22%.

7What are the employer's obligations when employing a worker in Italy?

The employer is subject to Italian employment law even when it is Israeli: it reports the start of employment by the day before work begins, applies the sector collective agreement and pays social security contributions of about 30% of gross salary, as of 2026 according to PwC Tax Summaries. The basic obligations:

1. Notification of the start of employment: a mandatory online notice (comunicazione obbligatoria) by the end of the day before work begins, even if it is a public holiday.
2. Sector-wide collective agreement: most employment relationships in Italy are governed by a national collective agreement (CCNL) for the sector, which sets minimum pay, grades, hours and holidays.
3. Social security: according to PwC, the employer bears social security contributions of about 30% of gross salary, and the employee about 10%.
4. Severance pay (TFR): the employer accrues for each employee an amount paid at the end of employment.
5. Payroll and payslips: salary calculation, tax withholding and monthly reporting, usually through a local labour consultant (consulente del lavoro).
6. Health and safety at work: risk assessment and training obligations under Italian law.

A foreign employer without a permanent establishment in Italy can in principle employ a worker there, but it must check its registration with the social security institutions. The employment itself may create a permanent establishment. An Israeli employee posted to Italy for a limited period raises questions of Israeli National Insurance and work permits, which are examined separately.

8Under which law and in which language should contracts in Italy be drafted?

In a commercial contract between businesses, the parties may choose the governing law, and an Italian court will respect that choice under the Rome I Regulation. There is no general obligation to draft a business contract in Italian, and bilingual contracts are common. However, proceedings in an Italian court are conducted in Italian, so a document in English or Hebrew will be translated if it ends up there.

• Distribution and agency agreements: Italian law has its own rules on commercial agents, including an indemnity on termination. Choosing a foreign law does not always override these protections.
• Onerous clauses in standard terms: in general terms and conditions, certain clauses, such as limitation of liability or a change of jurisdiction, require separate written approval under Italian law. They should be signed separately.
• Sales to consumers: Italian and European consumer protection laws also apply to an Israeli seller targeting consumers in Italy.
• Dispute mechanism: choose in advance between an Italian court, an Israeli court and arbitration. Our guide to choosing between arbitration and court sets out the considerations.

9Does our activity require a licence in Italy?

In most cases, no. Most business activities start with an online notice to the local authority, through the municipal one-stop shop for businesses (SUAP), and not with a prior licence. Regulated sectors, such as financial services, insurance, health, food, energy, communications and certain professions, require a licence or registration with a dedicated regulator. Some transactions in strategic sectors, such as defence, energy, communications and certain technologies, may require notification to the Italian government under its powers to screen foreign investment. The specific requirement is checked before the activity begins.

10How do you open a bank account in Italy for an Israeli company's activity?

An Italian bank will ask for the Israeli company's documents, an up-to-date company extract, details of directors and ultimate beneficial owners, a description of the activity in Italy and documentation of the source of funds, translated and sometimes with an apostille. A separate account is opened for a branch and for a subsidiary. It is worth preparing the file in advance and expecting follow-up questions. Our guide to know-your-customer checks explains why these checks are required.

11What does the annual reporting calendar of an Italian subsidiary look like?

As of November 2026, according to PwC Tax Summaries and the Italian Civil Code, the financial statements are approved within 120 days of the year end and filed within 30 days of approval, and the IRES and IRAP returns are filed by the end of the tenth month. The table sets out the deadlines:

A branch of an Israeli company also keeps books and files tax returns on the profit attributed to it. In Israel, the parent company reports the holding in the subsidiary or the branch's profits, related-party transactions and dividends. Our guide to the Israeli side and our tax guide for Italy set out the obligations.

12What should you check before starting to operate in Italy?

First define the scope of the activity and the permanent establishment risk, and only then choose a structure and register. The recommended order:

1. Define exactly what will be done in Italy, by whom and from where, and examine whether a permanent establishment arises.
2. Choose between direct sales, a representative office, a branch and a subsidiary, according to the scale of the activity and the liability.
3. Check the VAT registration obligation and appoint a fiscal representative if required.
4. Check whether the sector requires a licence or notification to a regulator.
5. Before employing a worker: choose a collective agreement, register with the social security institutions and appoint a payroll consultant.
6. Draft contracts with governing law, jurisdiction and language clauses, and have onerous clauses signed separately.
7. Coordinate with an Israeli accountant the reporting in Israel and the pricing of transactions between the companies.

This guide is general information as of November 2026 and is not legal or tax advice, and every activity requires a specific review in Italy and in Israel.

More on doing business in Italy: Setting up a company in Italy · Corporate tax and transferring profits to Israel from Italy · Commercial disputes and litigation in Italy · Comparison of 8 countries · All guides for companies and businesses

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