Permanent Establishment in Italy for a Foreign Company: The 2026 Decision Guide

A foreign company can sell to Italian customers, send technicians or hire local staff without first incorporating an Italian subsidiary. But that does not decide whether the foreign company has an Italian stabile organizzazione (permanent establishment, or PE) for income tax. VAT presence is a separate question.

This guide states the position applicable on 27 October 2026. It goes deeper on PE than the separate guides to hiring employees, VAT on foreign-company sales and branch versus subsidiary.

The short answer

There are two principal routes to an Italian income-tax PE. One is a fixed place of business through which a non-resident enterprise carries on some or all of its activity: an office or workshop may be obvious, but a place used on a sustained basis can matter even without a sign on the door. The other is a dependent person in Italy who habitually concludes, or leads to the conclusion without material changes of, contracts for the foreign enterprise. Domestic article 162(2)(f-bis) also addresses a significant and continuous economic presence deliberately structured without apparent physical presence; its treaty treatment must be tested separately. Merely counting customers, sales or days a salesperson has spent in Italy will not settle these questions. Read article 162 of the existing income tax code (TUIR), at 27 October 2026 alongside the actual applicable tax treaty, not in isolation.

The calendar-year change matters: article 162 of Presidential Decree 917/1986 governs through 31 December 2026. Legislative Decree 117/2026, article 183 contains the reorganised PE definition applicable from 1 January 2027, by its article 377. Its paragraphs renumber several familiar rules, so this article gives both numbers where they differ. The new income-tax text is not a reason to apply 2027 numbering to a 2026 return.

A PE generally creates Italian income-tax accounting and reporting for profits attributable to that PE, not an automatic tax on all the group's Italian sales. The consequences also depend on residence, the treaty and whether there is a registered sede secondaria (secondary office or branch). Once a foreign company establishes an Italian secondary office with permanent representation, Civil Code article 2508, reproduced in the official Gazette's notes requires company-document disclosure for each such office. A factual tax PE is not itself proof of a VAT fixed establishment.

First separate the four questions

Identify the contracting company's tax residence, test its Italian activities under domestic PE law and any applicable treaty, then attribute profit to any PE. Separately test the VAT treatment of each transaction and whether local resources create a VAT fixed establishment. Employment and social-security obligations need their own analysis; payroll registration or a foreign employment contract does not decide PE.

A supplier can have an Italian VAT number for local goods but no income-tax PE. Conversely, a dependent salesperson can create income-tax PE risk without the resources needed for an Italian VAT establishment to intervene in a supply. The tax authority's VAT Answer 57/2023, pages 5–7, addresses the separate VAT test.

A fixed place: what is actually being done there?

Under article 162(1)–(2) TUIR (article 183(1)–(2) from 2027), a fixed place through which the foreign enterprise conducts all or part of its activity is a PE. Examples include a management office, branch, workshop and laboratory. Old paragraph 2(f-bis), new article 183(2)(g), also addresses a significant and continuous economic presence structured without apparent physical presence; it does not turn all online Italian revenue into a treaty PE.

An office regularly used by a sales team differs from customers buying remotely. Mere presence at a customer's premises does not automatically put them at the employer's disposal. Ask who controls the space, how routinely it is used and what work occurs there. Applying the statutory fixed-place test to a desk or customer site is fact-specific, with no safe number of visits.

Remote homes: neither automatic PE nor automatic immunity

The OECD's 2025 Article 5 Commentary update, paragraphs 44.1–44.21, addresses cross-border work from a home or other personal location. For the working arrangements in paragraph 44.1, a home used for less than 50% of total working time for that enterprise during any twelve-month period commencing or ending in the fiscal year concerned is generally not its place of business. At 50% or more, assess all circumstances, especially any commercial reason for working from Italy. But paragraph 44.20 calls for a different analysis when the person is the sole or primary operator of the enterprise; an owner-manager must not rely on the ordinary-worker illustration. This is interpretive Commentary, not an Italian statutory safe harbour.

Meeting local customers or suppliers may be such a commercial reason; permission to live in Italy solely to retain the employee is different. Occasional minor client contact or an Italian customer base alone does not settle it. Record working time, the location's purpose, customer interactions and contractual powers. The dependent-agent test can still apply when the home is not a fixed place. The hiring guide covers employer registrations.

The signed bilateral treaty controls: neither the OECD Model nor its Commentary replaces older treaty language. The 50% guidance concerns home-office fixed-place status, not the agent test, payroll, social security or VAT.

Agents: who makes the sale happen?

Article 162(6) TUIR (article 183(7) from 2027) reaches a person acting in Italy on behalf of a non-resident enterprise who habitually concludes contracts or acts toward their conclusion without substantial modification by the enterprise, where the contracts are in the enterprise's name, concern its property or rights to use property, or provide its services. The general exclusion for activities confined to exempt preparatory or auxiliary functions is not exhaustive of the specialised statutory exceptions addressed below. A foreign signature, head-office invoice or contractual ban on signing is not decisive if deal terms are routinely settled in Italy and merely accepted abroad.

The independence exception is in article 162(7) TUIR (article 183(8) from 2027). An independent agent acting in its ordinary business does not create a dependent-agent PE under that rule. But a person acting exclusively or almost exclusively for closely related enterprises is not treated as independent for those enterprises; closeness is defined in article 162(7-bis) (article 183(9) from 2027), including control and a more-than-50% ownership test or, for a company, more than 50% of both voting rights and share capital. An Italian subsidiary is therefore not automatically the parent's PE merely because the parent owns it; equally, setting up a subsidiary does not neutralise the parent's agent exposure if the subsidiary actually contracts for it. The treaty's own dependent-agent clause may be narrower: article 5(4) of the 1999 Italy–US convention speaks of an agent habitually exercising authority to conclude contracts in the name of the enterprise, rather than reproducing all the later domestic wording.

Sector-specific exceptions require their own review.

Qualifying investment-management arrangements have special independence rules in article 162(7-ter)–(7-quinquies) TUIR (article 183(10)–(12) and (15) from 2027); specified maritime agents and brokers have a distinct rule in article 162(8) (article 183(13) from 2027). This guide does not determine eligibility for either exception.

Document who sets prices, negotiates terms and approves deviations. An independent distributor reselling in its own name differs from someone arranging the foreign company's contracts, though either's premises may still need fixed-place analysis.

Storage, delivery and the auxiliary boundary

Article 162(4) TUIR (article 183(4) from 2027) lists facilities or stock used solely for storage, display or delivery of the enterprise's goods; stock solely for processing by another enterprise; and a place used only to buy goods or collect information. Under article 162(4-bis) (new 183(5)), each listed or combined activity must be preparatory or auxiliary. A warehouse label does not make core fulfilment auxiliary; stock at an unrelated provider without a place used to conduct the enterprise's business does not itself prove a fixed-place PE.

Article 162(5) (new 183(6)) prevents splitting complementary functions of one business operation at the same or different Italian places. The exemption can fail if a relevant place already constitutes a PE for the enterprise or a closely related enterprise, or the combined activity is not auxiliary. Assess a local sales team and related fulfilment together before claiming storage relief. VAT on Italian goods is separate; see the foreign-company VAT guide.

Treaties must be checked in their own words. The 1999 Italy–US treaty article 5(3)(a)–(d) lists storage, display and delivery, processing by another enterprise, and purchasing or information gathering as exclusions; its paragraph (e) expressly includes the preparatory-or-auxiliary qualification for advertising, information, research and similar activities. The domestic article 162(4-bis) qualification should not simply be copied into each treaty exception without analysing the treaty text and its interpretation. Under the treaty's article 7(1), Italian taxation of a US enterprise's ordinary business profits is limited to profits attributable to a treaty PE. This is a concrete example of why domestic law alone can overstate exposure.

Projects: three months is not a worldwide threshold

Under Italian article 162(3) TUIR (article 183(3) from 2027), a construction, assembly or installation site, or related supervision, constitutes a PE under this specific rule only when the project or activity lasts more than three months. A team installing machinery for a short project must still look at any other fixed-place or dependent-agent route; the project rule is not a three-month exemption for every kind of Italian activity.

A treaty may set a longer threshold. Article 5(2)(g) of the Italy–US treaty uses more than twelve months for a building site or construction or assembly project. A treaty-eligible US project exceeding three but not twelve months can meet the domestic site rule without meeting the treaty site rule, assuming no other treaty PE. This is not an initial tax-free window: the US Treasury's official explanation, article 5(2) states that if the treaty threshold is ultimately exceeded, the project PE exists from the first day of activity. Installation and supervision require examination of the treaty and protocol's own wording; other treaties can differ.

The US Treasury measures duration from when work, including preparatory work, physically begins in Italy; it counts a subcontractor's site time for the general contractor and addresses interruptions. Keep dated records; splitting invoices does not automatically split a commercially and geographically interdependent project. VAT and staff obligations need independent assessment.

Risk by scenario: prompts for a factual review

These are qualitative risk indicators, not legal conclusions or numerical probabilities. Each row presumes the foreign company has not already registered a branch and must be retested under its applicable treaty; other independent routes to a PE may coexist.

Scenario	Income-tax PE indication	The fact that changes the answer
Exports from abroad to Italian business customers; no Italian place or contracting agent	Lower on the described facts	Whether staff actually operate from a fixed Italian place or routinely bind the seller; VAT on sales is separate
Remote engineer at home in Italy solely by personal choice, without local commercial function or contract authority	Lower, not zero	Actual home-use pattern, commercial reason, whether the work is preparatory/auxiliary, and treaty wording (OECD 2025 Commentary)
Country salesperson in Italy habitually settling contracts, rubber-stamped abroad	High under domestic agent wording	Whether the agent is genuinely independent; the exact treaty agent clause and real contract process
Own Italian office used routinely for substantive sales or services	High under fixed-place wording	Who has the place and whether work there is the enterprise's activity, not only auxiliary
Third-party warehouse storing goods for delivery without the enterprise's own local place or people	Fact-dependent	Whether the place is at the enterprise's disposal; auxiliary character and other connected Italian activities
Owned or controlled fulfilment facility that performs a core operating function	High if a fixed place exists	Whether the activity is genuinely auxiliary under article 162(4-bis), and the treaty exclusion
Installation or construction project of four months by a US treaty-eligible company	Domestic site test met; treaty site test not met	Other treaty PE routes; whether the actual project fits article 5(2)(g); VAT and staff obligations remain separate

Changed contract authority or control of a place can reverse a row; reassess when the operating model changes.

Treaty priority and the MLI: what can actually be assumed?

Identify the company's tax residence and entitlement to a bilateral treaty; read its PE and business-profits provisions together. The OECD Model and 2025 Commentary guide interpretation but do not displace treaty text. The Italy–US agent and site clauses differ from domestic law. Without an applicable treaty, apply domestic law without importing US exceptions.

Italy signed the OECD multilateral instrument (MLI) on 7 June 2017. The OECD's 15 September 2026 table shows no deposited Italian ratification or entry-into-force date. Italy's MLI position is provisional at signature and reserves the entirety of article 12 (the expanded dependent-agent provision) out of its covered treaties. Do not treat signature as amending treaties or assume eventual ratification will import article 12. The status table predates 27 October: verify subsequent deposits and treaty-specific effective dates, and the matching choices of both partners.

Treaty relief does not cancel local labour or VAT obligations. Preserve treaty-eligibility evidence and dated records of projects, places and contract authority.

If there is a PE: profit, books and registration

Italian non-resident companies are subject to IRES on Italian-source income, and a PE's profit is measured separately. Under article 152 TUIR (article 150 from 2027), a dedicated rendiconto economico e patrimoniale (profit-and-loss and balance-sheet account) records profits and losses attributable to the PE using accounting principles for comparable Italian resident entities. For the tax period in progress on 31 December 2026 and subsequent periods, the account must acquire a legally certain date (data certa) by the deadline for the corresponding income-tax return, through timestamp validation or another legally suitable method; its data must appear in a dedicated schedule of that return. Article 19 of Legislative Decree 148/2026 inserted both requirements into current article 152 and new article 150. The PE is treated for attribution purposes as a separate and independent enterprise, taking account of functions, risks and assets, and head-office/PE internal dealings require an attribution analysis. It is not correct to apply the corporate rate to gross Italian invoicing or assign every Italian customer contract's profit to the branch.

The Agenzia delle Entrate confirms the ordinary IRES rate is 24%. This is a rate on the applicable taxable income, not a PE-specific turnover tax. IRAP is a different regional tax on net production value; the tax authority's 2026 IRAP instructions identify non-resident companies carrying on regional activity for at least three months through a PE and require a separate account to measure the PE's net production value. Do not mistake that IRAP three-month condition for the more-than-three-month construction-site definition, or automatically equate the IRAP base with IRES taxable profits. Which treaty covers IRAP can itself require care: the Italy–US treaty article 2(2)(b)(iii) includes only the part considered an income tax under its article 23(2)(c).

A genuine operating PE calls for Italian tax registration and income-tax and, where applicable, IRAP declarations. For the position on 27 October 2026, article 14(5) of Presidential Decree 600/1973 requires separate accounting of each PE's business events and annual results; the undated Normattiva page instead displays its 2027 repeal. A secondary office with permanent representation has separate disclosure requirements under Civil Code article 2508, reproduced by the official Gazette. A tax PE is not automatically a registered company-law office; counsel should check the actual filings.

When a PE is discovered, reconstruct when its factual conditions first arose; later registration does not rewrite earlier periods.

VAT: a different establishment, and a separate intervention test

For EU VAT, Implementing Regulation 282/2011 article 11 defines a fixed establishment by sufficient permanence and suitable human and technical resources, with different formulations for receiving and supplying services. Article 53 addresses whether the establishment's resources enable it to make a supply in which it intervenes: resources must actually be used for activities inherent in fulfilling the taxable supply before or during its execution; administrative support is insufficient. That test concerns VAT supplies and liability, not the profits attributable to an income-tax PE. Article 53(2) also creates a rebuttable presumption of intervention if the invoice is issued under the VAT identification number attributed by the Member State of the fixed establishment. Conversely, article 11(3) of the same Regulation says a VAT identification number alone is not sufficient to establish a fixed establishment. Document the resources actually used in each supply rather than treating either an Italian number or a non-Italian invoice heading as conclusive.

The Agenzia's Answer 57/2023 explicitly examines the substance of an Italian establishment's intervention and says contract signing on behalf of the foreign company or marketing/customer relations alone do not by themselves prove intervention in a particular goods supply. Berlin Chemie, C-333/20, likewise rejects mechanically treating a subsidiary's same resources as both providing and receiving the very same services. The question is not settled by which entity the group owns, a VAT registration, or the income-tax article 162 result.

For Italian B2B supplies, the tax authority explains that article 17(2) and (4) of Presidential Decree 633/1972 puts the VAT obligation on the established Italian customer when the non-resident supplies directly without the intervention of an Italian establishment, but not where the taxable supply is actually made through it. This is not a blanket reverse-charge rule for consumers or a substitute for identifying the place of supply. Italian stock can have its own VAT registration consequences absent either type of PE; use the dedicated foreign-company VAT guide for that transaction-level analysis. The separate VAT consolidation under Legislative Decree 10/2026, article 171 is scheduled to apply from 1 January 2027; this discussion uses 2026 VAT references.

What to do before choosing branch or subsidiary

Map the contracting entity, every Italian location and who uses it, staff duties and working patterns, authority over contracts, stock and project dates. Test domestic fixed-place, agent and site rules against the applicable treaty; then examine profit attribution, VAT and employment separately. Keep dated evidence and revise it when activities change.

A continuing direct Italian operation may require a registered sede secondaria and PE accounting. A separately incorporated SRL is not a cure for the parent's existing PE: retest its premises and agents. The branch-versus-subsidiary guide covers liability, registration and remittance. VAT or employer registration may be required even without an income-tax PE.

What this guide does not cover

This is not a determination for a specific taxpayer or a calculation of attributable profit. It does not analyse Italian corporate residence if management itself is in Italy, or perform VAT and payroll filings. Before acting, have an Italian tax professional check residence and treaty entitlement, treaty amendments, working and contracting facts, PE start date and profit attribution, IRAP, VAT resources and transactions, and registration and returns.

Primary sources

• Italian TUIR, article 162, version at 27 October 2026; Legislative Decree 117/2026, articles 183, 150 and 377; Legislative Decree 148/2026, article 19 amending both old article 152 and new article 150.
• Italy–US treaty, articles 2, 5 and 7 (US Treasury); US Treasury Technical Explanation, article 5(2), on project duration and first-day effect; OECD 2025 Commentary, paragraphs 44.1–44.21.
• OECD MLI signatories and parties, status 15 September 2026; Italy's provisional position at signature.
• Agenzia delle Entrate, corporate income tax, IRAP 2026 instructions and VAT Answer 57/2023.
• EU Implementing Regulation 282/2011, articles 11 and 53; CJEU Berlin Chemie, C-333/20.
• Legislative Decree 10/2026, VAT consolidation, article 171 (applicability 1 January 2027).
• DPR 600/1973, article 14, version applicable on 27 October 2026; Civil Code article 2508, reproduced in official GU notes.

Frequently asked questions

Can Italian sales be made without a permanent establishment?

Yes: customer location alone does not meet article 162's fixed-place or dependent-agent tests, nor does revenue alone prove the separate significant-and-continuous-economic-presence limb in paragraph 2(f-bis). Examine the actual places, people and projects, apply any available treaty, and separately determine VAT on the transactions.

Does one home-based Italian employee automatically create a PE?

No. The OECD's below-50% guidance generally applies to ordinary cross-border working arrangements, not automatically to a sole or primary owner-operator. At or above that share, the commercial reason and other facts matter. Neither answer decides the agent test or employment duties.

Is a warehouse always exempt, and is a project always safe for its first three months?

Neither is safe. Domestic article 162(4-bis) conditions the warehouse exceptions on preparatory or auxiliary activity, subject to anti-fragmentation. Domestic projects use more than three months, while specified Italy–US treaty projects use more than twelve months. If that treaty threshold is eventually exceeded, the project PE runs from its first day of activity, not only month thirteen; other PE routes remain possible.

If an income-tax PE exists, must the business charge Italian VAT itself?

Not on that fact alone. VAT requires a separate establishment and transaction-level intervention analysis under articles 11 and 53 of Regulation 282/2011 and the rules on who owes tax. Determine the place of supply and customer's status before deciding which party invoices with VAT or reverse charges.

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