Global Daily Tax News, Swiss Lawmakers Agree New Remote Work Tax Law, (Jun 7, 2024)

Switzerland's upper house of parliament has approved a proposal to establish a legal basis governing the tax rules that apply for remote work carried out cross-border for a Swiss employer.

It also approved a new arrangement concluded with France on the treatment of cross-border workers and also changes to the two countries' double tax agreement to counter tax base erosion and profit shifting.

The provisions governing the rules on remote work are intended to enable implementation of arrangements struck with France and Italy on the taxation of cross-border workers.

In principle, double taxation conventions provide that income from salaried activity is taxed by the state in which it is physically exercised. Where a taxpayer works remotely, the right to tax passes from the state in which the employer is established to the state of domicile of the worker.

Switzerland has concluded agreements with several border states providing for "cross-border worker status", typically aimed at individuals working in Switzerland who commute back to their country of residence. Such status enables taxation instead in the taxpayer's state of residence.

The number of cross-border workers working in Switzerland is significantly greater than that of Swiss taxpayers working cross-border in neighboring states.

The teleworking tax bill is intended to enable Switzerland to exercise taxing rights in deals agreed with France and Italy.

The legislation provides, within the framework of withholding tax, an internal legal basis allowing Switzerland to tax income from teleworking performed in a neighboring state for a Swiss employer.

In the case of the agreement with France, Switzerland may continue to tax income earned from work for a Swiss employer remotely up to a maximum of 40 percent of working hours per calendar year.

The agreement with Italy, meanwhile, provides that cross-border workers may continue to benefit from cross-border worker status and a concessionary rate of Swiss withholding tax on their income – of 80 percent of the typical rate – if their remote working hours do not exceed 25 percent of their total working hours. Tax paid in Switzerland will be creditable against tax payable in Italy.