Fenton Insights / UK–Italy Corridor Briefing
UK directors and employees working in Italy: corporate and people tax risks
What happens to corporate tax, permanent establishment (PE), payroll and social security when a UK company’s directors or employees work from Italy.
Italian-language companion: Read the Italian version published by Vectigalis Tax, jointly authored by Mark Abbs and Angelo Chirulli.
Core finding and summary
A UK director or manager working from Italy can create Italian corporate residence or permanent establishment exposure, alongside employment tax, payroll and social security obligations, from the same facts. Since 2024, Italy’s corporate residence tests (D.Lgs. 209/2023, Article 73 TUIR) consider the registered office, effective management or principal ordinary management of the company as a whole; the tests are alternatives. An A1 certificate addresses social security only.
Context and challenge: why the location of management matters
The main challenge with UK businesses operating in Italy is that cross-border tax risk does not begin only when a company incorporates an Italian subsidiary or opens a branch. It can begin with people.
Common warning signs:
- A UK director spends most of the working week in Italy
- Contracts are negotiated or approved from an Italian office
- An Italian team is managed locally by a UK employee
- “Business travel” has quietly become a regular working pattern
Italy’s international tax reform, Legislative Decree 209/2023 (D.Lgs. 209/2023), changed the domestic tax residence test for companies. It applies from the tax period following the one in progress on 29 December 2023: from 1 January 2024 for calendar-year companies.
Under the revised Article 73 TUIR, an entity is Italian tax resident if, for the greater part of the tax period, it has in Italy its registered office, its place of effective management, or its principal place of ordinary management. These are alternative tests: satisfying any one can be sufficient. Effective management concerns strategic decisions. Ordinary management concerns the continuing conduct of day-to-day management. Both management tests concern the company or entity as a whole (Circolare 20/E of 4 November 2024). Managing an Italian operation can therefore create a permanent establishment without making the UK company itself Italian resident.
Italy’s domestic definition of permanent establishment in Article 162 TUIR and Article 5 of the UK–Italy Double Taxation Convention require separate consideration. The two tests should not be assumed to be identical.
The same decree also reformed the residence test for individuals. One person’s working pattern can therefore engage both residence regimes at once.
The mistake is to analyse each issue in isolation.
Scenario 1: Your finance director runs the Italian office
A UK company is establishing an Italian operation. Its finance director remains employed and paid by the UK company but spends a substantial part of the working week in Milan. They approve budgets, supervise the Italian team, negotiate with suppliers and customers, and make decisions affecting the Italian operation. Some matters still go formally to the UK board.
At first glance this looks like a straightforward employee assignment. It may not be.
Angelo Chirulli: corporate and Italian tax
The place of effective management is where strategic decisions concerning the company as a whole are continuously and coordinately made. A UK board continuing to meet in the UK is relevant, but it does not necessarily end the enquiry. The revised Italian rules look at substance.
If company-level strategic or ordinary management genuinely migrates to Italy, corporate residence needs to be considered. UK incorporation normally establishes UK tax residence. If the company also satisfies Italy’s domestic residence tests, Article 4(3) of the UK–Italy treaty must be considered. Where the treaty treats the company as resident in Italy and non-resident in the UK, CTA 2009, section 18 also treats it as non-UK resident for the purposes of the Corporation Tax Acts. The treaty tie-breaker refers to place of effective management. The OECD’s MLI status table dated 15 September 2026 does not record Italy depositing its ratification instrument, so an MLI competent-authority tie-breaker should not be described as currently applicable.
If the director is managing the Italian operation rather than the company as a whole, the more likely question is permanent establishment, not corporate residence.
The analysis goes beyond job title. Relevant facts include:
- the director’s actual authority
- the office available to them
- which decisions they make rather than merely implement
- where contracts are negotiated and approved
- whether the Italian activity has become part of the ordinary operation of the UK business
Mark Abbs: people and employment tax
Employment income can be taxed in the country where the work is physically performed, as well as in the country where the employee is resident. Work performed in Italy can therefore bring Italian employment tax into scope, even when the contract and payroll stay in the UK and the director remains UK resident.
The UK–Italy treaty contains a short-term employment exemption in Article 15. All three conditions must be met:
- presence in Italy of no more than 183 days in the relevant fiscal year (not a rolling 12-month period)
- remuneration paid by, or on behalf of, an employer that is not resident in Italy
- remuneration not borne by an Italian permanent establishment
The employer condition turns on the actual employment arrangements: who directs and controls the work, and who bears the remuneration. A UK contract or UK payroll is not enough to settle the treaty analysis.
Payments received as a board member must be distinguished from employment remuneration. Board fees fall under the treaty’s directors’ fees article (Article 16), not Article 15. Article 16 lets the country where the company is resident tax board fees paid to a director resident in the other country. If the company’s treaty residence moved to Italy, Italy could tax board fees paid to a UK-resident director. This is why the corporate and employment tax workstreams need to talk to each other.
Where Italian tax is due and the director remains UK resident, both countries may tax the same salary. UK foreign tax credit relief, where available, is subject to the treaty and the applicable UK credit limits; an Italian assessment does not, by itself, establish entitlement to full UK credit. Timing differences can create a double cash-flow cost. For a genuinely non-resident UK employer with no Italian permanent establishment, the Italian Revenue’s position (Risposta 312/2019) is generally that Italian employment-income withholding is not required; the employee addresses any Italian tax through their own return and payment obligations and separately claims any UK credit available. Where the employer is required to withhold Italian tax, for example because it has an Italian permanent establishment, an HMRC-authorised Appendix 5 arrangement may permit eligible foreign tax credit relief through UK payroll, subject to the arrangement’s conditions. Employee-paid Italian tax and an authorised Appendix 5 payroll arrangement are distinct routes.
FAQs: Scenario 1
Does keeping the UK board in London prevent Italian corporate residence?
No, not automatically. The revised Article 73 TUIR tests are alternatives: a registered office, place of effective management, or principal place of ordinary management in Italy for the greater part of the tax period can each be sufficient for Italian corporate residence. A London board is relevant to where company-wide strategic management occurs, but it does not override another qualifying test; the actual substance must be assessed.
Is a UK employee safe from Italian tax if they spend fewer than 183 days in Italy?
Not necessarily. The 183-day test, counted in the relevant fiscal year, is one of three conditions in the treaty’s short-term employment exemption. The remuneration must also be paid by a non-Italian employer and not borne by an Italian permanent establishment. A UK contract or payroll alone does not settle the employer condition. Board fees follow a separate rule.
Does an A1 certificate remove Italian corporate tax risk?
No. An A1 certificate confirms which country’s social security system applies to a worker. It does not determine corporate residence, permanent establishment, Italian income tax or payroll withholding. Each of these is assessed under separate rules.
Scenario 2: Short trip or long-term problem?
A UK commercial director travels to Italy for two or three days most weeks. There has been no formal secondment. The arrangement began as temporary support for an Italian market launch. Six months later, the director still negotiates key commercial terms, manages local relationships and takes part in decisions while working from the Italian office.
The company may still describe this as business travel. The tax analysis may describe it differently.
Angelo Chirulli: corporate and Italian tax
A fixed-place permanent establishment is a fixed place of business through which an enterprise’s business is wholly or partly carried on. Duration matters, but there is no universal day count that automatically prevents PE or corporate residence exposure.
A recurring working pattern matters because it shows what the director is actually doing in Italy. An office regularly used to conduct the UK enterprise’s business may be relevant to a fixed-place PE analysis. A senior employee with contractual authority can also raise a dependent-agent question. However, negotiating commercial terms should not automatically be equated with satisfying the treaty’s dependent-agent test. Article 162 TUIR and Article 5 of the treaty require separate consideration.
Corporate residence asks a different question: has strategic or ordinary management of the company as a whole moved to Italy? Frequent travel can create one type of exposure without creating the other.
Mark Abbs: people and employment tax
A frequent business traveller is an employee who makes repeated short trips without a formal secondment. Businesses often monitor the 183-day threshold and assume that staying below it means there is no host-country issue. That is too simple.
Employers should know:
- how many days are being worked in Italy
- what the individual does there
- which entity directs, benefits from and bears the cost of the work
- whether the arrangement is genuinely temporary
- whether Italian tax or withholding obligations arise
- which social security legislation applies
The following multi-state example assumes that the director falls within the UK–EU Trade and Cooperation Agreement (TCA) Protocol on Social Security Coordination and is treated as an employed person for these purposes. Cases protected by the Withdrawal Agreement need separate analysis. “Residence” under social-security coordination rules need not coincide with income-tax residence. On those assumptions, a director habitually working in both the UK and Italy is a multi-state worker, not a detached worker. Where 25% or more of their activity is in their state of residence under those coordination rules, that state’s legislation generally applies, evidenced by an A1 certificate. Unlike the 24-month limit for detached workers, there is no fixed time limit for a multi-state pattern: the position continues while the relevant facts remain the same and should be reviewed if they change. None of this resolves employment tax or corporate tax.
FAQs: Scenario 2
Is there a 90-day or 183-day safe harbour for permanent establishment in Italy?
No. There is no general day-count safe harbour for permanent establishment. Whether a UK company has an Italian PE depends on the place of business, its permanence, the activities carried on there and the authority exercised by the individual. Day counts are evidence, not a test.
Does a UK director attending meetings in Italy create tax risk?
A UK director who only attends meetings in Italy generally carries materially less risk than one running operations from Italy. The substance of the activity matters more than how the trip is labelled. Managing local staff or exercising contractual authority changes the analysis.
Which social security system applies to a UK director working regularly in Italy?
Assuming the director is an employed person covered by the TCA Protocol and resident in the UK for social-security coordination purposes, a director habitually working in both the UK and Italy is a multi-state worker. If 25% or more of their work is in the UK, UK National Insurance generally continues, evidenced by an A1 certificate. If less than 25% is in the UK and they work for a single UK employer, UK legislation may also continue to apply under the relevant multi-state rules, depending on the precise facts. There is no fixed time limit while the qualifying working pattern continues. Social-security residence is not necessarily income-tax residence; Withdrawal Agreement cases require a separate assessment.
Scenario 3: Italian PE and social security: two different tests arising from the same facts
A UK company sends a senior operational director to Italy for 18 months to launch and manage a new activity. The director remains employed by the UK company, works mainly in Italy from dedicated premises, manages local staff and suppliers, and reports to the UK board. The business obtains an A1 certificate so that UK National Insurance continues.
Has the tax risk been solved? No.
Angelo Chirulli: permanent establishment and corporate tax
The permanent establishment analysis focuses on the activity of the enterprise in Italy. Dedicated premises from which the UK company’s business is carried on can be highly relevant. So can the director’s level of authority, and whether the Italian operation is a place of management.
Corporate residence must then be considered separately. Managing an Italian operation does not automatically make the UK company Italian resident. The real question is whether the director is making strategic or ordinary management decisions about the company as a whole from Italy.
The distinction between running an Italian operation and running the UK company from Italy is crucial.
Mark Abbs: social security and employment tax
For this scenario, assume the individual falls within the Protocol on Social Security Coordination in the UK–EU Trade and Cooperation Agreement (TCA), is treated as an employed person for those purposes and is not instead covered by the Withdrawal Agreement. Cases protected by the Withdrawal Agreement must be assessed separately. Under the TCA coordination rules, a worker is generally subject to one country’s social-security legislation at a time. Where the posting conditions are met, a detached worker can remain in UK National Insurance for up to 24 months, supported by a valid A1 certificate. “Residence” for social-security coordination is determined under those rules and may not coincide with income-tax residence.
An A1 certificate is not a corporate tax clearance. It does not confirm that there is no Italian PE, it does not decide corporate or income tax residence, and it does not determine whether Italian income tax is due. Equally, the absence of an Italian PE does not mean UK social security continues.
An 18-month posting also raises the individual’s own position:
- Italian residence. Since 2024, physical presence in Italy for the greater part of the calendar year, counting fractions of days, is itself a domestic residence criterion. Arrival and departure dates and any Article 4(2) treaty tie-breaker therefore matter.
- UK residence. Whether UK residence is broken under the Statutory Residence Test, including split-year treatment. If the individual becomes non-UK resident and works wholly in Italy, UK PAYE on that income can be adjusted or stopped with HMRC’s agreement.
- Equity. Share options and RSUs are generally apportioned between the UK and Italy by workdays over the period in which they are earned. Both countries may tax part of the gain, and the UK employer must track the UK share under the UK rules for internationally mobile employees. Where UK PAYE on share income cannot be deducted from cash pay, the employee must make it good within 90 days after the end of the tax year, or it becomes further taxable earnings under s.222 ITEPA.
- Pensions. Statutory social security contributions under an A1 are different from private pension contributions. The UK–Italy treaty has no article giving relief for pension contributions; Article 18 covers pensions in payment only. Italian relief for contributions to a UK private pension should not be assumed, and employer contributions may be taxable in Italy.
Map the corporate structure, duties, remuneration, travel pattern, payroll and social security together. Otherwise one adviser can confirm social security coverage while a corporate tax exposure goes unidentified.
FAQs: Scenario 3
If an employee has an A1 certificate, can the UK employer ignore Italian tax?
No. An A1 certificate addresses social security only. Italian income tax on work performed in Italy needs separate analysis. For a UK employer with no Italian PE, the Italian Revenue’s position (Risposta 312/2019) is generally that withholding is not required and the employee pays through their own return. That changes if a PE, Italian corporate residence or an Italian employing entity is identified.
If there is no Italian permanent establishment, can there still be Italian social security?
Yes. Permanent establishment is a corporate tax concept. For individuals covered by the TCA as employed persons, social security liability is determined under the TCA coordination rules, not by whether the employer has an Italian PE. A UK company with no Italian PE can still have employees liable to Italian social security, for example where the applicable detached-worker or multi-state conditions are not met. Cases protected by the Withdrawal Agreement require separate consideration.
Can one employee working in Italy create several tax consequences at once?
Yes. A senior individual’s work in Italy can be relevant at the same time to corporate residence, permanent establishment, personal income tax, social security, equity and pensions. Since 2024, D.Lgs. 209/2023 has also changed both the company and the individual residence tests.
Joint advisory position
Professional judgement required: Yes, in almost every case. Italian domestic law, the UK–Italy treaty and the TCA social security rules ask different questions of the same facts.
Main risks: Corporate tax and PE risk; payroll and withholding risk; social security risk; personal tax and residence risk; cost and cash-flow risk; governance and evidence risk.
Joint recommendation: Before a director or employee begins operating from Italy, establish what they actually do, whether they manage the Italian operation or the company as a whole, what authority they hold, who directs and bears the cost of their work, and which social security rules apply. Document the basis for each position.
Fenton International and Vectigalis Tax approach the UK–Italy corridor from complementary specialist positions: Fenton on global mobility, employment tax, payroll, directors, reward, social security and governance; Vectigalis on UK, Italian and international corporate tax, permanent establishment, residence, restructuring, transfer pricing and Italian personal tax. The objective is not to duplicate advice. It is to identify the point at which one workstream becomes relevant to the other.
Authors
Mark Abbs — CEO & Founder, Fenton International
FATT | EA | GMS-T®
Around 30 years in international tax and global mobility, including Big 4 roles and building the Global Mobility practice at Blick Rothenberg. Advises employers, boards and directors on cross-border employment tax, payroll, social security and governance.
Profile: https://www.fentoninternational.com/advisory/mark-abbs | LinkedIn: https://uk.linkedin.com/in/markabbs
Angelo Chirulli FCA, BFP, ADIT, TEP, IFA, CPA (ITA)
CEO and Tax Advisor, Vectigalis AC Tax Limited
UK Chartered Accountant, Italian Dottore Commercialista and CIOT/ADIT lecturer. Advises on UK, Italian and international corporate tax, permanent establishment, residence and transfer pricing.
Profile: https://vectigalistax.co.uk/about/ | LinkedIn: https://www.linkedin.com/in/angelochirulli
About the firms
Fenton International advises internationally connected employers, boards and individuals on cross-border people issues: global mobility, employment tax, directors, payroll and withholding, reward, social security and governance.
https://www.fentoninternational.com | https://www.linkedin.com/company/fenton-international
Vectigalis Tax (Vectigalis AC Tax Limited) provides UK and international tax advice across corporate, international and personal tax, with particular expertise in UK–Italy corporate residence, permanent establishment, restructuring, transfer pricing and Italian private-client taxation.
https://vectigalistax.co.uk | https://uk.linkedin.com/company/vectigalistax
