With response n. 5 of the current year, the Italian Revenue office provides instructions on filling in 2025 tax return with focus on deduction of social security contribution paid overseas by Italian residents working abroad. The case examined concerns employees whose employment performance abroad lasts for long periods, precisely over 183/184 days during a 12 months period.
The matter is: can social contribution paid abroad be deducted in Italy or not?
Here’s an in-depth.
Framework of the Italian main provisions
Italian fiscal regulation allows deduction of employees’ social security (paid in Italy to INPS – i.e. Italian social security body). Article 2 of the Italian Consolidated Income Tax Act (herein also TUIR), amended in 2024, defines tax residency for individuals, determining unlimited tax liability on worldwide income for Italian residents. In detail, are considered tax residents (at a national level – in case of international circumstances double taxation agreements should be analysed) in Italy those who alternatively have:
- Italian residency, for most of the fiscal year (more than 183/183 days);
- Elected Italian domicile. That is the defined as the place in which the subject’s personal and family relationships “mainly” develop.
- Just been staying in Italy. The fractions of day are now also considered in the calculation of the period spent in Italy. To this end it is sufficient to exceed 183 days (or 184 in case of a leap year) on Italian territory – even not necessarily consecutive – to be tax resident in Italy and, therefore, to be taxable.
These people, being considered tax resident in Italy are also liable for Italian taxes quantified on their overall income – worldwide produced – according to article 3 of our TUIR.
Are non-residents being taxed in Italy?
Both categories are taxed according to article 3 of TUIR; the main difference among residents and non-residents in the tax base considered:
- Residents are taxed on their worldwide income;
- Non-residents are taxed only on their Italian income (the one connected to the Italian working performance).
To these necessary premises, the case detailed by the revenue agency focused on employees who are tax resident in Italy and work abroad. According to TUIR, for some of these employees’ the Italian taxes are to be quantified on a conventional compensation (stated by law, reviewed on a year basis by the Italian government) in place of their effective income. In detail, pursuant to art 51, paragraph 8 bis TUIR, this is the case of employees:
Working abroad on a continuous basis and as the exclusive object of the employee relationship.
Keeping their residency in Italy;
Working abroad for more than 183 days during the 12 months period considered;
In all of this, where do social security contributions fall?
As a general rule employees’ social security, paid to INPS by the employer, is considered a deduction from the gross income; at a general level this is the operation that leads to the definition of the employees’ tax base in Italy. This is in compliance with the following provisions:
- Article 10 TUIR: indication of the burdens and expenses incurred by the taxpayer to be deducted from total income;
- Article 51, paragraph 2(a), TUIR: defining how employment income is to be quantified (amounts to be considered and exceptions).
Therefore, the analysis carried out by the revenue office is twofold, providing instructions on the following two questions:
- since Article 51, paragraph 8 bis, TUIR is a special provision applicable only to those who meet the above-mentioned requirements and, since, given its peculiarity, this provision derogates from the application of paragraphs 1 to 8 of Article 51 TUIR (which all together specify how income from employment is to be calculated, distinguishing relevant from irrelevant amounts) – paragraph 2(a) included – social security charges can or cannot be deducted when conventional compensation is involved?
- If question a) has a positive answer, is deduction of social contribution extended also to mandatory contribution paid abroad or only to the amounts paid to INPS?
Question a)
Pursuant to article 10(1)(e) of the TUIR “are deducted from total income, if they are not deductible in the determination of the individual incomes that contribute to it, ‘social security and welfare contributions paid in compliance with legal provisions […]”.
The revenue office, recalls response to Parliamentary Written Question of 30 January 2001 (Resolution no. 701021) and highlights that “a strictly literal interpretation of the aforementioned paragraph 8bis would lead to the exclusion that the withholding agent may deduct from the conventional compensation the social security and welfare contributions paid in compliance with legal provisions, the health care contributions referred to in Article 51, paragraph 2, letter a) of the TUIR, as well as the sums withheld from the employee for charges referred to in Article 10 of the TUIR, in accordance with letter h) of the same Article 51, paragraph 2, in order to determine the basis on which to operate the withholding taxes”.
In the reply to the aforementioned parliamentary question, it was, however, recognised, by way of interpretation, the possibility of deducting, already at the tax substitution stage, the contributions required by law, governed by Article 51, paragraph 2, letter a), of the Consolidated Income Tax Act (TUIR), from the conventional compensation, precisely by noting that such contributions would in any event be deductible for the employee, at the declaratory stage, pursuant to Article 10, paragraph 1, letter e), TUIR.
Same point is reported by additional recalled tax rulings and judgments. So, social security contribution can be deducted.
How should that happen?
The Revenue agency provides instructions on how social security charges should be indicated in tax returns. When stating, the aforesaid contributions, relating to the employee’s income produced abroad in 2024 and determined on the basis of the conventional salaries referred to in Article 51, paragraph 8bis, of the Consolidated Income Tax Act, must be indicated in line E21 of Form 730/2025.
Question b)
How about social contribution paid abroad by Italian residents? Should that fall under article 10 TUIR as well even if paid under foreign provisions?
The Revenue office, recalling also Italian Supreme Court guidelines (Judgment No. 17747 of 27 June 2024, and Judgment n. 9446 del 10 April 2025), allows deduction from the total income of social security contributions withheld and paid by the employer in the foreign country in compliance with legal provisions.