R&d investment: why opening a representative office in Lombardy

Listed within the top 10 cities for investment project in Western Europe and mentioned as one of the preferred destination for investing in the real estate sector, Milan is an excellent business environment and a very dynamic city, particularly for R&D activities.

According to “Why invest in Milan” report, Milan ranks #2 in Europe in terms of the number of organizations that support innovation and for the relationship between scientific research and production. Milan area, with 11% of the total national innovative firms, is the leader for innovative entrepreneurship in Italy

Lombardy region has a long tradition in R&D activities, it is:

• first Italian region for number of employees in production, research and clinical trials
• first Italian region for investments in R&D activities: 5 billion Euro investments from private companies, which added to those from public sectors, lead to a percentage of 1.6 of regional GDP

Opening a representative office is the fastest way to get a market presence, especially if you invest in R&D actives. The representative office is often used during the initial stages of an overseas company’s establishment, providing a physical presence in the market place without the administrative requirements and typical commitments recurring for a registered company or branch office.

The representative office, could be a physical office, and serves as center for activities such as marketing promotional or R&D.

From an accountability point of view, the representative office is just a cost center, and due to his nature cannot absolutely produce any income. According to the OECD – Tax Model Convention to avoid double taxation – if an Italian office of a foreign company performs any business activities like selling goods, providing services, it is considered a permanent establishment (branch).

While a branch, as mentioned before, incurs in to more administrative duty (VAT number, bookkeeping, financial statement) a representative office does not have to apply for a VAT number and is not subject to separate accountancy and bookkeeping in Italy. The liability of representative office is related the parent company.

For specific information about how to open a representative office, check out our Invest in Lombardy Handbook for foreign investor.