The personal request that may also relocate the employer’s tax risk
Moving from the United Kingdom to Italy while retaining a UK employer: what appears to be a straightforward request for flexibility may create two distinct areas of tax exposure — one for the employee and another for the company
The story below is fictional. The issues it illustrates are very real.
On Friday afternoon, Marco emails HR.
He is Italian, has lived in London for several years and works as commercial director of a UK company. His wife has been offered a position in Italy, and their children are due to start school in Milan in September. Marco does not want to resign, and the company does not want to lose him.
His request takes up three lines:
“May I move to Italy and continue doing the same job remotely? My contract, sterling salary and reporting line to the London team would remain unchanged.”
The reply arrives on Monday: “Yes — nothing changes from our perspective.”
The problem begins with those final four words. Almost everything may change for Marco. In some circumstances, a great deal may also change for the UK company.
The word “relocation” does not, in itself, describe a particular legal or tax structure. It might mean employment by an Italian group company, a temporary secondment, a permanent transfer of employment or simply permission to work from Italy while retaining the UK employer. These arrangements may look similar in everyday life, but they do not necessarily produce the same consequences.
The contract remains in the United Kingdom. The work moves to Italy
Marco assumes that his employment income will remain British because his employer is British, his contract is governed by English law, his salary is paid into a UK bank account and his payslip continues to show PAYE and National Insurance deductions.
For tax purposes, none of those factors is decisive when considered in isolation.
For employment income, the international starting point is ordinarily the place where the duties are physically performed. If Marco opens his laptop each morning in his Milan apartment, attends meetings from there, manages his team and negotiates with clients, he is working in Italy — even though the servers, HR function and bank account from which his salary is paid remain in London.
The UK–Italy Double Taxation Convention follows this basic approach: remuneration is linked, in principle, to the State in which the employment is exercised. The familiar 183-day rule is neither a standalone exemption nor a general remote-working safe harbour. It operates only where all the treaty conditions are satisfied, including the conditions concerning the employer and the person or establishment that economically bears the remuneration.
Counting days is therefore essential. Counting only days can nevertheless produce the wrong answer.
Two tax calendars, one individual
Marco arrives in Italy on 3 September. For him, that is a date. For the two tax systems, it is the beginning of two different calculations.
The Italian personal tax year follows the calendar year. The UK tax year runs from 6 April to the following 5 April. A single departure may therefore affect several reporting periods and generate outcomes that are not perfectly aligned.
Since 2024, Italian legislation has treated an individual as tax resident where, for the greater part of the tax year — taking fractions of a day into account — at least one of the tests based on civil-law residence, domicile in Italy or physical presence in the State is met. For tax purposes, domicile is defined by reference to the place where the individual’s personal and family relationships principally develop. Registration in the resident population register for most of the year now creates a rebuttable, rather than absolute, presumption of residence. These rules were introduced by Article 1 of Legislative Decree No. 209/2023 and considered further by the Italian Tax Authorities in Circular No. 20/E of 4 November 2024.
In the United Kingdom, Marco’s position must be determined under the Statutory Residence Test. Split-year treatment does not arise merely because an individual decides to leave the country. It applies only where one of the statutory cases and all the relevant conditions are met. As the HMRC guidance on split-year treatment explains, where the conditions are met the treatment applies under the legislation; it is not an election that a taxpayer may simply make or disregard.
If both States regard Marco as resident under their domestic laws for an overlapping period, the treaty tie-breaker rules become relevant: permanent home, centre of vital interests, habitual abode and nationality. This is not an exercise in selecting the more attractive tax jurisdiction. It requires a factual reconstruction of personal and economic connections, which rarely move from one country to another on precisely the same date.
Does Marco retain an available home in London? Has his family already settled in Italy? Does he return to the United Kingdom every fortnight? Where are his economic activities carried on, and where is his personal life centred? Tax residence is not determined solely by an airline ticket or an entry in a population register.
A UK payslip does not determine the final tax liability
For several months, Marco remains on the UK payroll without any adjustment. UK tax continues to be withheld while his work is performed almost entirely from Italy.
That does not establish that the UK taxation is correct or final. It establishes only that the UK payroll has continued to operate.
The company must establish which Italian obligations arise in relation to registration, payroll, withholding, reporting and social security. The answer may depend on the structure selected, the existence of an Italian company or permanent establishment and the employee’s actual functions. In some circumstances, the employee may have to settle Italian tax through a personal return; in others, a local or parallel payroll mechanism may be required. Continuing to operate PAYE does not replace that analysis.
The Convention contains mechanisms for relieving double taxation, including credit for tax paid in the State that has the treaty right to tax the relevant income. A foreign tax credit does not, however, make an incorrectly configured payroll irrelevant. Limitations, source characterisation, finality of the foreign tax, timing differences and refund procedures may create significant cash-flow exposure. The treaty principle is set out in Article 24 of the UK–Italy Convention.
Every occasion on which Marco returns to work in London adds another line to the calculation. UK workdays may remain relevant for UK tax even after he has become Italian resident. Bonuses, commissions, restricted stock units, share options and deferred remuneration may also need to be attributed to the periods and duties to which they relate, rather than merely to the payment or vesting date.
Social security: a separate track from tax residence
In October, Marco asks whether he will continue building up UK National Insurance contributions. HR replies: “If you stay on the UK payroll, yes.” Once again, the response confuses payroll mechanics with the legislation that applies.
Income tax and social security operate on separate tracks. Double tax conventions do not determine where social security contributions are due. In relations between the United Kingdom and the European Union, the post-Brexit coordination rules apply. The general principle tends to subject an employee to the legislation of the State in which the work is carried out, while specific provisions may allow a temporarily detached worker to remain within the home-country system for the permitted period, provided all the conditions are met.
The applicable coverage must be evidenced. For employees temporarily sent to work in an EU country, HMRC provides for the relevant certificate application through the CA3822 procedure. HMRC also explains that a certificate of coverage evidences which social security legislation applies and that, for individuals who habitually work in more than one State, the proportion of activity carried out in the State of residence may be relevant (National Insurance contributions — part 3).
An arrangement with no genuine, predetermined end date does not become a temporary posting merely because it is described as one in a letter. Equally, the 25% threshold used in certain multi-State working cases is a specific social security rule. It is not a universal safe harbour for income tax, payroll or permanent establishment purposes.
For Marco, the social security determination affects more than payslip deductions. It may affect his contribution record, benefits and, in some circumstances, healthcare coverage. For the company, it affects employment costs and employer compliance obligations.
Assets left in the United Kingdom do not remain fiscally “in London”
Marco moves his family and his computer. Most of his wealth, however, stays in the United Kingdom: a current account, an ISA, an investment portfolio, the company share plan, a pension and a rented apartment.
When tax residence changes, the potential scope of personal taxation changes with it. An Italian resident is, as a general rule, taxed on worldwide income. Financial investments and real estate held abroad may also fall within the Italian foreign-asset reporting rules and, depending on the nature of the asset, within the wealth taxes applicable to foreign financial investments or property.
The fact that an investment is exempt or tax-favoured in the United Kingdom does not require Italy to recognise the same treatment. An ISA, for example, retains its legal status under UK law, but its UK tax exemption does not automatically travel with its owner into the Italian tax system.
The employee share plan also requires a separate analysis. The country in which the shares are listed, the employer’s jurisdiction, the period over which the award was earned and the places where the relevant duties were performed may lead to different consequences for employment income and any subsequent capital gain.
“But I qualify for the Italian impatriate regime”
In November, a colleague tells Marco that he will pay Italian tax on only part of his salary because of the impatriate workers’ regime. The statement is reassuring, but incomplete.
The regime exists, but it is not synonymous with the return of an Italian citizen. The current legislation requires all the applicable conditions to be met, including conditions relating to prior non-residence, continued residence in Italy, the requirement for the work to be performed mainly in Italy and the worker’s high-level qualifications or specialisation. Where the employee works in Italy for the same employer — or another member of the same group — for which he worked abroad before the move, the minimum prior period of foreign residence is extended and may reach six or seven tax years, depending on the individual’s employment history.
The consolidated provisions are now contained in Article 225 of the Italian Consolidated Income Tax Code. Continuing to work for the same UK employer does not necessarily prevent access to the regime, but it means that eligibility cannot be assumed.
More fundamentally, the impatriate regime concerns the computation of particular categories of personal income. It does not resolve social security, payroll, permanent establishment, corporate residence, foreign-asset reporting or the taxation of workdays physically performed in the United Kingdom.
When the issue reaches the company’s balance sheet
So far, the story has appeared to be about Marco. In December, however, the CFO discovers that Marco is not a junior analyst.
From Milan, he manages the entire Southern European region. He negotiates prices, agrees commercial terms, takes negotiations through to signature and regularly presents his apartment to clients as the company’s Italian base. The company reimburses his internet and telephone costs and contributes towards the room used as an office. The London team does not ordinarily change the agreements that he has negotiated.
The question is no longer simply where Marco should be taxed. It becomes: is the UK company carrying on part of its business in Italy?
Can a home become a place of business?
A permanent establishment does not arise automatically whenever an employee works from a home in another country. The label “home working” does not automatically prevent one either.
Under Article 5 of the UK–Italy Convention, a permanent establishment may arise from a fixed place of business through which an enterprise’s business is wholly or partly carried on. It may also arise, in the circumstances defined by the Convention, through the activities of a person who acts on behalf of the enterprise and habitually exercises contractual authority.
In Marco’s case, relevant factors may therefore include the continuity of his presence in Italy, whether the home office is effectively available to the company, the commercial reason for the Italian working arrangement, the nature of his functions, his dealings with clients and suppliers and the negotiating or contractual authority that he exercises in practice. The employment contract is evidence, but day-to-day conduct may matter more than the wording of the document.
In 2025, the OECD updated the Commentary to its Model Tax Convention specifically to clarify the treatment of cross-border home-office arrangements, demonstrating the importance of the issue for businesses and tax authorities (OECD, 2025 Update to the Model Tax Convention). That Commentary is relevant interpretative material; it does not automatically replace the wording of the applicable bilateral treaty.
If a permanent establishment exists, it becomes necessary to determine the profits attributable to the functions, assets and risks associated with the Italian activity. The answer is not necessarily equal to Marco’s employment cost or to a routine cost-plus return. Italian accounting, filing and tax obligations may follow, with possible implications for IRES, IRAP and, under a separate analysis, VAT. A permanent establishment for direct tax purposes and a fixed establishment for VAT purposes are not perfectly interchangeable concepts.
What if Marco also manages the company?
The risk changes again if Marco is a director, CEO or other individual who makes decisions from Italy concerning the company as a whole.
Italian legislation treats a company as resident where, for the greater part of its tax period, it has its registered office, place of effective management or place of ordinary management principally in Italy. The place of effective management refers to the continuous and coordinated taking of strategic decisions concerning the company as a whole. Ordinary management refers to the continuous and coordinated performance of the company’s day-to-day management activities as a whole. These definitions were introduced by Article 2 of Legislative Decree No. 209/2023.
The relocation of one manager to Italy does not automatically move the company’s tax residence. The risk is, however, materially different where the person moving is an operational employee, the head of a single function or the sole director who consistently makes the strategic and management decisions for the entire business from Italy.
A corporate-residence challenge is broader than a permanent-establishment challenge. The former may concern the taxation of the company as an Italian resident; the latter generally concerns the profits attributable to the Italian presence. The Convention also addresses dual corporate residence by reference to the place of effective management.
The move may also change the relationships between group companies
The group then decides that its Italian subsidiary will provide Marco with a desk, pay some of his travel expenses and give him administrative support. His contract remains with the UK company, and no one documents which entity benefits from his work or how the related costs should be recharged.
Transfer pricing now enters the picture. It becomes necessary to identify which entity controls Marco’s work, which entity assumes the relevant risks, who benefits from the functions performed and whether the arrangements between the group companies reflect arm’s-length conditions. A secondment letter, services agreement or cost-recharge policy does not settle the issue if it does not correspond with the parties’ actual conduct.
If the group has no Italian company, the same functional analysis may become central to attributing profits to a potential permanent establishment. If an Italian group company exists, transfer pricing, payroll, employment law and the UK company’s permanent-establishment exposure may all arise together.
This is not solely a tax question
Marco continues working under his English employment contract. His habitual place of work, however, has moved to Italy.
This may bring mandatory Italian rules on employment, working time, holidays, health and safety, accident insurance, remote-working arrangements, data protection and termination into scope. Choosing English law in the contract does not necessarily disapply the mandatory protections of the country in which the employee habitually works.
For the employer, the available structures — retaining the UK employment, a secondment, employment by an Italian company, dual employment or the use of an employer of record — are not merely administrative variations. Each changes the allocation of functions, costs, obligations and risks. No contractual label can, by itself, neutralise the underlying facts.
Six months later
By March, Marco is pleased with the arrangement. He lives in Milan, continues to lead his team and flies to London twice a month. The company, however, must now reconstruct retrospectively:
- the days of presence and work in each country;
- Marco’s residence status for the relevant UK and Italian tax periods;
- the allocation of salary, bonuses and share-based incentives;
- the applicable social security legislation;
- the Italian payroll and employer obligations;
- the possible existence of a permanent establishment;
- the place from which corporate decisions have been made;
- the economic relationships with any Italian group company; and
- the treatment of Marco’s foreign investments, property and financial assets.
The original request occupied three lines. Its consequences now extend across personal tax, corporate tax, social security, payroll, transfer pricing and employment law.
The real question is therefore not whether an employee can connect a laptop in Milan to a London office. Technically, that takes only seconds.
The real question is which people, functions, decisions and risks cross the border with him.
Vectigalis Tax
Vectigalis Tax, led by Angelo Chirulli FCA, ADIT, TEP — a UK Chartered Accountant and Italian Dottore Commercialista — assists employees, business owners and international groups with the coordinated analysis of relocations between the United Kingdom and Italy. Its work covers personal residence, employment taxation, payroll, social security, permanent establishment, corporate residence, transfer pricing and the associated compliance obligations.
Where a relocation is still under consideration, the operating model and its consequences in both jurisdictions can be examined before implementation. Where the move has already taken place, the analysis begins with the actual facts: the days worked, the authority exercised, the decisions made and the economic flows that have arisen.
For further information: ANGELO@VECTIGALISTAX.CO.UK
This article is provided for general information only. The story is illustrative and does not describe an actual case. Nothing in this article constitutes tax, legal, social security, payroll, employment or immigration advice, nor is it a substitute for an analysis of the specific circumstances and the law applying at the time of the relocation.