Working as an Employee from Italian Soil
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-or home-working, data protection/privacy access to training, collective rights (e.g. no obstacles to communicating with worker’s representatives) and worked holidays.
For example Italian law (81/2017) contains the framework for “flexible” working (remote or home working). This law requires:
- a written individual agreement
- signed by both parties
- specific mandatory clauses (duration, alternation between office/remote, right to disconnect, equipment, controls, safety, etc.)
- retention of the of the terms or remote working/the agreement for a five year period
- communication to the Ministry of Labour via an online portal.
While law 81/2017 sets the general legal framework, it explicitly allows the terms of collective bargaining agreements (CCNLs) and company‑level agreements to introduce additional rules on smart working.
The rules in a CCNL may be binding even if an employee who is working from Italian soil, is not hired explicitly pursuant to the terms of an applicable CCNL and if the terms of the CCNL are considered as “minimum standards” under applicable legislation.
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 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 always 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, under a national collective labour agreement, such as additional unemployment benefits, life and health insurance plans.
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 or employers place of business. Exceptions may exist, e.g.
- an applicable international social-security agreement, provides otherwise, or
- 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.
The PE (permanent establishment)
The PE risk
However the hire is arranged, a foreign employer with an employee in Italy, needs to consider whether the activities carried on by the employee in Italy create a corporate income tax liability on the profit attributable those activities. Foreign corporations with a “permanent establishment” (PE) or fixed base in Italy need to register for taxes – including corporate income taxes, VAT, and payroll withholding tax.
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 (DTA) for the avoidance of double taxation. For more information on the PE issue read this post.
Recent OECD moves to tackle the cross border working – PE issue
In November 2025 the OECD issued a substantial update to the Model Convention Commentary dealing specifically with cross-border remote work. The OECD chose to amend the Commentary rather than Article 5 itself.
The most significant practical developments are:
A. A 50% working-time indicator
The Commentary indicates that where a worker uses a home office or similar location in another country for less than 50% of total working time during a 12‑month period, that location will generally not constitute a fixed place of business (PE) of the employer.
B. Commercial reason test
Even where the 50% threshold is exceeded, a PE does not automatically arise.
The OECD says it is necessary to examine whether the employee’s presence in that location serves a genuine commercial purpose of the enterprise. Where the remote working arrangement mainly reflects personal employee choice, a PE may still not exist.
These updates are designed to reduce scope for tax authorities claiming the presence of a “micro-PE ” in circumstances where, for example an Italian resident works from Tuscany for a London employer.
The Italian authorities can argue that part of the employer’s business was being carried on through that home office.
The OECD’s recent guidance is intended to reduce that uncertainty.
However an amendment to the commentary does not alter the terms of the Treaty itself, nor has Italy adopted any change to its domestic definition of PE. Italian tax officers are willing generally to take OECD guidance into consideration, but do not feel that such guidance is binding.
Whether the employee’s presence in Italy constitutes a PE or not will thus generally be considered according to standard PE factors – the employees role and functions within the employer business, powers to bind the employer to contracts for sale/purchase of goods or services, etc.
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. An Italian tax resident will generally be entitled to a tax credit for all or part of the non Italian tax, to the extent that the employee has no right of refund under a treaty or under domestic tax rules.
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, as long as the employer doe not have, or is not deemed to have a permanent establishment (PE, see below) in Italy. 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 PE 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 an Italian payroll, even if the employer does not have a PE in Italy. This can introduce complexity due to the registrations necessary to contact with a payroll provider and the consequent registrations.
Remote Working – Double Taxation
Working in Italy for a foreign employer presents presents considerable scope for double taxation of the same earnings, especially for the unprepared.
Most of Italy’s double tax treaties do not deal specifically with remote working, as they were drafted and ratified in an era before the widespread remote working.
This can lead in some circumstances to the country of the employer seeking tax on employment income simply by reason of, for example, the mere existence of the contract of employment. Italy as country of residence may consider that as the Treaty only allows the employer country to tax income from employment to the extent that the work is carried out in that country, no foreign tax can be admitted for offset against Italian tax.
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).
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
List of Italy’s Social Security Treaties with links
The EU-UK Trade and Cooperation Agreement
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 would help from our experts on these issues, please get in touch here.