Cross-border assignments from a social security and tax perspective
Cross-border assignment of employees to affiliate companies is a useful and common tool for international groups. However, to avoid unpleasant surprises, it is essential to structure such transfers correctly and to seek legal clarification at an early stage, not only from a Swiss immigration perspective, but also considering social security and taxes.
Switzerland has concluded a multilateral agreement with the EU and the EFTA as well as bilateral agreements with various other countries stating that posted employees remain subject to the social security system of the jurisdiction to which they are affiliated when starting their assignment. Thus, employees do not suffer a disadvantage due to a 'gap' in their social insurance coverage. In order to prove the coverage abroad during the assignment in Switzerland, employers must order a certificate of coverage (for posting from the EU: form A1) and forward it to the Swiss host company.
If employees are posted from a country with which Switzerland has not concluded any such social security agreement (e.g. Russia), they generally become subject to the Swiss social security system (place-of-work principle). As long as employees only have an employment contract with a foreign company, they are obliged to pay Swiss social security contributions themselves. In such situation, the employment agreement has to be adjusted in order to equitably share the social security costs between employer and employee.
Swiss authorities usually accept an employee being posted to Switzerland even if an additional temporary employment agreement with the Swiss host company is concluded. Thanks to this status, the employee does not become subject to Swiss social security, provided that he or she presents a certificate of coverage as mentioned above. For such a case, it is recommendable to seek confirmation with the competent cantonal social security office before the assignment starts.
As a rule, the salary of a posted employee working in Switzerland is subject to Swiss income tax. If the employer is resident outside of Switzerland, the employee has to file a Swiss tax return and to pay the income tax directly. If an employment agreement has been entered into with a Swiss company, this company has to deduct the income tax as source tax from the employee's salary and settle it with the competent Swiss tax office.
In case of short-term assignments of less than 183 days, the employee's salary may be exempt from Swiss income tax if a double taxation agreement between Switzerland and the home country applies. Most of Switzerland's tax treaties provide the following rule:
The salary of an employee working in Switzerland is not subject to Swiss income tax but to the corresponding tax of the home country if i) the employee does not stay in Switzerland for more than 183 days in the relevant tax year, ii) the salary is not paid by or for an employer who is resident in Switzerland, and iii) the salary is not borne by a permanent establishment the employer has in Switzerland.
Irrespective of the aforementioned 183-rule, the tax authorities of several Swiss cantons apply a specific practice regarding intra-group assignments: under certain circumstances, the Swiss host company will be construed as the "actual employer" for tax purposes, even if, formally, no Swiss employment contract has been concluded. Consequently, the Swiss host company has to deduct source tax from the employee's salary, which might be problematic given that the salary is still paid by the formal employer. The "actual employer" practice especially applies to assignments for over 90 days per year and supposes that the Swiss host company bears risk and responsibility for the assignee's work. Significant criteria are, notably, the work to be performed being an integral part of the Swiss host company's business, the integration of the employee in the host company's organization and the instruction authority of the host company. For there are no fix rules as to when the host company in Switzerland qualifies as actual employer, it is recommendable to clarify the specific practice of the competent tax authorities ahead of the assignment.
Do you have any questions? Our immigration team knows the various cantonal practices and will be glad to advise you on assigning employees to Switzerland.