In this article, we will analyze a particularly interesting topic, the "Social Security Agreement" between Italy and the
United States: this is the Convention between the two Countries on the
subject of "Social Security".
In particular, we will
analyze in which Country it's necessary to pay Social Security Contributions in the case
of American Citizens who come to work in Italy or in the case of Italian Citizens who go to
work in America.
1. THE SOCIAL SECURITY AGREEMENT (OR TOTALIZATION AGREEMENT)
Let's start the analysis by saying that the Social Security Agreement between Italy and the United States was signed back in 1978 and therefore was
one of the first "Totalization Agreements" to be signed, given the long-standing relations between the two Countries and the
presence of numerous immigrants in their respective Countries.
The aspect on
which this analysis focuses is understanding in which Country (Italy or the US) social security
contributions must be paid in the case of migratory flows between Italy and the US.
2. WHERE DO I HAVE TO PAY SOCIAL SECURITY? LET'S SEE ART. 7 OF THE SOCIAL SECURITY AGREEMENT
The basic principle governing the Agreement is written into Article 7, paragraph
1 of the Social Security Agreement:
Art. 7 - Par. 1:
"Persons to whom this Agreement applies who are employed or
self-employed within the territory of one of the Contracting States shall be
subject to the laws of such State, except as otherwise provided in this
article."
This means that, in principle, the Citizens of one of the two Countries who work within the territory of one
of the two States, will be subject to the Social Security legislation of that State.
However,
there are exceptions to this general rule.
Indeed, it is important
to remember that, while Italian social security legislation is fundamentally
territorial, American social security legislation has specific extraterritorial
characteristics that make it possible for both regulations to apply to certain
cases. Therefore, let's see what the other paragraphs of Art. 7 provide in this
regard.
Paragraph 2 establishes that:
Art. 7 - Par. 2:
"Services performed by a United States national in the Italy which
are covered under the laws of the United States shall remain covered under the
laws of the United States".
This paragraph clearly spells out the extraterritoriality of
American social security legislation, providing that an American Citizen who
moves to Italy and who is subject to American legislation remains covered by it
even once they have moved to work in Italy.
Paragraph 3 establishes that:
Art. 7 - Par. 3:
"Services performed by an Italian national in the United States for an Italian employer or forn an enterprise controlled by an Italian firm shall be covered under the laws of Italy".
It's important to note that this paragraph, although it contains a symmetrical
component compared to paragraph 2, differs from the previous one in that the
extraterritoriality profile applies only where there is an Italian employer or
an enterprise controlled by an Italian company.
Paragraph 4, on the other hand, analyzes the cases in which both Italian
and American legislation are applicable to a certain individual. Under letter
a) of this paragraph it is established that:
Art. 7 - Par. 4 - lett. a):
a) A national of one of the States who, with respect to the same
period of work, would be subject to the laws of both States shall remain
subject for such period to the laws of the State of which he is national and
shall be exempt from the laws of the State of which is not national.
Under letter b) it's established that:
Art. 7 - Par. 4 - lett. b):
b) A national of Italy or a national of both States who, with respect to the same period of work, would be subject to the laws of both States shall, for such period, elect to remain subject to the laws of one of the States and shall be exempt from the laws of the other State.
Under letter c) it is established that:
Art. 7 - Par. 4 - lett. c):
c) A person who is not a national of either State and who, with respect to the same period of work, is subject to the laws of both States shall be subject, for such period, to the laws of the State in which the work is performed and shall be exempt from the laws of the other State.
Now, let's see what is the meaning of these provisions.
Letter a) of paragraph 4 of Art. 7 provides that if an individual is subject to both social security regulations for a certain period of time, they will be subject to the legislation of the Country of which they are a citizen, being exempt from the contribution of the other Country.
Letter b) of the same paragraph, instead, establishes that:
• Italian Citizens
and
• American Citizens who also possess Italian Citizenship
who find themselves subject to both legislations for a given period of time, can elect which of the two legislations to pay social security contributions to, being symmetrically exempt from contribution in the other State.
Letter c), conversely, states that individuals who are neither Italian nor American Citizens and who find themselves in a situation where the two social security legislations concur must adopt the legislation of the State in which they are employed, being exempt from that of the State in which they do not work.
3. LET'S SEE SOME PRACTICAL EXAMPLES
Let's now try, with a few examples, to better understand how this agreement between Italy and the United States regarding Social Security applies in practice.
EXAMPLE 1:
ITALIAN CITIZENS WORKING IN THE UNITED STATES.
The first case we evaluate is that of the Italian Citizen who emigrates to America. Please note that we are considering the case where the individual in question has only Italian Citizenship. The first and most important distinction must be made considering what kind of work the Italian Citizen is going to perform, meaning whether it is employment or self-employment.
EMPLOYMENT IN THE US
If the Italian Citizen finds an employment job in America, it is necessary to make a further distinction, where the employer is American, or of another nationality, or is Italian (or is an American enterprise but controlled by an Italian company).
a) AMERICAN EMPLOYER (or of another nationality): if the Italian Citizen who moved to the US is hired by an Amerian company, then United States social security legislation applies without doubts, in compliance with the general principle of territoriality established by paragraph 1 of Art. 7.
b) ITALIAN EMPLOYER (or of an American Company but controlled by an Italian Company): in this case, it is possible for the Italian Citizen to make an election for one of the two social security legislations.
This derives from the combined provisions of paragraph 3, which provides for Italian legislation in the event of hiring in America by an Italian enterprise, and letter b) of paragraph 4, which provides the possibility for the Italian Citizen to make an election for one of the two legislations.
Please note that letter b) of paragraph 4 comes into play given that:
• US social security rules applies in relation to the principle of territoriality referred to in paragraph 1.
• Italian social security rules applies in relation to what is established in paragraph 3.
Therefore, there is a conflict between the two legislations which is resolved based on the individual's will, as provided for by letter b) of paragraph 4.
Please note that in the absence of an election, Italian legislation prevails as it is specifically referenced in the case in question by paragraph 3.
It's also important to understand that if the Italian enterprises in America were to hire a NON-Italian Citizen, i.e., an American Citizen, then the social security to apply would undoubtedly be the American one.
SELF-EMPLOYMENT IN THE US
In the event that the Italian Citizen starts a self-employment position in America and is also a resident in America, the legislation to apply will undoubtedly be the American one as required by the principle of territoriality.
EXAMPLE 2:
AMERICAN CITIZENS WORKING IN ITALY.
In the event of a US Citizen who has moved to Italy, it's necessary to make a distinction between employment and self-employment; also, in this case we are considering the scenario where the individual is only an American Citizen and not also an Italian Citizen.
EMPLOYMENT IN ITALY
Let's look at the following sub-cases:
a) ITALIAN EMPLOYER (or of another nationality): If the US Citizen is hired by an Italian Company, Italian legislation undoubtedly applies based on the general principle of territoriality.
b) AMERICAN EMPLOYER: If the American Citizen moves to Italy to work for an American employer, then the American social security applies, as provided by paragraph 2 of Art. 7: the extraterritoriality of American social security legislation prevails.
SELF-EMPLOYMENT IN ITALY
In this case, letter a) of paragraph 4 comes into play and, therefore, the US Citizen who moves to Italy and starts a self-employment business in Italy will be exclusively subject to the US social security regulations, as America is the Country of Citizenship.
For more information:
Let's now look at other cases that can occur in reality, although it is always necessary to carefully evaluate each situation case by case, given that the combined provisions of the four paragraphs of Art. 7 that we have analyzed often give rise to counter-intuitive results.
EXAMPLE 3:
ITALIAN CITIZENS (WHO ARE NOT US CITIZENS) WORKING IN ITALY FOR AN AMERICAN EMPLOYER.
In this case, letter b) of paragraph 4 comes into play and therefore the possibility of election is provided for the individual in question.
EXAMPLE 4:
INDIVIDUALS WHO POSSESS DUAL CITIZENSHIP.
This is the case of individuals who are both American Citizens and Italian Citizens. In this case, a distinction must be made depending on whether the work is performed in Italy or in America.
a) WORK PERFORMED IN ITALY.
In this case, both for employment and self-employment, there is always the possibility to make the election between Italian and American legislation.
This is surely correct for the Self-Employment case: see in particular the followin article:
In the Employment case, instead, there are several practical difficulties who make it difficult to apply. See also these articles:
b) WORK PERFORMED IN AMERICA.
If the work activity is carried out in America, a further distinction must be made between employment and self-employment:
b-1) Employment
If the individual with dual citizenship is an employee, then they have the option to request which of the two social security legislations to apply. Again, also in this case, however, in almost all cases, American legislation is applied for practical reasons.
b-2) Self-Employment
If the individual with dual citizenship is self-employed, then US social security legislation always applies.
YOU CAN BE ALSO INTERESTED IN:
1) Our section dedicated to Tax Residence:
2) Our section dedicated to US Citizens who want to move to Italy:
3) Our section dedicated to taxation in Italy:
4) Our section dedicated to taxation in the US:
5) Our section dedicated to Tax Break in Italy:
6) Our section dedicated to US Trusts:
The following posts:
CONTACT US FOR MORE INFORMATION
If you need more information, you can send an email to:
enrico.povolo@dottcomm.net
or make a phone call to the following number:
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Enrico Povolo