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Payroll & Tax in Italy

Italy payroll & taxation

Foreign companies operating in Italy may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Italy are: Individual income tax (IIT) for employees in Italy, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.

Your Payroll Options in Italy

Remote Payroll

A remote payroll in Italy is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Italy. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Italy is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Italy under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Italy may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage an Italian payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Italian employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Italy to a GEO, like Shield GEO. This is possible for both foreign workers and Italian nationals. This is the easiest, fastest and safest way to payroll staff in Italy.

Shield GEO manages all aspects of payroll for workers in Italy, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Italy

Information Explanation
Currency ?

Euro €

Tax Figures

Information Explanation
Corporate Income Tax ?

Companies doing business in Italy are subject to a number of taxes, including the corporate income tax (IRES), the regional tax on productive activities (IRAP), withholding tax, VAT, registration tax, social security taxes, transaction tax and stamp duty.

The current corporate tax rate (“Imposta sui Redditi delle Societe”) in Italy is 27.5%.

Income Tax Rate ?
Grossed income Tax Rate (%)
0-€15,000 23
€15001-28000 27
€28001-55000 38
€55001-75000 41
Over €75000 43

Note that up to the fiscal year 2016, an additional 3% tax will apply on income exceeding EUR 300,000.

Payroll Tax ?

None

Sales Tax ?

Persons (individual person, partnership, company with share capital or institution) making taxable supplies of goods and services under the Italian Value Added Tax (VAT) regime are required to apply for an Italian VAT number before commencing business.

The current VAT rate is 22%, however the rate is scheduled to increase to 24% in 2016, 25% in 2017 and 25.5% in 2018.

Withholding Tax ?

Italy imposes withholding tax (WHT) on certain classes of income earned by non-residents:-

  • Dividends: 26% (unless participation exemption applies)
  • Royalties: 30% on 70% of the amount, resulting in an effective tax rate of 22.5%
  • Interest: Final WHT of 26%. Interest paid to non-residents on deposit accounts with banks and post offices is exempt.
 A reduced rate may be available under an applicable Double Tax Treaty.
Employee Social Security (EE SS)

Contributions for the employees are approximately 9% of aggregate remuneration accrued in the relevant year. Please refer to the section on Employment ‘Pensions and Benefits’ for a detailed explanation.

Employer Social Security (ER SS)

Aggregate contributions range from approximately 36% to 45% of the aggregate remuneration accrued in the relevant year. Please refer to the section on Employment ‘Pensions and Benefits’ for a detailed explanation.

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