Smart working in Italy

Maurizio Di Salvo
Tax Lawyer, CPA, TEP– BLCI International Milan

Marco Milan
Payroll and labour consultancy– BLCI International Milan

The Italian Tax administration issued on August 18, 2023 Circular letter 25/E dealing with some
cross–border home office cases, and with the new tax regime of the frontier workers.

The circular letter mainly reflects some unexpected cases of Italian PE, and it will be considered in all the
situations in which a foreign employer is willing to sign an employment contract with an individual based in Italy.

The circular letter is a sort of guideline, in which it is possible to understand:

  • How smart working can affect the residency of a worker;
  • The source taxation and the residence taxation of income from smart working;
  • The impact of some specific smart working cases on the taxation of the employer (PE tax risk)
  • Special rules for so-called “frontalieri”(i.e. frontier workers)

The guideline also includes the general Italian perspective and meaning of permanent establishment, which relies on art 5 of OECD MC, and the relative dynamic interpretation of OECD Commentary.

Therefore, for example, the private premises of an employee may constitute a PE if generally (i) used on a regular and continuous basis to carry on business activities and considered to be at the disposal of the
employer and (ii) the activities are part of the core business of the foreign enterprise or at least are not
merely if preparatory or auxiliary nature.
More in detail, the circular, given the definition of “smart working” as “employment carried out by a worker who, based on a specific employment agreement or on informal arrangements, is allowed to perform in whole or in part its employment work at home or any way in a location other than the employer’s office”, addresses some specific Italian tax rules to be applied in cases of mobility workers, such as:

  • foreign citizen, not registered in the Italian resident population registries, who works from Italy in smart working for a foreign employer, staying for most of the calendar year at a home in Italy with his spouse and children. In such a circumstance, although the formal requirement of registration in the registry offices of the resident population is not met, he would be considered a resident of Italy as he has a permanent home available to him in the country, where he also maintains the center of vital interests and his habitual abode.
  • an Italian citizen registered with AIRE for most of the tax period who has signed an employment contract with a foreign employer in which the country resulting from AIRE registration (or another foreign State) is indicated as the ordinary place of work, may be considered a resident for tax purposes in Italy if he or she maintains his or her habitual abode there, from which he or she performs Smart Working activity.
  • an Italian citizen enrolled in the AIRE who, returned to Italy due to the Covid emergency and has been working in Italy, in smart working, for most of the tax period, instead of in the foreign country. In such a case, (i) the employee activity is exercised in the place where the employee is physically present while performing the work, even if performed in a Smart Working mode; (ii) an individual registered with AIRE and returned to Italy solely as a result of the Covid-19 emergency is considered tax resident in Italy according to current domestic provisions, if he or she is domiciled in the country for most of the tax period (residency rule). The application of conventional tie-breaker rules is however granted.
  • A person who is not a resident of Italy (because he or she does not meet any of therequirements of Article 2 of the Italian consolidated tax law) and renders ( Smart Working) servicesfor an Italian employer from his or her country of residence is not considered taxable in Italy,regardless of the employer’s location in Italy.


Moreover, given the definition of frontier worker as a worker who (i) is a tax resident in a municipality whose territory is wholly or partly within the area of 20km from the border with the other contracting State, (ii) performs employment in the border area of the other State, for a resident employer, a permanent establishment, or a fixed base of that other State and (iii) returns, in principle, daily to his or her principal place of residence in the State of residence, the guideline – as to Swiss/Italian relations – gives a clarifications to the new rules on the taxations of frontier workers.

Such rules now distinguish the old regime from the new regime of taxations of swiss/Italian frontier workers income.

Finally, the guideline addresses some aspects of the special regime for workers impatriates (referred to in Article 16 of Legislative Decree 14 September 2015. 147) and for the special regime for teachers and researchers (referred to in Article 44 of Law Decree 78 on 31 May 2010), with exclusive reference to the incidence of the periods carried out with remote working, starting from the assumption that "no corrective value is to be ascribed to how the work is carried out (i.e., remote work or smart working)”.


The result is that this principle is also relevant for applying the preferential regimes for natural persons who transfer their tax residence to Italy to carry out a work activity prevalently on Italian territory.


BLCI International’s experts, leading international legal, tax, and payroll areas, are ready to support their clients with specific tailor-made advice on single cases of global mobility of workers.

For more information, please contact Maurizio Di Salvo (tax) and Marco Milan (payroll and labour consultancy) :

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