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Tax treatment of the employment income received by a non-resident working from home in Italy

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In response No. 626 of the Italian Revenue Agency published on 27 September 2021, clarifications were provided regarding the tax treatment of employment income received by a non-resident who, due to the epidemiological emergency, has been working in Italy and in smart working for a foreign company.

Applicability of double taxation

The employment income produced by an Italian citizen who is resident abroad and who, due to the Covid emergency, has worked in Italy in home office for more than 183 days must be taxed in both countries and the double taxation will be resolved by recognizing the tax credit in the foreign State.

Article 3 paragraph 1 of the TUIR provides that the taxation of non-residents for those income produced in the Italian territory. These are identified in accordance with Article 23 paragraph 1 letter c) of the TUIR in which it is established that they are considered products in Italy “employment income carried out in the territory of the State”. It is also necessary to consider what it is stated in Article 15 of the Double Taxation Convention between Italy and the foreign State in which it is provided that the exclusive taxation for employment compensations is in the State of residence unless the activity is carried out in the other State; In this case, the income is taxed in both States.

The importance of identifying the place of work

The Italian Revenue Agency also underlined the importance of identifying the place of the performance of work, especially when it is carried out in home office. Article 15, paragraph 1, of the OECD Model states that in order to identify the country in which the work is deemed to have been carried out, the place where the employee is physically present should be considered when carrying out the activity for which he is remunerated.

The importance of the so-called territoriality of remote working activities is also recalled in a similar case by the Revenue Agency, with a UK tax resident working from home for an Italian fiscal resident Company.

In conclusion, the income received by the person resident abroad for the work activity carried out in Italy is also relevant for tax purposed in Italy pursuant to articles 49 and 51 of TUIR.

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Regulatory Framework

Reply n. 626/2021

Reference (Italian only)

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