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CROSS-BORDER WORKERS

Switzerland strikes new cross-border worker deal with Italy

Workers in Switzerland who live in Italy will be subject to a new tax arrangement, after the respective governments struck a deal.

The Swiss village of Foroglio, in the southern Italian-speaking canton of Ticino. Image: Pixabay
The Swiss village of Foroglio, in the southern Italian-speaking canton of Ticino. Image: Pixabay

Taxation is a complicated matter for everyone, but even more so for cross-border workers. Normally, you pay Swiss taxes automatically, because your Swiss employer deducts them from your monthly salary.

However cross-border workers are usually under a different arrangement, as the tax burden needs to be shared between the worker’s country of residence and place of employment. 

While the Covid pandemic-related rules are an exception, Switzerland and neighbouring states have put into effect tax rules which often restrict the amount of days a worker can work from home, thereby encouraging workers to actually cross the border into Switzerland. 

What is the rule change for Italy-domiciled workers? 

Under the new arrangement, the Swiss government will retain 80 percent of the withholding taxes on cross-border workers. 

Italy will receive the other 20 percent. 

Under the previous agreement, Switzerland received 100 percent of the taxation, but would transfer 40 percent of it in compensation to border regions in Italy. 

EXPLAINED: What cross-border workers should know about taxation in Switzerland

A transitional deal has been struck whereby those who work in Ticino, Graubünden or Valais from the start of 2019 until the new agreement came into effect will be taxed in the same way as the previous arrangement until 2033. 

The change should not require any significant steps from cross-border workers, as the primary alterations will take place at a governmental level. 

Approximately 350,000 people cross Switzerland’s border to work, according to pre-pandemic estimates. 

An estimated 23 percent of Switzerland’s cross-border workers come from Italy. Around 55 percent live in France and 18 percent live in Germany. A handful of cross-border workers live in Austria. 

This link provides more information about taxation of cross-border commuters.

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CROSS-BORDER WORKERS

Cross-border workers who work from home may see Swiss taxes increase

Both chambers of Switzerland’s parliament are supporting the move to impose higher taxes on cross-border employees, even if they work from their homes abroad.

Cross-border workers who work from home may see Swiss taxes increase

The Federal Council wants to create a legal basis allowing Switzerland to tax income from teleworking that foreign workers carry out in a neighbouring state for a Swiss employer.

In principle, double taxation agreements between Bern and its neigbours provide for the income to be taxed by the country in which the cross-border is employed — that is, Switzerland.

Under this accord, border commuters in Geneva, Ticino, and some parts of northwestern/eastern Switzerland, are taxed at source (also known as ‘withholding tax’), with employers deducting taxes directly from the workers’ salaries and forwarding them to the canton.

But French workers employed in cantons Bern, Solothurn, Basel-City, Basel-Country, Vaud, Valais, Neuchâtel, and Jura can nevertheless be taxed by France.

While most of this money remains in Switzerland, a portion is paid to the employees’ respective countries of residence or regional authorities in that country. 

It is intended to compensate for the public charges incurred by cross-border workers in their home municipalities. The funds are supposed to be used for infrastructure projects of regional importance, in particular those managing mobility on both sides of the border.

This way, each country benefits, at least up to a point.

Loss of revenue

In the case of teleworking, however, the right to tax cross-border commuters passes from the country in which the employer is based (that is, Switzerland), to the state where the employee performs his work.

“In a cross-border context, home-working has repercussions on taxation,” the National Council said.

The reason is that cantonal coffers don’t get as much tax revenues as they would if these employees physically worked in Switzerland rather than in their home countries. 

That is why there is a legislative push to change the system.

France and Italy

Bern already has agreements with France and with Italy, stipulating that Switzerland can, to a certain extent, continue to impose teleworking carried out in these countries on behalf of a Swiss employer.

For those working from France, it means that up to 40 percent, and for Italy up to 25 percent of working time can be taxed in Switzerland.

No such agreements exist with Germany and Austria.

The issue will now before the Federal Council, which must create legal basis for implementing this measure.

READ ALSO: What cross-border workers in Switzerland need to know about tax change with France

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