Cross-border workers: tax rules, benefits and smart working

3 days ago

9 min read

Cross-border work concerns taxpayers who reside in one State and carry out their working activity across the border, normally returning to their country of residence.

From a tax perspective, however, there is no single “cross-border workers regime”: Italian legislation overlaps with Double Taxation Conventions and specific bilateral agreements, with rules that may vary significantly depending on the State in which the activity is carried out, the place of residence and, in some cases, the taxpayer’s employment history.

For residents in Italy, the phenomenon particularly concerns those who work in the border areas of Switzerland, France, Austria, Slovenia and San Marino. The practice of the Italian Revenue Agency in fact includes among the border areas those belonging to France, Austria, San Marino and Vatican City, to which those of Switzerland and Slovenia are added.

Particularly complex today is the relationship with Switzerland, for which since 2024 the new Agreement of 23 December 2020 has been in force, alongside the transitional regime for the so-called “old cross-border workers”, a specific substitute tax provided for certain categories of workers and the new rules on cross-border teleworking.

1. Who is a cross-border worker

For the purposes of Italian tax legislation, there is no general and uniform definition of a cross-border worker. An indirect definition can be derived from Article 1, paragraph 175, of Law No. 147/2013, which grants a specific allowance to persons fiscally resident in Italy who carry out dependent employment in border areas or neighbouring States, continuously and as the exclusive object of the employment relationship.

The fundamental requirements are therefore Italian tax residence, the continuous – and not merely occasional – performance of the working activity abroad and the connection with a border area or a neighbouring State. The relevant border areas also include those of Switzerland, in addition to those of France, Austria, Slovenia, San Marino and Vatican City.

The practice of the Italian Revenue Agency has also generally brought within the regime workers who travel abroad daily to carry out their activity. The situation of those who reside permanently in the foreign State in which they work therefore remains distinct: for such persons, where the conditions are met, the rules of Article 51, paragraph 8-bis, of the TUIR on conventional remuneration may apply.

It must, however, be considered that the concept of cross-border worker may assume different characteristics depending on the specific international Convention or bilateral agreement applicable. In the new Italy-Switzerland Agreement, for example, express relevance is given to the return, in principle daily, to the main home in the State of residence.

The qualification as a cross-border worker does not moreover necessarily depend on the registered office of the employer. With ruling response No. 126/2026, concerning a worker resident in Switzerland and employed in Italy, the Italian Revenue Agency clarified that what is relevant is the actual place where the working activity is carried out.

2. The EUR 10,000 tax allowance

The main tax benefit provided for by domestic legislation consists of the EUR 10,000 allowance.

From tax year 2024, employment income earned abroad in border areas or neighbouring States, continuously and as the exclusive object of the employment relationship, by persons fiscally resident in Italy, contributes to the formation of total income only for the part exceeding EUR 10,000. The threshold, previously set at EUR 7,500, was increased by Law No. 83/2023.

For example, in the case of annual cross-border employment income of EUR 60,000, the income contributing to the formation of total income will, where all the requirements are met, amount to EUR 50,000. The allowance is annual: it refers to the income deriving overall from the cross-border activity and is not multiplied where there are several employment relationships.

When the income is also subject to taxation in the foreign State, it is also necessary to coordinate the allowance with the credit for taxes paid abroad provided for by Article 165 of the TUIR. On this point, the practice of the Italian Revenue Agency considers that, where foreign income contributes only partially to the formation of Italian income, the credit must also be proportionally reduced.

However, tax case law has also expressed a different approach. In particular, according to judgment No. 944 of 10 October 2023 of the Court of Tax Justice of Second Instance of Emilia-Romagna, the credit for taxes paid abroad would instead be due in full, without proportional reduction as a result of the allowance.

3. The role of international Conventions

The allowance provided for by Italian legislation represents only a first level of the analysis. It is in fact always necessary to verify the Double Taxation Convention or any specific agreement applicable to the State in which the activity is carried out.

The solutions may be very different. In relations with France, where the treaty conditions are met, the income of a private-sector cross-border worker is taxed exclusively in the State of residence. A similar approach applies in relations with Austria, while with San Marino concurrent taxation in the two States is provided for.

Slovenia, although relevant as a border area for the purposes of Italian domestic legislation, is not included among the States for which a specific treaty provision dedicated to cross-border workers is indicated. Also in this case, therefore, it is necessary to coordinate the domestic allowance with the ordinary provisions of the Italy-Slovenia Convention on employment income, verifying the requirements in the

specific case.

The fact of residing in Italy and working across the border does not therefore, in itself, make it possible to establish where the income must be taxed: the answer may change depending on the State of employment and the applicable international rules.

4. Attention to public-sector employees

A further fundamental distinction concerns the public or private nature of the employment relationship.

With ruling response No. 132/2026, the Italian Revenue Agency confirmed, with reference to the Italy-France Convention, that the treaty rules for cross-border workers provided for private-sector employment cannot automatically be extended to public-sector employees, for whom it is necessary to verify the specific treaty provisions dedicated to public functions.

The case concerned a worker resident in France who carried out activity at an Italian office of the Bank of Italy located in a border area, partly in person and partly remotely. The Italian Revenue Agency brought the remuneration within the treaty rules on public employment, with exclusive taxation in Italy.

The principle is important: working in a border area does not necessarily mean benefiting from the treaty tax regime provided for cross-border workers. It is first necessary to correctly classify the employment relationship and identify the applicable treaty provision.

5. Italy-Switzerland cross-border workers: the new regime

The most complex framework today concerns relations between Italy and Switzerland.

The new Agreement of 23 December 2020, applicable from 1 January 2024, introduced a mechanism of concurrent taxation for new cross-border workers. For a worker resident in Italy, Switzerland may subject the income to taxation up to the limit of 80% of the tax ordinarily applicable, while Italy, as the State of residence, retains its taxing power, granting a credit for taxes paid in Switzerland.

For the purposes of the Agreement, the concept of cross-border worker requires, among other things, that the worker be fiscally resident in a Municipality whose territory lies, wholly or partly, within the 20-kilometre area from the border, carries out dependent employment in the border area of the other State for an employer, permanent establishment or fixed base located there and returns, in principle daily, to his or her main home in the State of residence.

6. Protection of “old cross-border workers”

The new system does not apply indiscriminately to everyone. The Agreement protects the so-called “old cross-border workers”, maintaining, where the conditions provided for by the transitional regime are met, the previous system of exclusive taxation in the State of employment.

For Italian residents falling within the transitional regime, therefore, exclusive taxation in Switzerland essentially continues. The protection concerns those who had cross-border worker status on 17 July 2023 or had held it during the period between 31 December 2018 and 17 July 2023.

The distinction between “old” and “new” cross-border worker is therefore decisive: two workers resident in the same territory and employed in the same area of Switzerland may be subject to different tax regimes because of their employment history.

7. The 25% substitute tax for certain cross-border workers

The framework became even more complex with Article 6 of Decree-Law No. 113/2024, which introduced, starting from tax year 2024, a particular optional regime for certain categories of workers resident in specific Italian Municipalities located, wholly or partly, within 20 kilometres of the Swiss border.

Where the conditions provided for by the provision are met, the worker may opt for a substitute tax for IRPEF and the related additional taxes equal to 25% of the taxes applied in Switzerland on the same income.

It is important to underline that this is not a 25% rate applied to the income: the Italian substitute tax is determined at 25% of the taxes applied in Switzerland, converted into euros on the basis of the average annual exchange rate.

Access to the regime requires compliance with specific conditions relating to the Municipality of residence, qualification as a cross-border worker and previous working activity carried out in the Cantons concerned. The option is exercised in the income tax return and the taxes paid in Switzerland on income subject to the substitute tax cannot be deducted.

The convenience of the option must therefore be assessed case by case, comparing its effects with those resulting from the application of ordinary IRPEF and the other applicable provisions.

8. Smart working: up to 25% without losing cross-border worker status

The spread of smart working has made the taxation of cross-border employment even more complex. If the employee works some days from his or her home instead of physically travelling to the State of employment, it is in fact necessary to verify whether this may alter cross-border worker status and the allocation of taxing powers.

The issue has been expressly regulated in relations between Italy and Switzerland. The Protocol amending the Agreement allows the worker to carry out up to 25% of the working activity at his or her home in the State of residence without losing, for that reason, cross-border worker status.

The rule concerns both new cross-border workers, subject to concurrent taxation, and old cross-border workers benefiting from the transitional regime. The rules apply from 1 January 2024 and consolidate the previous transitional regime agreed between the two States.

The 25% threshold therefore assumes particular importance in the organisation of working arrangements. Teleworking within this limit is expressly safeguarded for the purposes of the Italy-Switzerland cross-border tax regime; exceeding the threshold, on the other hand, requires a specific assessment of the tax consequences.

9. Taxation and social security do not necessarily follow the same rules

The position of the cross-border worker must not be assessed only from a tax perspective. There are in fact specific social security coordination rules, which do not necessarily coincide with those used to establish where the income is taxed.

Within the European Union – and, by virtue of the relevant agreements, in relations with Switzerland – Regulation (EC) No. 883/2004 applies. For social security purposes, a cross-border worker is considered to be a person who carries out an employed or self-employed activity in one State and resides in another, to which he or she returns as a rule every day or at least once a week.

As a general rule, the principle of territoriality of social security contributions applies: the worker is subject to the social security legislation of the State in which he or she carries out the activity. For a cross-border worker resident in Italy who works in another EU State, contributions are therefore, as a rule, paid in the State in which the activity is carried out.

The distinction assumes particular importance in the presence of smart working, since a working arrangement compatible with maintaining cross-border worker status for tax purposes does not necessarily produce the same consequences for social security purposes.

10. Foreign accounts, tax monitoring and IVIE/IVAFE

The proper management of the cross-border worker’s position finally includes any obligations relating to assets and financial activities held abroad.

Under certain conditions, cross-border workers may benefit from a specific exemption from tax monitoring obligations for investments and financial activities held in the State in which the working activity is carried out.

The exemption, however, has a limited scope: it does not automatically concern assets held in States other than the State of employment and does not eliminate, where the relevant conditions are met, the application of IVIE and IVAFE. Even where the exemption from monitoring applies, it may therefore still be necessary to complete the RW section for the purposes of calculating the relevant wealth taxes.

11. Concluding considerations

Ultimately, there is no single “cross-border workers regime”.

Taxation depends on tax residence, the State and place in which the work is actually carried out, the public or private nature of the employment relationship, the applicable international Convention and, increasingly, the actual manner in which the activity is carried out, including remote working.

The relationship with Switzerland is the clearest example: it is necessary to distinguish between old and new cross-border workers, verify the territorial requirements, assess possible access to the 25% substitute tax and carefully consider the percentage of teleworking carried out from the State of residence. Also for those who work in France, Austria, Slovenia or San Marino, however, identifying the correct treatment requires coordination between Italian legislation, treaty rules and social security rules.

Even an apparently marginal change – a change of residence, a new employer, an increase in the number of smart working days or a change in the actual manner in which the activity is carried out – may therefore significantly affect the tax and social security treatment.

Do you work across the border or are you considering carrying out a working activity as a cross-border worker in Switzerland, France, Austria, Slovenia or San Marino? Do you want to understand how your income will be taxed and learn about the tax and social security implications, which benefits you can take advantage of and what effects smart working may have on your position?

The RCLex International Desk is ready to support you, making available the Firm’s specialist expertise in tax and legal matters, as well as an established network of professionals and foreign law firms in the various jurisdictions concerned.

📌 For a general description of the Desk’s approach and activities: 👉 https://www.rclex.it/internationaldesk