Contractor's guide to contracting in Italy
Moving south from our previous temporary work stop in the Czech Republic to the Mediterranean, we turn our attention to Italy, one of the most culturally-rich countries in the world, famed for its history and lifestyle. But its contracting too? asks Nikolas Papageorgiou of overseas contracting advisory Access Financial.
Well despite its many appeals as a place to live, Italy is not often considered a top destination for career advancement. Many young, educated Italians are leaving the country for better work prospects, while foreigners in Italy are far more likely to move here for lifestyle or love than for a fatter pay cheque.
That said, Italy remains the world’s ninth biggest economy and has a high standard of living. Its economic structure relies mainly on services and manufacturing. The services sector accounts for almost three quarters of total GDP and employs around 65% of the country’s total workforce. Unemployment is high, in part due to restrictive labour laws, but this has the effect of creating opportunities for contractors, when organisations have short-term needs and are reluctant to add to the permanent headcount with its associated costs.
What are the benefits of working as a self-employed person in Italy?
- Great cultural environment
- Pleasant climate
- Relatively cheaper accommodation costs (versus other European countries)
- A thriving and diverse social scene, particularly in Milan and Rome
What about take-home pay if I contract in Italy?
The net retention of a self-employed professional in Italy varies between 55% and 65%, depending on the regime, whereas the net retention of an employed person is maximum 40%.
What are the levels of taxation in Italy?
Self-employed contractors’ income is taxed progressively. It is subject to the following three type of income taxes in Italy:
- National income tax
- Regional income tax
- Municipal income tax
National Income tax
| Taxable Income Bracket (in EUR) | Percentage |
|---|---|
| 0 - 15,000 | 23 |
| 15,001 - 28,000 | 27 |
| 28,001 - 55,000 | 38 |
| 55,001 - 75,000 | 41 |
| 75,001 + | 43 |
Regional Income Tax
The Regional Income tax on productive activities is charged at the rate of 2.63% of taxable income. All contractors who are registered for VAT purposes will have to pay this tax.
Municipal Income Tax
The Municipal Income tax rate depends on the municipality of residence of the self-employed person. The municipal income tax rate varies from 0% to 0.9%. (it is 0.8% in Milan for example)
Value Added Tax
The standard VAT (“IVA”) rate is 22%. VAT returns and payments are submitted monthly.
Can I pay my taxes back at home if I reside in Italy for less than 183 days?
If you work in Italy for up to 183 days in a year, then you are non-resident for tax purposes and subject to tax only on income from Italian sources.
If you have a permanent home (residential address) in the country, then you are an Italian resident even if you stay for less than 183 days in Italy.
What are Italy’s social security requirements?
A self-employed person must pay social security contributions which cover health, occupational disability, old-age pension and unemployment insurance. The contribution basis for self-employed social security contributions is calculated on the contractor’s taxable income.
Self-employed workers must register with INPS (“Instituto Nazionale della Previdenza Sociale”) for social security purposes.
Note: Even if a contractor has private health insurance, he/she must contribute towards INPS.
Bank Account
It is mandatory for all contractors coming to work in Italy to open an Italian bank account.
How do I register locally as a self-employed person in Italy?
Residence Registration (PERMESSO DI SOGGIORNO)
EU/ EEA citizens who wish to work in Italy, do not require a residence permit. However, if they decide to stay for more than three months then they must register with their local population registry office (“Anagrafe”) within three months of their arrival in Italy. To do so, they need to provide the following:
- Proof of identity
- Evidence of self-employment
The residence permit is valid for two years in the case of self-employment. The contractor should re-new the permit 90 days before its expiry date.
If a person is legally and continuously resident in Italy for five years, he/she is entitled to apply for a permanent residence card ("Carta di Soggiorno") which is known as EC residence permit for long-term residents.
What tax credits can I get in Italy?
Impatriate Regime
Starting from the fiscal year 2017 until fiscal year 2020, the inbound expatriate regime reduces the taxable base to 50 per cent for eligible inbound expats. The benefits will last until fiscal year 2020 starting with the year (between 2017 to 2020), in which the individual becomes an Italian tax resident.
The regime is applicable to EU citizens and to citizens from countries with which Italy has a double taxation treaty or an information exchange agreement, which includes the UK.
Eligibility/Conditions:
- Have been Italian tax non-resident for five fiscal years prior to arrival;
- Qualify as Italian tax resident for the two years following arrival;
- Perform a self-employed activity in Italy for more than 183 days in each tax year that the special regime is operated;
- The work activity must be carried out mainly in Italy;
- The self-employed person must hold a university degree and meet at least one of the below mentioned additional criteria:
- Has carried out any business/employment activity outside Italy during last 24 months.
- Has studied abroad and obtained a university degree or PG master’s degree during the last 24 months prior to arrival.
If the contractor does not meet the above criteria, he/she will lose the tax benefit retroactively and penalties and interest will apply. The tax benefit can be realised on a deferred basis by claiming the reduction through the Italian tax return.
Self-employed contractors are allowed the following tax credit, which is offset against taxable income:
| Non-employment Income (in EUR) | Tax Credit Amount (in EUR) |
|---|---|
| 0 - 4,800 | EUR 1,104 |
| 4,801 - 55,000 | EUR 1,104 is the maximum annual amount allowed which decreases with the increase of the taxable income up to EUR 55,000 of taxable income |
| 55,001 | EUR 0 |
The above income tax credits will be proportioned to the days of work during the tax year.
What expenses can the self-employed claim when working in Italy?
According to Italian tax rules, expenses related to conducting business as a self-employed person can be considered, fully or partially, as tax allowable expenses.
As a self-employed professional, you may also benefit from the following costs as tax-deductible expenses:
- Housing costs for your self-employment activity (mortgage interest, rent, heating, etc.) are deductible, if they are necessary for the exercise of your professional activity.
Note: For premises of mixed character, a percentage is determined between the professional and private use. This percentage applies to all housing costs.
- Legal costs
- Banking costs
- Seminars in your field of expertise
- Purchase of books related to your profession
- Interest cost of financing a car for professional activity
- Office equipment and materials
- Social security contributions
- Contributions to a private pension
- Marketing expenses
- Professional Insurances
Can I just use my own limited company to work in Italy?
It is possible to use your own Personal Service Company (PSC) in the Italy. However, the strict practice of creating a permanent establishment by a foreign PSC, and the Italian tax authority’s resistance to this method of working by foreign workers, means that for most foreigners this is a bureaucratic and not very financially-rewarding route to take.
What about employment in Italy?
In this case, the contractor will be locally employed via an umbrella company and will pay his/her social security and salary taxes in the country. Employment laws must be obeyed, and the contractor will be liable for both employer’s and employee’s social security contributions, which breaks down as follows:
- 30.38% for employers on gross salary.
- 9.43% for employees on gross salary.
Additional Social Security for Employees at Quadro (similar to a Supervisor) or Manager Position
- Iscrizione fondo QUAS: The employer is required to pay a once-off subscription or registration fee of EUR 350,00. The annual contribution to be paid by the employer is EUR 350,00 per employee and the employee has to pay an annual contribution of EUR 56,00.
- Iscrizione fondo QUADRIFOR: Annual contribution to be paid by the employer is EUR 50,00 and EUR 25,00 by the employee.
Both QUAS and QUADRIFOR are paid at every three months (quarterly), only if the employee is working.
Worker’s Compensation Insurance
In addition, the employer is required to contribute to the mandatory Workers’ Compensation Insurance (“INAIL”). The premium rate depends upon the nature of job and the risk associated with it.
For someone sitting in the office and working on computer, the premium rate is 1% of the gross salary. The insurance premium is paid annually, in advance at the beginning of each year on pre-assumed remuneration and then the final premium has to be paid by February 16th of the following year, based on total remuneration paid during the previous year. As a result, the net retention drops to around 40%, making this a relatively unattractive solution.
Know before you go…
Italy may not be the most obvious choice for UK contractors. The economy has been plagued by low growth for many years and taxes are high, even by continental European standards. Despite this, Italy retains a huge appeal for overseas workers who are attracted by la dolce vita -- the climate, cuisine, culture and history. For many contractors these intangible benefits more than outweigh the comparatively lower pay and higher taxes than other major European economies.
