Home-Office for Cross-border Commuters – a Minefield
If alternative forms of employment are offered in a cross-border context, this can lead to unforeseen legal consequences. For example, if a cross-border worker works from home in his home country for more than one day a week, there is a risk that:
he must be subject to social insurance in his country of residence;
he has to pay income tax in his country of residence on income earned in that country; and
the company runs the risk that the foreign tax authorities presume a permanent place of business and the company must therefore pay income taxes abroad.
Subordination to foreign social security system Generally, for cross-border provision of work it is the place of employment that is decisive for determining the subordination to a social security system. However, if an employee fulfils more than 25% of his work in his country of residence, he must be subject to the social security system of that country. This means that the employer must register the employee with the foreign social security provider and pay the foreign social security contributions. However, if he nevertheless remains with the Swiss social security, there is the risk, for example, in the event of an accident that the Swiss accident insurance is declared to be not competent because the employee should be compulsorily insured abroad and, at the same time, the foreign accident insurance company refuses cover because it has never received any contributions.
No source tax for work done abroad Under the double tax treaties, income is taxed where it is actually generated. This means that a cross-border worker has to pay taxes in his home country for those days that he works at home in his home country. Consequently, his employer must know exactly how many days a cross-border worker works from home and only deduct the tax at source from the salary for the remaining days.
Presumption of a permanent place of business abroad. If a large part of the workforce works from home in the same country and not only subordi-nate tasks are performed, there is a risk that the foreign tax authorities presume a perma-nent place of business. This would result in the company having to pay taxes in the foreign state for the profits generated there.
In order to avoid unintended surprises, it is advisable to prepare home working policies, which define the framework conditions for home office employment.