News Taxes

Cross-border work activity

Cross boarder workers and senior executives according to DTT CH/DE and multilateral agreement on the jurisdiction in case of remote working

Income tax: New rules for senior executives under DTT CH/DE
The double taxation treaty between Switzerland and Germany ("DTT CH/DE") allows the country of residence of an employer to tax the salary of a so-called "senior executive" even if the employee is a resident for tax purposes in another country. Senior executives are supervisory and administrative board members, management board members, directors, vice-directors, general managers, managing directors and authorized signatories. To date, however, this regulation has only been applied to those persons whose function and procuration are registered in the Commercial Register.

According to the consultation agreement of April 6, 2023, the special regulation now also applies to persons whose individual or collective signature but not the function is entered in the Swiss Commercial Register. It may also affect employees who, from a civil law perspective, occupy a comparable position within the employer to that of a senior executive with management and representation powers. In the absence of an entry in the commercial register, this position must be proven otherwise (e.g., signature regulations, resolution on power of attorney, amount of salary with/without profit sharing, number of persons bound by instructions, authority with regard to hiring/firing and promotion of employees, etc.).

With this adjustment, additional employees may fall under the regulation or additional employees may benefit from this regulation. In the case of cross-border activities between Germany and Switzerland, it is advisable to analyze the income tax situation of persons with management and representation authority in detail.

Social security: no change of responsibility for remote working under 50% as of July 1, 2023 in certain states
The flexible application of the EU subordination rules (Free Movement Agreement and EFTA Convention) in the area of social security in connection with the Coronavirus expires on June 30, 2023. Until that time, a person continues to be subject to social security in the country of the employer, even if the activity is performed in the form of remote working and regardless of the scope in the country of residence (EU/EFTA).

As of July 1, 2023, this rule will be adopted in principle with the limitation to less than 50%. I.e., as of July 1, 2023, an employee may perform remote working up to 49.9% of his or her work in his or her state of residence for an employer in another state without a change in social security. However, the agreement only applies to states that will sign the agreement. In addition to Switzerland, the following countries have expressed their intention to sign: Germany, Austria, Belgium, Estonia, Finland, Hungary, Ireland, Lithuania, Luxembourg, Malta, the Netherlands, Slovakia, the Czech Republic, Liechtenstein, and Norway. The agreement is also only applicable to persons to whom the Agreement on the Free Movement of Persons with the EU or EFTA Convention applies (primarily citizens of these countries).

For any further questions or advice, please contact Remo Merz, Swiss certified tax expert, remo.merz@fineac.ch.

WHAT we do is not unique, but HOW we do it.

Remo Merz, 30 May 2023

Keywords: Cross-border work activity, Tax