Cross-Border Commuters in Switzerland: Social Insurance, Labour Law & Taxes
In our internationally linked world of work, the topic of “Global Mobility” has become inevitable in everyday HR. Companies operate across borders, talent is recruited internationally, and many specialists commute regularly between different countries. Cross-border commuters pose a variety of challenges not only for the work organisation, but also for HR specialists – particularly when it comes to matters relating to labour law, work permits, taxes and social insurance. This is precisely the topic we are addressing in this article.
Cross-Border Commuters from the EU/EFTA Area in Switzerland
The provisions applicable to cross-border commuters from the EU/EFTA area can be found in the social insurance and double taxation agreements, Regulation (EC) No. 883/2004 on the coordination of social security systems and in the applicable labour law.
We distinguish between genuine and non-genuine cross-border commuters and between international weekly residents.
Definition of Genuine Cross-Border Commuters
Genuine cross-border commuters are people who reside in another EU/EFTA country but work in Switzerland and generally return to their place of residence abroad on a daily basis – or at least regularly.
The prerequisite is that a person can reasonably and practicably return to their place of residence abroad. This arrangement is typical for commuters who, for example, live in Germany, France, Italy or Austria near the border and are employed in Switzerland.
Definition of Non-Genuine Cross-Border Commuters
Unlike the “genuine” cross-border commuters, non-genuine cross-border commuters do not regularly return to their place of residence abroad but mostly stay in Switzerland during the workweek. A daily return to the residence abroad would generally be reasonable. They use a second home or temporary accommodation near their place of work. However, their centre of life remains abroad.
Definition of International Weekly Residents
Relevant Legal Areas for Cross-Border Employment Relationships in Switzerland
Labour Law: To be Defined in the Employment Contract
It is advisable to specify the applicable labour law in the employment contract. Without precise information, the applicability of Swiss labour law may be uncertain when working abroad. However, if Swiss law is agreed, this also applies to cross-border commuters, even when working from home in their country of residence.
The Law on Residency and Work Permits: Prerequisite for Employment
In order to work as a cross-border commuter in Switzerland, an EU/EFTA cross-border commuter permit is required. The employer must apply to the cantonal authorities with an employment contract and ID card. The online reporting procedure applies to employment of less than three months.
Social Insurance Law: This Applies to the Social Insurance for Cross-Border Commuters
In principle, cross-border commuters are covered by social insurance in the country of employment. Social insurance generally includes: Health insurance, accident insurance, unemployment insurance, occupational pensions, income replacement, maternity/paternity and family benefits.
Anyone who is employed for less than 25 per cent of their working hours in the country of residence is subject to the legislation of the country in which the employer is based.
The following is a brief summary of the social insurance provisions for cross-border commuters:
- The employee is subject to only one social security system, usually the system of the country in which they work (Regulation (EC) No. 883/2004 of the European Parliament and of the Council of 29 April 2004, Art. 11 (1)).
- Cross-border commuters who work in Switzerland and perform a significant part (25 per cent or more) of their work in the country of residence in the EU/EFTA must be registered in the social security system of that country and not with the Swiss social insurance (Regulation (EC) No. 883/2004 of the European Parliament and of the Council of 29 April 2004, Art. 13).
- The 25 per cent share is generally determined in relation to the total hours worked.
- The calculation is based on the situation expected over the next 12 months.
If an employee is in a situation where the prerequisites for being subject to Swiss social security are not or are no longer met, the Swiss employer must pay the social insurance contributions to the competent authority abroad. This involves additional administrative effort and often the appointment of a payroll service provider in the corresponding country of residence. Social insurance contributions may be higher abroad than in Switzerland.
Being placed in the wrong country of employment can have significant consequences for the company and the employee, particularly in the event of a claim for benefits. Therefore, special attention should be paid to social insurance in Switzerland for cross-border commuters from Germany, Austria and the remaining EU/EFTA area.
If we can be of any assistance, please contact us at any time.
Tax Law: Special Features for Cross-Border Commuters
It is imperative to consult the double taxation agreement of the country concerned. The specific features regulated in the double taxation agreements ensure that income is not taxed twice and that the tax burden is justly distributed.
According to the special cross-border commuter agreement (DTA-F/CH), cross-border commuters who live in France and work in one of the agreement cantons of Bern, Solothurn, Basel-Stadt, Basel-Landschaft, Vaud, Valais, Neuchâtel or Jura are taxed at their place of residence. To prevent taxation at source in Switzerland, a certificate of residency from France must be submitted to the employer each year.
Cross-border commuters from Germany will have a flat rate of 4.5 per cent withheld from their gross salary when working in Switzerland, provided they can show a certificate of residence from the German tax office at their place of residence (form Gre-1). If the employee is unable to return to their place of residence for more than 60 working days in one calendar year, the proper withholding tax becomes due. To qualify for tax exemption in Germany, the cross-border worker must submit form Gre-3 with a certificate from the employer stating that they will not return.
For cross-border commuters from Italy, the new agreement provides that Switzerland will continue to retain 80 per cent of the usual withholding tax for new cross-border commuters. At the same time, these persons are now also taxed normally in Italy, thus avoiding double taxation. New cross-border commuters are all those starting work in Switzerland for the first time from 17 July 2023.
With the expiry of the special taxation regulations introduced during the pandemic, there are currently no specific tax regulations regarding working from home for cross-border commuters resident in Austria. All income earned at the place of residence is subject to taxation in the country of residence.
Working From Home in Cross-Border Employment Relationships
From 1 July 2023, however, a new multilateral agreement will allow cross-border commuters in certain countries to not have to change the responsibility for social insurance, provided the proportion of teleworking is less than 50 per cent of the total working hours (see new agreement). The list of countries concerned and explanations of the conditions for applying the agreement can be found on the website of the Federal Social Insurance Office (FSIO).
Conclusion: From Social Insurance to Taxes – Many Details in Employment Relationships With Cross-Border Commuters
As is so often the case, the devil is in the detail. Employing cross-border commuters from the EU/EFTA area entails numerous legal and administrative challenges. A careful review of the relevant provisions, precise regulation in the employment contract and early involvement of experts are crucial to prevent risks and additional costs and to ensure a smooth cross-border employment relationship.
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