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 in Italy, the legal, tax and social security ramifications can be complex.

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/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, sometimes, choice.

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.

Apart from pension and healthcare contributions employers with staff in Italy need to make payment of premiums for statutory insurance covering accidents at work, and possibly, provide additional welfare/life insurance  contributions.

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 minimum wage, minimum notice periods, maximum probation periods, maternity/paternity benefits,  remuneration for sickness, remote-working, data protection and worked holidays.

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, as long as the employer has no permanent establishment (PE, see below) in Italy.  However 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. 

 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

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