Working in Italy as an Employee of a Foreign Company

Working as an employee full time in Italy

If you are an employer outside Italy and thinking of hiring an employee who will be working from Italy, the legal, tax and social security ramifications can be complex.
 
If you are an employee thinking of working remotely for a non Italian employer then the first step is to discuss the position with your employer. How the employer decides to structure the working arrangements in line with the following considerations of this article, will determine how you are going to comply with your Italian tax obligations.
 
Planning and necessary actions must be  undertaken before the move and before starting work from Italian soil. It is for example, often difficult in an Italian context to “backdate” applications to the authorities, at least without the application of penalties.  Timescales to gather and execute/legalise  documents necessary for registrations can be lengthy. 

Liability of the employer to Italian social security

If the employee is resident in Italy and/or working for a substantial part of their time from Italian soil as an employee of a non Italian employer, then the employer will likely need to register as such  (via a representative office and legally appointed social security representative) in order to pay the social security contributions. Under Italian law social security is due based, by default,  on where the employment is carried out.  Exemption from the Italian charge for all or some of the contributions may be available  e.g.
  • under EU rules if the employee is a posted worker, or working and living in different EU countries);
  • under the EU  Framework Agreement on cases of habitual cross-border telework (remote work)  for individuals who work less than 50% of the time in the country of residence , spending the majority of their working time in the country where their employer is established.
  • under a specific bilateral agreement  (e.g. the U.S./Italy Social Security Agreement)
  • the terms of the Protocol on Social Security Coordination under the UK/(EU Withdrawal Agreement and the EU Trade and Cooperation Agreement and possibly the UK/Italy social security treaty 

depending on nationality, the facts and circumstances

However any exemption is generally conditional on proving that the employee pays contributions elsewhere, and, depending on the circumstances, Italian social security and/or healthcare contributions or taxes may in any event be due by the employer.

Management level workers may be entitled to additional welfare benefits   work, such as additional unemployment benefits, life and health insurance  schemes.

INAIL: Compulsory Insurance for Workplace Accidents and Occupational Diseases

 

General Rule

As a general rule all  employers must insure their workers with INAIL (the Italian Institute for Workplace Insurance) if the employment relationship arises in Italy or the work is performed in Italy, regardless of the workers’ nationality. Exceptions may exist, e.g. (i) an applicable international social-security agreement, provides otherwise,  or (ii) under EU regulations relating to  the posted worker or remote worker regimes, that places insurance elsewhere.  Given the penalties for failure to insure,  which can extend to criminal penalties,  a decision not to insure an employee should always be taken on the basis of specific professional advice to the effect that  an exemption applies, and that coverage under alternative insurance arrangements, which meet the minimum standards under EU/Italian law, is in place.

If a non Italian resident employer does not have a registered branch in Italy, they  must appoint a legal representative in Italy, via a legalised power of attorney, to handle INAIL registration, classification of risk category, premium calculations, declarations, and payment deadlines.  Typically this will be the same person who is appointed to handle social security matters.

Possible Exceptions

  • International agreements. If a social-security convention exists between Italy and the employer’s (or employee’s) country, it may alter or displace the INAIL obligation for the period and circumstances covered by the agreement.

  • Posting (secondment  – distacco). EU and Italian posted worker rules create specific exceptions in defined cases, potentially keeping coverage under the home-country scheme when the legal conditions are met and properly documented.

  • EU Remote working arrangements  Specific EU wide arrangements  may create specific exceptions in defined cases, potentially keeping coverage under the home-country scheme, possibly subject to extra insurance for remote workers,  when the legal conditions are met and properly documented.  Additional insurance /premiums may be required for remote workers.  Remote or tele-working is an evolving area of law.  

Application of Italian employment law

The parties will need to evaluate whether Italian employment law applies to the employee/employer relationship – and especially whether TFR is due.   Even if the parties agree to apply a law other than Italian law to the contract of employment they need to be aware that certain mandatory terms of Italian employment law may apply anyway to the contract by operation of law.  Examples of these terms are: the provisions governing employment conditions, minimum wage, minimum notice periods, maximum probation periods, maternity/paternity benefits,  remuneration for sickness, health and safety rules, remote-working, data protection/privacy  access to training, collective rights (e.g. no obstacles  to communicating with worker’s representatives) and worked holidays.

Income Taxes

Obligation to withhold tax at source

Under Italian law the income from employment carried out mainly in Italy is generally liable to Italian tax regardless of whether the employee is tax resident in Italy or not. Where the remuneration is received from a non-Italian employer, Italy’s double tax treaties usually provide that the income is taxable only only in the country of residence of the employee, unless the work is carried out in the other country.   If the work is performed or partially performed in the other country, then it may also be taxable there (and if the employee is resident in Italy, they will be entitled to a tax credit for all or part of the non Italian tax).   
In contrast to the rules governing social security contributions there is not necessarily an absolute legal obligation for a foreign employer to make withholding of income taxes via an Italian payroll. An employee is allowed to pay his or her Italian taxes, via an annual personal income tax return in Italy, but only as long as the employer has no permanent establishment (PE, see below) in Italy.
And since the question of whether the employer has a PE in Italy is a question to be determined on the basis of the facts and circumstances, failure to withhold income tax at source from the outset, can lead to a significant assessment to tax and penalties for failure to withhold spanning several open tax years.  A tax assessment in these circumstances can involve treating payments of salary to the employee as net amounts such that the tax liability is based on a salary based on the grossed-up of the net payments.  It is possible to arrange matters so that the employer withholds income tax at source via the payroll, even if the employer does not have a PE in Italy. 

Double Taxation

Working in Italy for a foreign employer presents presents considerable scope for double taxation of the same earnings, especially for the unprepared.  At the very least it presents scope for paying tax twice on the same earnings, and experiencing delays in  obtaining refund of tax, possibly after a tussle between two sets of tax authorities each claiming tax on earnings. .  
Ahead of the move you should consider the applicable rules and steps to be taken to enable your employer to cease withholding tax and accounting for the social security (to the extent possible within the rules). 

 The PE (permanent establishment) issue

However the hire is arranged, a foreign employer with an employee in Italy, needs to consider whether its activities in Italy create a corporate income tax liability on the profit attributable those activities. Foreign corporations with a “permanent establishment” or fixed base in Italy need to register for taxes. Determining whether a certain activity constitutes a permanent establishment is generally a question for a professional as it involves a technical examination of the domestic legislation and interaction with the relevant treaty for the avoidance of double taxation.  For more information on the PE issue read this post.
 
If you would help from our experts on PE issues, please get in touch here.

Hiring through a staff agency or employer of record


Recent years have seen a growth in  businesses – both at international and local level – offering to hire an Italian employee, manage all of the payroll, tax and social security compliance, recharging the cost with a mark-up. These businesses can offer a cost effective and flexible alternative to hiring an employee directly.


If you are thinking of hiring an employee in Italy, or moving someone who already works for you to Italy and would like to speak to a specialist, please click here.

Peoitaly

Further Reading

INPS Guidance on obligations for foreign employers (Italian or foreign) operating on Italian territory –  contributions must be paid in Italy according to the standard rules

INPS Service page  for registration of company as employer 

INAIL Guidance

EU Regulation 883/2004

List of Italy’s Social Security Treaties with links

The EU-UK Trade and Cooperation Agreement

 
 

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