Working as an employee full time in Italy
If you are in Italy and thinking of working for an employer or client outside Italy, the legal, tax and social security ramifications can be complex.
Liability of the employer to Italian social security
If you’re resident in Italy and hired as an employee of a non Italian employer, then your employer will likely need to register as an employer (via a social security representative) in order to pay the social security contributions. Under Italian law social security is due based on where the employment is carried out. Exemption from the Italian charge for the bulk of the contributions may be available e.g.
However any exemption is conditional on your proving that you are paying contributions elsewhere, and, depending on the circumstances, reduced Italian social security contributions may in any event be due by your employer.
Application of Italian employment law
You will need to evaluate whether Italian employment law applies to the work you will be doing as an employee in Italy – and especially whether TFR
Liability to withhold tax at source
The employee typically pays his or her Italian taxes, via a personal income tax return in Italy – Italy generally has the right to tax the income if the work is carried out in Italy, but it is possible to arrange matters so that your employer withholds income tax at source via your payslip.
The alternatives – independent contractor
If you are hired as an independent contractor, then you (and not your employer) need to register the start of your activity in Italy and you will be liable to account for Italian tax and social security charges (unless you can opt to remain in a foreign social security system). There are number of options for the way that you set up as an independent contractor – one interesting option is the flat rate tax regime for the self employed.
But simply converting the contract from one of employment to self-employment may create problems later on. The Italian authorities are alert to relationships of subordinate employment being superficially called sub-contracting relationships.
The PE issue
However the hire is arranged, the foreign company 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.
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