Italy is a culturally rich country, with a reasonable cost of living compared to other European countries, so it may be a good destination for international contractors. It is the ninth-largest economy in the world, and skilled workers are always needed.
In addition, there are some excellent tax incentives for new residents contracting in Italy for at least two years. This guide will familiarize you with those rules, as well as work permits, methods of payments, and tax filing.
Do I need a visa to be a contractor in Italy?
EU citizens can enter and work in Italy without a visa, but after 90 days, you must register for a residence permit.
Non-EU citizens will need a work visa in Italy, and there is a special type called the Italy Self-Employment Visa (or freelancer visa). It is valid for two years initially and must be applied for outside of Italy in your home country.
The application process is lengthy and requirements numerous, so you may need some type of assistance to complete it. Also, there is a finite period of a few months each year when applications are accepted. If you miss it you have to wait until the following year.
There is also a quota (limitation) on how many visas can be issued each year. In 2019, it was only 2400 total. But it does avoid the typical requirement to have an Italian corporate sponsor.
How do I get paid as a contractor in Italy?
There are three basic choices to work and get paid as a contractor in Italy. Using your own foreign limited company is not favoured in Italy, so that is not a recommended option.
Work as a freelancer in Italy
Given the strict visa rules for freelancers already discussed, it may not be the best option for non-EU citizens. EU citizens will have an easier time of it and can benefit from the ability to deduct expenses from their contracting income.
Set up your own limited company
It is possible to set up your own limited company in Italy, and then lease yourself out as an ‘employee’. Due to the filing and registration requirements, this option is best for contractors planning a long stay in Italy and who have done this before.
Use an umbrella company in Italy
If you use an umbrella company, they will act as a third party between you and your clients, withholding taxes, making contributions, and issuing regular payments to you. That way, you don’t have to worry about getting paid on time, or dealing with all the Italian tax rules on your own.
As you will learn, the tax rules and social security schemes are complex, and it might be important to have an umbrella company to help you stay in compliance. An umbrella company can also sponsor work permits for non-EU citizens contracting in Italy.
Do the 13th and 14th-month pay apply to contractors?
The payroll for employees in Italy is divided into 14 equal parts for the year, with the two additional payments being made in December and July. This payment structure would not typically apply to a contractor whose payments are irregular and not based on an annual salary. The exception might be where you are ‘employing’ yourself through an Italian limited company, but there is no net effect on income.
How do taxes work for contractors in Italy?
Tax rates range from 23% to 43% depending on income level, and there is no tax-free threshold as in many countries, meaning that at least 23% will be deducted from any net compensation. Regional taxes range from 1.23% to 3.33%.
How do I file taxes in Italy?
Step 1: Firstly, obtain a PIN online
Request a PIN to access Fisconline. You will receive the first part (4 digits) of the PIN online. The second part of the PIN (6 digits) will be sent to you by post within 15 days.
You will be required to enter the following data:
- Fiscal code (as shown on your Codice Fiscale or Italian tax code card)
- Type of declaration e.g. 730
- How do you intend to file taxes e.g. Telematic Services (online), Revenue Office, or Post Office
- Total income declared (in Euros, without decimal points)
Step 2: Access Fisconline
After obtaining a PIN, you can access Fisconline online. To log in, you need your Username (fiscal code), Password, and PIN.
Step 3: Download the ‘Telematic Desktop’
The ‘Telematic Desktop’ is an application that allows you to view documents, enter data, and file taxes. You can download it from the Agenzia Entrate website.
Step 4: Last but not least, file taxes via the ‘Telematic Desktop’
Use the ‘Prepara file’ function under ‘Documenti, to prepare data on your tax obligations. Comprehensive instructions can be found on the Agenzia Entrate website.
It is recommended that you consult an Italian translator as the instructions and software are in Italian.
What is the tax residency rule in Italy?
Italy uses the 183-day rule to determine tax residency, and any stays beyond that will mean that worldwide income is taxed. To avoid this, a contractor will have to limit their time to less than six months a year, or rely on a tax treaty to avoid double taxation in the home country. Non-residents only pay tax on Italy-sourced income.
What is the ‘impatriate regime’ and how does it work?
The impatriate regime is a tax incentive for foreign workers, including self-employed, who are new residents. It exempts 70% of income from the normal tax rates (or 90% if the ex-pat relocates to Southern Italy) and lasts for five years. This is a helpful program considering that Italian taxes are imposed from the first Euro of net earnings.
The requirements are:
- The worker has been a resident outside of Italy during the previous two years (new resident)
- There is also a commitment to reside in Italy for two years (or the government will recover the exempted amounts)
- The work is performed on Italian territory (it’s not clear if working remotely for a non-Italian client would qualify)
What are the social security obligations for contractors in Italy?
For self-employed contractors, there is a ‘separate special social security regime’ in Italy, where the client withholds and pays to the government both the ‘employer’s and the contractor’s share. There are two systems, depending on the type of self-employment:
- If the worker is deemed a ‘collaborator’ (non-VAT number holder, with a certain type of contract), the rate is over 34%, one-third paid by the contractor (11%), and two-thirds by the client (23%).
- Non-collaborator contractors who are VAT-registered, pay the entire rate of 25.72%, and those covered by other compulsory social security schemes pay 24%. That is quite a difference, so it pays to qualify as a collaborator, and most freelancers will fit that definition as non-VAT number holders.
How does Contractor Taxation help with contracting in Italy?
If you are new to contracting in Italy, using an umbrella company can make your work and payments flow smoothly, as the umbrella company takes on all the administrative tasks. Contractor Taxation has a network of umbrella companies that we are confident can meet the needs of international contractors, and we provide referrals and introductions to get the process started.
Furthermore, the benefits of using an umbrella company include:
- Handles all client payments, tax withholding, and any social contributions
- Issues you a payslip each month, to an Italian or foreign account
- Sponsors work permits for non-EU citizens
- Helps set up the Italian contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
If you consider the prospect of handling all of this on your own, using an umbrella company is a compelling option for a reasonable fee. Please contact us if you are considering contracting in Italy and would like assistance from one of our partners.