Hiring Employees in Italy Without an Entity: Social Security, Tax and Permanent Establishment Risk

Avv. Irene Damiani

A foreign company can employ someone in Italy without setting up an Italian company. It must pay Italian social security contributions to INPS, usually through a representative in Italy, and respect the mandatory protections of Italian employment law. Without a permanent establishment in Italy it does not have to withhold income tax: the employee files and pays it. The real risk lies elsewhere: the employee’s activity may create a permanent establishment, with Italian corporate tax and compliance to follow.

Foreign companies wishing to have one or more individuals in Italy—such as a sales representative, a technician, or an employee relocating while continuing to work remotely—prior to establishing a local office can find the necessary guidance from the International Law Firm Damiani&Damiani, which has offices in Palermo and Turin.

Your options

The rest of this page focuses mainly on direct hire, the most common and least understood route.

The employment contract: which law applies

The parties may choose the law governing the employment contract, for example the law of the company’s home country. But if the employee habitually works in Italy, that choice cannot deprive them of the mandatory protections of Italian law (art. 8 of Regulation (EC) 593/2008, “Rome I”). In practice, Italian rules still apply to:

• working hours and rest;
• annual leave;
• dismissal;
• health and safety;
• equal treatment.

Pay. The national collective agreement (CCNL) does not automatically bind a foreign employer that has not joined it. In a dispute, however, Italian courts generally use the sector agreement as the benchmark for the “sufficient” pay guaranteed by art. 36 of the Italian Constitution. Starting from that benchmark avoids surprises.

Compliance in Italy

Even without an Italian presence, the foreign employer must handle in Italy what any employer does:

• the mandatory hiring notification;
• the employment register (libro unico del lavoro);
• payslips;
• INPS filings and, as a rule, INAIL accident insurance, which also covers office and remote workers.

When the employer does not handle these itself, they may be handled on its behalf by labour consultants (consulenti del lavoro) and, after notifying the labour inspectorate, by lawyers and accountants (art. 1 of Law 12/1979).

Social security: INPS and the social security representative

Under EU social security coordination, a person working in Italy is generally insured in Italy (art. 11 of Regulation (EC) 883/2004). The same applies, subject to any bilateral agreement, to employees of non-EU employers. The foreign company must therefore:

• open an INPS employer account;
• pay Italian contributions, both the employer’s share and the share withheld from the employee.

There are three exceptions to know:

• posted workers: staff already employed abroad and sent temporarily to Italy, who stay insured at home with an A1 or a certificate under a bilateral agreement. See our guide to posting workers to Italy [to activate];
• cross-border teleworkers who work from Italy for less than 50% of their time: if the employer’s country has signed the EU framework agreement on cross-border telework (Italy has applied it since 1 January 2024), they can stay insured in that country, on request;
• people who normally work in several countries, whose applicable legislation follows the rules of art. 13 of Regulation 883/2004.

An employer with no presence in Italy usually acts through a social security representative: a person resident in Italy, often a professional adviser, who holds a mandate to handle registration, monthly filings and payments. An employer established in another EU, EEA member state or in Switzerland has an alternative: it may agree with the employee that the employee pays the contributions on the employer’s behalf (art. 21(2) of Regulation (EC) 987/2009). The arrangement must be notified to INPS, and the employer remains liable for its obligations. It is lawful, but it shifts a sensitive task onto the employee and should be weighed carefully.

Income tax: no withholding obligation without a PE

A foreign employer with no permanent establishment in Italy is not a withholding agent and does not have to withhold Italian income tax from salaries (art. 23 of Presidential Decree 600/1973). The Italian Revenue Agency confirmed this even for a foreign company’s representative office (ruling no. 297 of 27 April 2021).

There are two consequences.

• The employee pays the tax. They report the salary in their own Italian tax return and pay the balance and advance instalments: many employees do not expect this, so explain it when you hire them.
• The employer may withhold voluntarily. If it does, it must then issue the annual Certificazione Unica and file Form 770, like an Italian withholding agent.

Impatriate regime. An employee relocating to Italy may qualify for the Italian impatriate tax regime (art. 5 of Legislative Decree 209/2023) even with a foreign employer. If the employer does not apply it through payroll, the employee claims it in their tax return (Revenue Agency ruling no. 2 of 12 January 2026). The conditions are strict and should be checked before the move.

The real risk: a permanent establishment

An employee in Italy can create a permanent establishment (PE) of the foreign company. In that case:

• the profit attributable to the Italian activity is taxed in Italy;
• the company becomes a withholding agent for its Italian staff;
• bookkeeping and VAT obligations follow.

If the PE was never declared, the tax authorities recover the unpaid taxes and withholdings with penalties and interest. Above €50,000 of tax evaded, failing to file a return is also a criminal offence (art. 5 of Legislative Decree 74/2000).

One caveat first: the PE definition below is the Italian domestic one, but if the foreign company is resident in a country with a tax treaty with Italy, the treaty definition prevails where it is more favourable (art. 169 of the Income Tax Code). The actual test therefore also depends on where the company comes from. Two situations deserve attention.

1. The employee who sells. Under Italian domestic law, a “dependent agent” PE exists when a person acts on the company’s behalf and habitually concludes contracts, or works towards their conclusion without material changes by the company (art. 162(6) of the Italian Income Tax Code). Many tax treaties still use a narrower test, tied to the authority to conclude contracts in the name of the enterprise. What counts is not the office or the hours but what the person does. The classic case is a salesperson hired in Italy who negotiates and closes deals with Italian customers.

2. The employee working from home. An employee’s home can be a fixed place of business if the company uses it on a continuing basis. For treaty cases, the update to the OECD Commentary published on 19 November 2025 offers two guiding tests:

• if the employee works from home in Italy for less than 50% of their working time over a 12-month period, the home is generally not a place of business of the company;
• above that threshold, a key factor is whether there is a commercial reason for the presence in Italy, such as serving Italian customers or suppliers. Hiring or retaining the employee, or saving on office costs, are not commercial reasons.

The Commentary is not Italian law, but it guides how tax treaties are read. Italy has entered an observation that its own case law remains relevant, and Italian courts look closely at the facts.

Preparatory and auxiliary activities. Some support activities do not create a PE, provided they are genuinely preparatory or auxiliary (art. 162(4) and (4-bis) of the Income Tax Code):

• promotion and information;
• market research and information gathering;
• purchasing goods for the company.

Customer service is not on this list: if the employee serves Italian customers, the position must be assessed case by case.

Moving from promotion to selling is the point at which the structure needs rethinking: see our guide to the permanent establishment in Italy.

Employer of Record: when it is lawful in Italy

Many foreign companies turn to an Employer of Record (EOR): a provider that formally employs the worker and places them with the client, which directs their work. Italian law has a precise name for this arrangement: agency work(somministrazione di lavoro). Only licensed staffing agencies entered in the national register may carry it out (arts. 30 ff. of Legislative Decree 81/2015; art. 4 of Legislative Decree 276/2003).

Before signing with an EOR, ask whether the Italian entity that employs the worker is a licensed staffing agency. If it is not, the arrangement risks being treated as unlawful labour supply. Since 2 March 2024 (Decree-Law 19/2024) that is again a criminal offence, punishable by up to one month’s arrest or a fine of €60 per worker per day, with a minimum of €5,000 and a maximum of €50,000 (art. 18 of Legislative Decree 276/2003). The penalty applies both to the supplier and to the user: for the foreign client, its legal representatives. Under case law on unlawful labour interposition, the worker may also claim to be recognised as an employee of the business that actually used their work.

Even with a licensed agency, agency work is subject to duration and percentage limits (art. 31 of Legislative Decree 81/2015) that should be checked up front, especially for a client with no other employees in Italy. An alternative is an agency from another EU state, licensed at home, sending workers to Italy under the posting rules.

Finally, even a compliant EOR solves the payroll compliance but not the PE risk: if the worker sells for the foreign company, the problem remains.

Which route to choose

• One or two employees in support roles, working remotely: direct hire with a social security representative, keeping the role genuinely supportive.
• A salesperson negotiating and closing deals in Italy: the PE risk is high. Consider a branch or subsidiary from the start, or restructure the role.
• Testing the market without a local structure: a licensed staffing agency, with a contract that clearly defines tasks and authority.
• Staff already employed abroad sent to Italy temporarily: that is not a hire but a posting, with its own rules.

How help international legal law firm Damiani&Damiano

We help foreign companies choose the right route and set it up properly:

• assessing the permanent establishment risk based on the employee’s role;
• the employment contract and governing law;
• job classification and pay;
• the INPS account and social security representation;
• the employee’s tax position, including the impatriate regime;
• reviewing contracts with EOR providers and staffing agencies.

As your team in Italy grows, we guide the move to a representative office, a branch or an Italian subsidiary: see branch, subsidiary or representative office in Italy.

Request an assessment of your case

Frequently asked questions

Can a foreign company hire an employee in Italy without an Italian entity? Yes. The foreign company can itself be the employer of someone working in Italy. It must open an INPS employer account, usually through a representative resident in Italy, pay Italian social security contributions and respect the mandatory protections of Italian employment law. It must also make sure the employee’s activity does not create a permanent establishment.

Does a foreign employer have to withhold Italian income tax? Not if it has no permanent establishment in Italy: it is not a withholding agent (art. 23 of Presidential Decree 600/1973; Revenue Agency ruling no. 297/2021). The employee reports the salary and pays the tax themselves. The employer may withhold voluntarily, but must then issue the Certificazione Unica and file Form 770.

When can an employee in Italy create a permanent establishment? Mainly in two cases. The first is when the employee habitually concludes contracts for the company, or works towards their conclusion without material changes by the company (art. 162(6) of the Italian Income Tax Code). The second is when they work from home in Italy for at least half their working time and there is a commercial reason for their presence, such as serving Italian customers: this is the guiding test in the 2025 update to the OECD Commentary. If a tax treaty applies, the test may differ.

Is an Employer of Record legal in Italy? Yes, if the provider employing the worker in Italy is a licensed staffing agency and the arrangement is structured as temporary agency work. Otherwise it risks being treated as unlawful labour supply, which since 2024 is a criminal offence for both supplier and user. Even lawful agency work has duration and percentage limits. In any case, an EOR does not remove the permanent establishment risk.

Which law governs the contract of an employee working in Italy for a foreign company? The parties may choose the governing law, but if the employee habitually works in Italy they cannot exclude the mandatory protections of Italian law (art. 8 of the Rome I Regulation). Italian rules on working time, leave, dismissal and safety therefore apply. For pay, courts generally use the sector collective agreement as the benchmark.

Can an employee of a foreign company use the Italian impatriate tax regime? Yes, if they meet the conditions of art. 5 of Legislative Decree 209/2023 and work mainly in Italy. If the foreign employer does not apply the relief through payroll, the employee claims it in their tax return, as the Revenue Agency confirmed in ruling no. 2 of 12 January 2026.

Legal sources cited (box at the bottom of the page)

• Regulation (EC) 593/2008 (Rome I), art. 8
• Regulation (EC) 883/2004, arts. 11 and 13; Regulation (EC) 987/2009, art. 21; EU framework agreement on cross-border telework (applied by Italy since 1 January 2024)
• Presidential Decree 600/1973, art. 23; Italian Income Tax Code (Presidential Decree 917/1986), arts. 162 and 169
• Legislative Decree 74/2000, art. 5
• Italian Revenue Agency, ruling no. 297 of 27 April 2021; ruling no. 2 of 12 January 2026
• Legislative Decree 209/2023, art. 5 (impatriate regime)
• Legislative Decree 81/2015, arts. 30 ff., in particular art. 31; Legislative Decree 276/2003, arts. 4 and 18; Decree-Law 19/2024
• Law 12/1979
• OECD, The 2025 Update to the OECD Model Tax Convention