Working From Italy For a Foreign Employer. Is It (Legally) Possible?

At Expatax, our mission is to simplify and clarify tax matters for expats and retirees heading to Italy. For all those that have been wondering if they can work in Italy as digital nomads while employed by a foreign employer (e.g. a US expat working remotely in Italy for a US company), the legality of their employment contract will inevitably show up as a stumbling block. Working from Italy for a foreign employer can be tricky and, in some cases, can take a lot of convincing your bosses abroad that you're really worth all the paperwork you're putting them through.

Today's subject, the Employer of Record (EOR), is a solution many foreign companies are turning to when hiring remote Italian workers. This arrangement sees the EOR taking on all legal responsibilities tied to employment, such as salary management, social security, and tax compliance, freeing up companies to focus on their core business. Still have questions after reading? Our TAX AI at the end of the article is available for additional queries.

Responsibilities of an Employer of Record

Cutting to the chase, working as a remote employee in Italy while being employed by a foreign employer is shaky legal ground at best. While it is not technically impossible for a foreign employer to employ an Italian-resident remote employee, there is a strong presumption that the local employee may form a "permanent establishment" for the employer in that country - in other words, that the foreign employer may be skirting the law by having a worker in Italy employed remotely instead of opening an office. Several such cases have been taken to court by the tax authorities and, although not all have been decided against the remote employer, is a significant risk. For instance, in a recently decided case, a Czech employer was found to be skirting the law by employing a remote worker in Italy, working from home in a sales role.

More recently still, we have seen the case of a Maltese firm shutting down its Italian office and proposing Italian-based workers to move to a remote contract. This is just begging for trouble with the Italian taxman. Of course, asking a foreign company to set up a branch in Italy to employ one or two people is a big ask. So how to expats and digital nomads get around this requirement?

Two are the customary solutions: one is to set up shop as self-employed and merely invoice the foreign company from Italy. This is by far the easiest (and there a good tax breaks if you do so). However, you won't be, strictly speaking, an employee, which means no paid holidays, no employee-sponsored healthcare (though you'll of course benefit from public healthcare if you pay social contributions in Italy), and no severance if your employer lets you go.

Many employers turn therefore to an Employer of Record, an Italian company "acting as" your Italian employer. The benefits of using an EOR can be vast. Chief among the responsibilities shouldered by the EOR are personnel management, legal compliance, risk minimisation, and cost reduction. Further, an EOR provides the flexibility needed to hire international workers quickly, without the need to establish a local legal presence.

Weighing the Pros and Cons of an EOR

While the EOR can provide numerous positives such as savings in time and resources, ensured legal compliance, and cost reduction, it's critical to consider potential downsides. One potential pitfall is the additional costs. While an EOR can reduce employment-related costs, the fees for their services might make direct hiring a more cost-effective solution. We're generally talking about several hundred euro per employee per month as a "service fee" charged by the EOR. Another negative can be a loss in control over employee management.

The Employee's Perspective on EORs

From the employee side, being hired under an EOR indicates a solid employment contract with a designated Italian company. All fiscal and social security requirements are taken care of by the EOR, giving workers peace of mind when it comes to timely salary payment and legal benefits. However, workers must keep in mind that the non-resident company remains their "actual" employer.

Company Benefits of EOR Employment

From a corporate perspective, utilising an EOR can bring substantial economic advantages. The arduous process of setting up a foreign office or obtaining a work permit is left to the EOR, allowing the company to focus more on business expansion and less on bureaucracy. However, choosing an EOR with the desired expertise in local labour laws and regulations is vital for the smooth functioning of international operations.

In Conclusion: EOR—A Matter of Choice and Trust

EORs are increasingly popular among companies looking to manage a global workforce or expand internationally. They offer many advantages, such as legal compliance, saving time and resources, and cost reduction. However, companies need to carefully choose an EOR that can assure efficient personnel management and compliance with local employment regulations.