HR and Global mobility update

Taxes

Switzerland and Italy agree on permanent home office rule for cross-border commuters

Switzerland and Italy signed an agreement on the taxation of home office arrangements. As per January 2024, Italian cross-border commuters working in the cantons of Graubünden, Ticino or Valais will be able to work from home in Italy for up to 25% of their working time without jeopardizing their cross-border commuter status or tax rules. This also applies to people from Switzerland working in Italy.

The previous agreement for cross-border commuters between Switzerland and Italy dates back to 1974 and did not take into account the possibility of working from home. During the coronavirus pandemic, a new agreement was signed between the two countries, which included provisions for working from home. Since then, working from home has become the norm for many cross-border commuters. A transitional arrangement was in place last year, but the authorities have now come up with a permanent solution. 

What is new?

As long as the 25% limit for working from home is respected, the tax conditions for real cross-border commuters remain unchanged - both in terms of taxation in Switzerland and Italy and in terms of their cross-border commuter status.

If the 25% limit for home-based work is exceeded, they lose their cross-border commuter status. As regular weekly residents, they may then also be subject to Italian taxes.

From 1 January 2024, Italian cross-border commuters are not only allowed to work from home, they will also be taxed differently. Until now, they have only been subject to withholding taxes in Switzerland. From 2024, however, the Italian authorities will be able to tax the new cross-border commuters properly, while a reduced withholding tax will apply in Switzerland. However, as the overall tax burden will increase, commuting to Switzerland will become less attractive (see our article in our newsletter published in November 2023).

We recommend the following for Swiss employers with Italian cross-border commuters:  

• Review your cross-border commuter population     
  • Which employees are considered real cross-border commuters and which ones are weekly residents?
• Assign the correct tariff codes
  • for real cross-border commuters (R, S, T or U) and
  • for weekly residents (A, B, C or H). 

Social security

Italy signed the framework agreement on telework regarding social security from 1 January 2024.

On 1 July 2023, the EU/EFTA countries and Switzerland signed a new framework agreement to replace the exceptional agreement introduced during the coronavirus period. This agreement allows the employee to work up to 49.9% of their working time from home, provided certain conditions are met.

However, this only applies to countries that have signed the new framework agreement.

Italy is the last of Switzerland's neighbouring countries to sign the new framework agreement on telework, which will come into force on 1 January 2024. Employees with a Swiss employer and domicile in Italy will be able to work from home in Italy for up to 49.9% of their working time without changing their social security status. 

All conditions of the framework agreement must be met:

• Swiss or EU/EFTA nationality
• Working exclusively in Switzerland and regularly working from home at their place of residence in Italy
• No other activities such as visiting clients or self-employed second jobs are allowed
• No other activities in other EU/EFTA countries
• No business trips outside Switzerland and EU/EFTA countries 

For Swiss employers with Italian cross-border workers, this means that

• Administratively, the Swiss employer must apply for an A1 certificate through ALPS
• The application must be submitted retroactively by the end of June 2024 at the latest

20 countries have signed the new framework agreement for cross-border commuters for home-based telework (up to 49.9%) (status report).

From 1 July 2023, the new framework agreement of the EU/EFTA states will regulate the social security subordination obligation for cross-border commuters working from home (teleworking).

According to the Federal Social Insurance Office (FSIO), the following countries have signed the new framework agreement (as of 9 January 2024): 

Labour law

Assignments to Switzerland: Swiss salary and assignment allowance - a mandatory provision of the Swiss labour law

Despite the existing employment relationship with the employer in the home country, mandatory provisions of Swiss employment law must be complied with if the employee is posted to Switzerland or if services are provided by a foreign company in Switzerland. 

The provisions of the Swiss Federal Law on the Posting of Workers (Posting of Workers Act, EntsG) and the related Ordinance (EntsV) protect posted workers and employees already working in Switzerland. The law requires compliance with the following mandatory provisions: 

• Minimum wages (including supplements for holidays, public holidays, etc.)
• Compliance with working hours, rest periods, night work and Sunday work;
• Minimum length of holidays;
• Protection of pregnant women, women who have recently given birth and young people
• Health and safety at work;
• Non-discrimination and equal treatment between men and women.

Most employers are probably aware that they must pay Swiss wages to foreign service providers from EU/EFTA countries or third countries (in the case of secondment and local employment). Wages must be commensurate with the role, experience and local and industry standards, which is one of the requirements for obtaining a work permit. 

However, many employers are not aware that the Posted Workers Act stipulates that a posting allowance must be paid in addition to the minimum wage. This means that the foreign employer must pay for accommodation, travel and meals in addition to the – usually already higher -gross salary.

The purpose of the posting allowance is not to compensate for the difference to the minimum wage.

Compliance with the minimum wage and working conditions is randomly checked by the Swiss cantons and violations are sanctioned. These can range from a warning and a fine of up to CHF 5,000 to a ban on providing services for up to 5 years.

In addition, criminal sanctions with fines of up to CHF 1 million can also be imposed for systematic violations.

The calculation of salaries and the corresponding posting allowance is not always clear for a foreign employer. These also differ from canton to canton.

Immigration

Bulgaria and Romania: Abolition of checks on persons at air and sea borders from 1 April 2024

There are currently 27 countries in the Schengen area, including Switzerland. Border controls are generally abolished in the Schengen area. After Croatia becomes the last country to join the Schengen area in 2022, it is possible that Romania and Bulgaria will join the Schengen area from 2024 - but not all checks on persons will be completely abolished.

With the agreement of the EU member states, Bulgaria and Romania can join the Schengen area from April 2024. When they join, checks on people at air and sea borders will be lifted. This means that passport checks will no longer be required for travellers arriving at airports or ports from other countries in the Schengen area when entering Romania and Bulgaria. This also applies to Romanian or Bulgarian travellers entering a Schengen country.

It is still unclear when land border controls will be lifted. Because of Austria's veto, a new decision will have to be taken to lift land border controls. For the time being, this means that anyone entering Romania and Bulgaria by car, train or bus will still have to show a passport. This also applies to Romanian or Bulgarian travellers to a Schengen country.

Residence permit quotas for 2024

The quotas for residence permits are determined annually by the Federal Council and distributed among the Confederation and the cantons according to economic and labour market needs.

Maximum numbers for 2024:

Article written by Gordana Muggler and Julie Eggenschwiler