Switzerland Update: Pitfalls for Employers When French Cross-Border Commuters Work From Home

Pitfalls for employers in the area of taxation and social security

Since the Corona pandemic, employees have increasingly wanted to work from home. This is particularly attractive for cross-border commuters. For the employer, however, it raises numerous questions. In July 2023, a number of issues were clarified with the signing of a new supplementary agreement to the double taxation agreement between Switzerland and France and the framework agreement on social security. The following article briefly explains which rules now apply in terms of tax and social security law.

1. Taxes
2. a) Cantons of Bern, Solothurn, Baselland, Basel-Stadt, Neuchâtel, Jura, Vaud and Valais

The income of a genuine cross-border worker residing in France who works in BE, SO, BS, BL, NE, JU, VD or VS is subject to taxation in France. Switzerland does not levy any withholding tax, but receives compensation from France of 4.5% of the annual gross remuneration paid to the cross-border worker[1].

According to the new supplementary agreement of 27 June 2023 to the double taxation agreement between Switzerland and France[2], cross-border commuters are allowed to spend up to 40% of their work in the home office without losing their cross-border commuter status, thus changing the taxation rules. All income is still taxed in France.

If the 40% limit is exceeded, the employee is no longer considered a cross-border commuter from the first day of working from home and his income is taxed at the place of work in accordance with Art. 15 para. 1 of the double taxation agreement CH – F. The income that can be attributed to the days physically worked in Switzerland is subject to withholding tax in Switzerland, the income that is attributable to the home office days is subject to taxation in France.

It becomes even more complicated if the employee is going on business trips to France or third countries. These may be counted towards the permissible home office days. In such cases, it is advisable to consult a French tax advisor.

Even if the right of taxation remains in France under the new supplementary agreement, the Swiss employer is generally obliged to declare the income attributable to the home office days in France and to pay French withholding tax on it. This is true even if the 40% limit is not exceeded. In order to declare and pay withholding tax, the employer must register in France. The employee must continue to declare the income attributable to the Swiss working days in France and pay the corresponding French income tax.

The new supplementary agreement then stipulates that the number of days worked from home or the corresponding percentage must be reported to the tax authorities of the employee’s country of residence (automatic exchange of information). Since this is a new regulation, there is still no obligation for the employer to report to the cantonal tax authorities for the 2023 tax period in most Swiss cantons. However, it is expected that the exchange of information will be implemented in the next one to two years.

In order for the employer to be able to fulfil its obligations, we recommend the following:

• Employers and employees conclude an amendment to the employment contract, which states that home office is only permitted up to 40% of the annual working time;
• The employee keeps a so-called travel diary, which shows on which days of the year he worked in the home office and on which he worked on site at the employer. This is made available to the employer at the end of the calendar year so that the employer can check whether the 40% limit has been complied with or whether the employer has to settle Swiss withholding tax retrospectively. If withholding tax has to be accounted for and the employee is not in a position to transfer the corresponding amount of withholding tax back to the employer, it is recommended that the withholding tax due be deducted from the next month’s salary in order to prevent a set-off into the hundred.

1. b) Other cantons (incl. Canton of Geneva)

The income of cross-border commuters residing in France who work in one of the other cantons (including .dem the canton of Geneva) is subject to tax in Switzerland. The new supplementary agreement also applies to these frontier workers; it means that even when working from home of up to 40%, the entire salary is subject to Swiss withholding tax.

If the 40% limit is exceeded, this leads to taxation at the place of work in accordance with Art. 15 para. 1 of the double taxation agreement (cf. No. I.A. above).

1. c) Permanent establishment for tax purposes in France

Depending on the frequency of work in the home office as well as the specific duties and powers of the employee (e.g. power of attorney for the employer to conclude contracts), working from home carries the risk for the Swiss employer of establishing a permanent establishment for tax purposes in France, which triggers a tax liability of the employer in France. Here, too, the consultation of a French tax advisor is recommended.

2. Social security

The new framework agreement[3], which Switzerland and France, among others, have signed, provides that home office is possible up to 49.9% without the cross-border commuter now being subject to social security contributions in his country of residence and no longer in the country of residence of the employer. Thus, as long as the employee meets the 40% limit according to the new supplementary agreement (see No. I above), he remains subject to social security contributions in the employer’s country of residence.

The framework agreement thus allows more work to be done from home than Regulation 883/2004, which stipulates that up to 25% of people may work from home.

It should be noted that regular activity in a country other than France or Switzerland, or self-employment, excludes the applicability of the framework agreement, so that the 25% rule applies again.

In order to be able to prove to the French social security authorities that the Swiss nationality has been granted, employers and employees must then request an A1 certificate from the competent Swiss compensation office. According to the framework agreement, this must be done by 30 June 2024 at the latest.

[1] Articles 1 and 2 of the Agreement of 11 April 1983 between the Swiss Federal Council and the Government of the French Republic on the taxation of the income of frontier workers.

[2] Additional Agreement between the Swiss Confederation and the French Republic amending the amended Convention of 9 September 1966 between Switzerland and France for the avoidance of double taxation in respect of taxes on income and capital and for the prevention of tax fraud and tax evasion.

[3] Framework Convention on the application of Article 16(1) of Regulation (EC) No 883/2004 to ordinary cross-border teleworking, applicable from 1 July 2023.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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