On 10 November 2023, the competent authorities from Switzerland and Italy signed a decisive declaration that establishes a permanent regulation on the taxation of work performed from home for cross-border commuters (see our Tax Briefing “Tax aspects of cross-border commuters and working from home – update on Italy and France”). Based on this, the corresponding mutual agreements were published on 28 November 2023, which clarify the regulations for 2023 and the following years.
On 17 July 2023, the agreement on the taxation of cross-border commuters (so-called: “2020 Cross-Border Agreement”) and a protocol of amendment to the double taxation agreement (DTA) between Switzerland and Italy entered into force. These new rules will apply from 1 January 2024. Under the new agreement, a cross-border commuter is
- an employee residing within a radius of 20 kilometres of the border of one state and
- is employed by an employer in the border area of the other state.
The designated border areas encompass the Swiss cantons of Grisons, Ticino and Valais as well as the Italian regions of Lombardy, Piedmont and Valle d’Aosta and the province of Bolzano.
Part of the agreement is the planned automatic exchange of information on the employment income of cross-border commuters in order to enable correct taxation.
For “new cross-border commuters” who took up their employment after 17 July 2023, it is envisaged that the state in which they work (employer’s state) may withhold 80% of the regular withholding tax on their earned income. These employees are subject to ordinary taxation in their country of residence, whereby double taxation shall be prevented. Italy now avoids double taxation by offsetting the Swiss tax (no exemption of income taxed in Switzerland).
Transitional provisions apply to cross-border commuters who were already working in the aforementioned border cantons between 31 December 2018 and 17 July 2023.
Mutual agreements between Switzerland and Italy
The competent authorities of Switzerland and Italy have now agreed the following retroactively for the 2023 rules for working from home in a temporary mutual agreement concluded on 28 November 2023:
- Between 1 February 2023 and 31 December 2023, working from home is possible for up to 40% of working hours, without any international allocation of tax rights or change in the status of cross-border commuters.
- The mutual agreement applies exclusively to cross-border commuters within the meaning of the Agreement of 3 October 1974 between Switzerland and Italy on the taxation of cross-border commuters and financial compensation for Italian border communes.
- However, for the period from 1 July 2023 to 31 December 2023, the mutual agreement only applies to cross-border commuters who were already working from home on 31 March 2022.
The following applies to work performed from home for 2024-2025:
- From 1 January 2024, the amount of permitted work from home will be reduced from 40% to just 25%.
- The mutual agreement applies exclusively to cross-border commuters within the meaning of the 2020 Cross-Border Commuters Agreement, including those who fall within the scope of the transitional arrangement.
The mutual agreement is to be signed by both states by 31 May 2024, with the provisions applying retroactively from 1 January 2024.