Fabio Sola, Director of the International Network PRAXI Alliance, interview Tommaso Fonti, Partner and Head of the International Taxation Department at the Studio Bacciardi Partners.
Executive search and international mobility are in fact activities that increasingly walk hand in hand as managers’ careers become increasingly international and the tax and contribution aspects associated with worker mobility must also be considered.
Let’s start lightly, from the sports pages of newspapers–why did Inter had to sign Lukaku’s contract by June 30?
Already in 2015, the legislature passed tax incentives for different categories of workers with the “Internationalization Decree” with the aim of attracting people coming from abroad through tax leverage: with the exemption of a part of the employment income, they are subject to an advantageous tax regime. One of the affected categories, introduced in 2019 with the Growth Decree, is precisely that of professional athletes, who particularly benefit because they usually have very high salaries.
But coming to our work as headhunters, does such facilitation have points of contact with the so-called “brain return”?
We often deal with managing the returns to Italy of expatriate personnel abroad, especially in recent years following the pandemic. In this case, the so-called “Regime for Impatriated Workers,” provided for by the Internationalization Decree (Legislative Decree 147/2015), applies to citizens of any nationality who have been tax residents abroad for at least two years and undertake to transfer their tax residence to Italy, maintaining it for at least two years and carrying out work activities mainly on Italian territory.
The reliefs are very attractive, because for a minimum of 5 years taxes will apply only on 30 percent of income (this can mean a rate around 10 percent on gross income). And the relief can be even more significant, with application for a longer period or a broader exemption if certain specific conditions are met, such as buying a house or moving tax residence to certain southern regions.
Among the many technicalities that you need to study, are there elements of attention that you would like to highlight for us?
The most significant (also because it is relatively new) concerns the return of posted workers: in this case, the benefits apply only if the employee signs a new employment contract with his or her Italian employer with a different and higher role than the one held and maintained during the posting abroad.
For us, the pool of “Italians abroad” has become very interesting… Are companies aware of these incentives? We recently located an Italian manager in Germany, and–when hiring him–the company seemed surprised about the tax benefits…
Our clients are usually knowledgeable on the subject, if only because they have good experience with international mobility. You are right, though: it is not such widespread knowledge among those who do not manage the international mobility of their staff on a daily basis.
Let us now come to the opposite case, that of an Italian employee being moved abroad. To begin with, would you like to list what are the different modalities for such postings?
Beyond relocation, which is used only for occasional and sporadic periods, never exceeding six months, the possible modes are:
What are the main features?
Theinstitution of relocation consists of a sufficiently stable and lasting, though not permanent, change in the employee’s contractually identified place of employment. Normally this mode of dispatch is adopted when the Italian company has a secondary location abroad (so-called branch), such as a sales office or for after-sales service.
Secondment occurs when one or more workers are “legitimately loaned” to a foreign-registered company independent of the Italian seconding company, but usually part of the same group.
Foreign employment occurs in all cases where the Italian company maintains a foreign-registered company abroad under which the employee is hired.
Why would a company prefer one mode of sending abroad over the other?
In general, companies and workers should consider such elements as the length of stay abroad, the type of work to be done, and the legal form of the foreign entity where the manager is to work.
Another aspect reported to us by the managers we meet is the increasing preference of multinational groups for hiring directly abroad. They almost always seem unconvinced about this “one-way ticket” to us. What do you think?
Even in our experience, Italians who have worked their entire career path in Italy, including on social security, are very hesitant about such foreign contracts proposed by the company. Of course, those who have independently decided to build a career abroad are in a completely different situation: for example, many Italians have been living for years in countries such as China.
In any case, companies can overcome the employee’s reluctance by proposing, along with the letter of consensual termination of employment, a commitment to his or her reemployment in Italy in a private writing. However, these commitments can create consequences that are not always easy to handle legally, because in some cases they are disavowed and the consensual termination of the employment relationship is judged to be simulated.
What about the social security aspect, which you mentioned, how should that be considered? Does the legislation of the country in which the person is employed simply apply?
Contribution aspects are actually very complex and must be evaluated on a case-by-case basis depending on the relationship with the country in which the worker is assigned.
Obviously, within the European Union everything is simpler, because the principles of territoriality of social security and uniqueness of applicable legislation apply: in practice, only one regime is applied, which is that of the Member State where the worker works. However, this does not apply in the case of temporary dispatch of workers (posting or secondment), where contributions can continue to be paid in Italy.
There is also an element of caution in the case of pension relationships abroad: the principle of totalization (whereby the worker will eventually receive pensions from the different countries where he or she has made contributions) helps, but it really only applies when the worker has reached a minimum period of contributions in each country defined by local legislation.
It seems to me that the discipline is simpler, but still tricky for EU countries. What about those outside the EU?
First, a distinction should be made between countries that have social security agreements with Italy (so-called convention countries) and countries that have no social security agreement with Italy.
With regard to non-EU countries that have an agreement, social security agreements provide for specific exceptions to the principle of territoriality, whereby, if certain conditions and requirements are met, the worker will continue to pay social security contributions in Italy, either entirely if the agreement covers all the forms of contributions provided for by Italian law (so-called total agreements), or at least for part of the contributions where the agreement does not cover all the aforementioned forms of contributions (so-called partial agreements). In the case of partial agreements, minimum contributions will be made abroad, but also a contribution will be made in Italy, calculating the same on actual wages for contributions covered by the agreement and on conventional wages established by law for contribution forms not covered by the agreement.
As for non-EU nonconventional countries, mandatory contributions must be made both in Italy and in the foreign country. However, in Italy, contributions will be calculated on the basis of the conventional wages mentioned above.
It is really an obstacle course: the situation changes from country to country…
Indeed! And even within one country like China, there are regions where the implementing regulations for making contributions have not yet been adopted. And so, in that case, contributions are made only in Italy!
What about the tax part, what about that? Is this also so complex? For example, how should tax residency be handled?
The first aspect the employer must take into account is whether or not there is an international convention between Italy and the employee’s sending country that regulates double taxation of income. If there is, it is the convention itself that determines in which country the employment income should be taxed.
Having tax residence in Italy means maintaining Italian taxation on income wherever produced, including income from employment. If the worker transfers his or her tax residence abroad, he or she may continue to be taxed in Italy, but only on income derived from work performed in Italy.
One of the most frequent “incidents” is when a worker thinks he has acquired tax residence abroad, often because he is convinced that simply de-registering from the Italian Resident Population Registry is sufficient, but finds himself having to resolve issues to regularize his situation with the Italian Internal Revenue Service, which, even years later, can dispute the non-payment of taxes.
The requirement that is often overlooked is whether or not the family unit remains in Italy. When it remains in Italy, and the worker joins it periodically, the loss of tax residence in Italy is less defensible.
Another topic that creates a lot of doubts is related to Brexit, which seems to have complicated life a bit–what are the aspects to be considered?
The most critical and of greatest interest after Brexit is undoubtedly the immigration issue: what entry visa should I apply for to work in the UK?
In the case of intra-corporate transfers for example, i.e., between companies in the same group, English regulations provide for the so-called “Intra Company Transfer,” i.e., a mode of entry that allows the worker to work in the United Kingdom for up to 5 years, provided the worker has been employed in the head of the posting company for at least 12 months and earns a minimum gross salary set by the English immigration authority.
In order for an employee to enter and stay in the UK under the Intra Company Transfer, it is necessary for a UK company to acquire a “Sponsor License,” a special license that allows the company to act as a sponsor to apply for and obtain an entry visa for the employee.
Thomas, thank you. Each of the topics we touched on would deserve a chapter of its own, as each topic opens up non-trivial issues and facets.
Of course, the scenario is very complex. The suggestion we give to companies is not to improvise, and to examine each case in advance and sufficiently in advance to make informed decisions!
