IT Contracting in Italy - Money and Tax
Profile written by Matt Walters of Capital GES (Updated September 2016).
Italy is not a regular destination for contractors due to its relatively closed market on temporary labour. However there are still a number of companies within the IT, Telecoms and Oil and Gas industries that hire international contractors.
On arrival you should first apply for a Fiscal Code (Codice Fiscale), which is required for almost all paperwork in Italy as well as for tax purposes. If you are staying three months or more you will need to go to the local registry office (Anagrafe) to obtain a certificate of residency.
If you start out in temporary accommodation (i.e. for a few weeks) it would be better to delay registering until you have a permanent address, but then you should register within two weeks.
II. Taxation in Italy
The Italian tax year is the calendar year; taxpayers who derive taxable income in excess of certain limits must file an annual tax return between 1 May and 31 July of the year following the tax year (by 31 October if filing electronically).
Tax rates are banded between 23% and 43% dependant on income, but there are also additional regional (0.9 to 1.4%) and municipal (up to 0.5%) taxes.
Salaries and other employment remuneration are subject to a monthly withholding tax, later creditable against the individual's income tax liability. This system is effectively very similar to PAYE in many respects.
Italian tax allowances:
i. Spouse and child allowances
Tax credits of up to EUR 800 are available for dependant spouses and up to EUR 1120 for each child, however, in order to claim for the spouse and child allowances the contractor needs to obtain the Italian tax code (Codice Fiscale) for their spouses and dependent children, otherwise no deduction can be claimed.
Monthly withholding tax doesn't take any allowances into consideration; if applicable, this is done in the end-of-year tax return.
ii. Earned income credit
A tax credit of up to EUR 1'840 is available to taxpayers earning less than EUR 55'000 p.a..
iii. Credits for personal expenses
Tax credits equal to 19% are available for certain personal expenses, including certain medical-, insurance- and loan-related expenses, subject to various limitations and qualifying criteria.
III. Social Security
Social security must be paid on your salary in Italy unless your EU-based employer can detach you from another EU country by means of an E101 certificate.
Care must be taken here, and it is worth taking advice, as detachment by means of an E101 may not be the best solution in all cases due to either a) the duration of your intended stay in the country, b) the level of cover provided, or c) the cost of said contributions. It is also worth noting that, under the EU social charter, social security contributions made within an EU country will count towards your time stamp for the UK.
IV. Work permits
Italy does not apply any restrictions on the access to its labour market by citizens of other EU/EEA countries and Switzerland, except for citizens of the two most recent members Bulgaria and Romania. Depending on the industry sector they want to work in, Bulgarians and Romanians still need a work permit. They also need a residence permit from the local Questura.
Citizens of all other countries must go through a full registration and work permit process. A work permit can only be obtained if no suitable candidate can be found in Italy or another Member State of the EU or EEA.
Dependant on your personal circumstances, income and where you are contracting, you may be liable for additional tax in other countries where you are tax-resident (your home country, for example). Before taking any contract overseas, you should always seek professional advice from advisors with experience in the field of international and cross-border taxation.
Capital GES is an international payroll and contract-management company providing tailor-made tax planning services to contractors working overseas. For more detailed information on your personal situation, please contact Capital on +41 32 732 97 00.