Individual Taxation

National basis for the taxation of cross-border commuters working from home

On 1 March 2024, the Federal Council adopted the Dispatch on the Federal Act on the Taxation of Telework in International Relations. This is intended to create the domestic legal basis for the taxation in Switzerland of income earned by cross-border commuters from teleworking (working from home) abroad. The National Council was the first chamber to approve the draft legislation on 15 April 2024. It is now being discussed in the Council of States.

In recent years, digitalisation and new communication technologies have led to a trend towards more remote working in the labour market. The COVID-19 pandemic has further strengthened this trend. The increase in working from home also has an impact on taxation in a cross-border context. In principle, earned income can only be taxed in Switzerland if the right to tax in Switzerland is not restricted by treaty and a national tax base exists.

Double taxation agreements (DTA) or cross-border commuter agreements

In international relations, the DTAs and the cross-border commuter agreements generally stipulate that income from employment may be taxed in the country in which the work is carried out. In the case of teleworking, the right of taxation would therefore be transferred from the state of the Swiss employer to the foreign state of the employee’s residence (state of domicile).

As an exception to this principle, Switzerland has agreed with France and Italy that telework performed in these countries for a Swiss employer may continue to be taxed in Switzerland to a certain extent, even if the work is not physically performed in Switzerland (France: up to 40 per cent of working time / Italy: up to 25 per cent of working time).

The bilateral agreements with Germany and Liechtenstein stipulate that teleworking by cross-border commuters does not affect their tax status as cross-border commuter.

There is no bilateral agreement regarding cross-border commuters with Austria.

Domestic law

According to the jurisprudence of the Federal Supreme Court, the earned income of individuals who are not tax residents in Switzerland can only be taxed at source if the work is physically carried out in Switzerland. If a DTA or a cross-border commuter agreement assigns the right of taxation to Switzerland, but the work is not physically carried out in Switzerland, Switzerland cannot exercise its right of taxation due to the lack of a domestic legal basis.

The proposed new tax base is now intended to ensure the implementation of the new international treaty provisions in Switzerland. The proposal is limited to Switzerland’s five neighbouring countries: Germany, France, Italy, Liechtenstein and Austria.

Switzerland has significantly more cross-border commuters from abroad than Swiss employees working in neighbouring countries. In total, about 400,000 cross-border commuters work in Switzerland, most of whom are tax residents in France (220,000) and Italy (90,000). The main aim of the draft law is therefore to ensure that Switzerland can fully exercise its right to tax cross-border commuters living in France and Italy and that Switzerland loses as little tax revenue as possible.

Effects on employers and taxpayers

Where national legislation provides an explicit tax basis for telework in the country of residence, it is important to certify the working days on which telework is carried out. Cooperation between employee and employer is inevitable, and the certification obligations must also be clearly defined with regard to the exchange of information on payroll data for tax purposes agreed with the respective state. It can therefore be assumed that teleworking will increase the documentation burden for all parties involved (employers, employees, cantonal tax authority, tax authority of the country of residence).

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