HR and Global mobility update

Taxes

Russia cancels double taxation agreement with Switzerland with immediate effect

The Russian government signed a decree suspending numerous articles in double taxation agreements (DTAs) on 8 August 2023. "Unfriendly countries" are affected. In the meantime, 50 countries, including Switzerland, the entire EU, USA and Australia, as well as other countries in Europe or Asia, are said to be among the "unfriendly" countries.

Putin justifies this step with alleged "violations of Russia's legitimate economic and other interests."

Double taxation treaties allow taxpayers to avoid paying taxes in several countries at the same time on the same employment income, interest and dividends when working abroad.

The abolition of the double taxation treaty would mean that the risk of being taxed in both states would increase significantly and the uncertainty among the taxpayers concerned would be high.

The Federal Department of International Finance (SIF) stated that this decision by Russia to suspend provisions of the double taxation agreement was not communicated to Switzerland through the usual diplomatic channels and therefore the Swiss government assumes that the DTA with Russia will continue to apply.

New cross-border commuter agreement between Switzerland and Italy applicable as of 1 January 2024

The new provisions of the agreement on the taxation of cross-border commuters, which entered into force on 17 July 2023, and an amending protocol to the double taxation agreement between Switzerland and Italy will be applicable as of 1 January 2024.

The previous regulation from 1974 will be replaced and the new agreement will clarify how cross-border commuters are taxed and who is considered a cross-border commuter.

The "new" cross-border commuters are persons who are newly employed in the Swiss labor market as of 17 July 2023, and who have their place of residence in Italy - less than 20 kilometers from the Swiss border - and return to their place of residence on a daily basis.  The agreement also applies to cross-border commuters residing in Switzerland who work in Italy.

The "new" cross-border commuters will have 80 percent of the regular withholding tax withheld on their income in Switzerland. They are also subject to regular taxation in Italy, avoiding double taxation.

A transitional arrangement applies to cross-border commuters who worked in the cantons of Graubünden, Ticino or Valais between 31 December 2018 and 17 July 2023. They will continue to be taxed exclusively in Switzerland. Switzerland will continue to pay the Italian border municipalities financial compensation in the amount of 40 percent of the withholding tax levied in Switzerland until the end of the tax year 2033, in accordance with the previous agreement of 1974. 

It should also be noted that the special cross-border commuter status ceases to apply if the 45 permitted non-return days are exceeded. 

For Swiss employers with Italian cross-border commuters, this means checking in good time who has cross-border commuter status under the new definition, as well as more administrative work and costs for adapting payroll accounting software (for more information, see "Payroll").

Social insurances 

Social security agreement between the United Kingdom and Switzerland in force since 1 October 2023

With the withdrawal of the United Kingdom (UK) from the EU as of 1 January 2021, social security relations between Switzerland and the UK are also no longer governed by the Agreement on the Free Movement of Persons.

The new social security agreement, which has already been provisionally applied since 1 November 2021, was concluded bilaterally by the two countries to regulate social security law relations after Brexit.

This agreement has now definitely entered into force after ratification by the two states on 1 October 2023, and coordinates social security between the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland.

There are no changes as of 1 October 2023.

Social security agreement Switzerland - Albania in force as of 1 October 2023

Following the entry into force of the social security agreement in September 2021 between Switzerland and Bosnia and Herzegovina, Switzerland has signed another social security agreement with a Balkan country. The Social Security Agreement between Switzerland and Albania, signed on 18 February 2022, entered into force on 1 October 2023, regulating the coordination of social security. Albania was still the only Balkan country with which Switzerland has not yet signed a social security agreement.

This agreement covers the legal provisions of both states in the area of old-age, survivors' and disability insurance and corresponds in content to the social security agreements which Switzerland has concluded with the other Balkan countries. 

The agreement is based on the principles generally applicable in international provisions and largely regulates the equal treatment of insured persons of both states. In addition, it regulates the payment of ordinary pensions in the case of residence abroad as well as the insurance subordination of gainfully employed persons. The principle of the place of employment also applies in this agreement, but it promotes the economic exchange of both countries by avoiding double charging of insurance costs with the agreement through the posting of personnel.

The legal provisions regulated in the agreement are applicable to the nationals of the contracting states - regardless of their nationality - and also apply in part to nationals of third countries, e.g. the subordination rules. This agreement has also created a basis for cooperation in the fight against abuses.

What is not provided for in the agreement, however, is that family allowances are paid for children who are resident in Albania.

Labor law

New Federal Data Protection Act since 1 September 2023

The new Federal Data Protection Act ("nDSG") came into force on 1 September 2023 and does not provide for a transition period. Companies must therefore implement the new legal requirements immediately. 

What are the most important changes in the new Federal Data Protection Act?

1. Data of legal entities is no longer covered by the law.

2. Strengthening of existing terms

• Sensitive data now includes genetic and biometric data.
• The obligation to provide information will in future apply to all data of the data subject and not only to their sensitive data.

3. New principles

• Data is protected from the outset (privacy by design). The duty to protect arises thus already before the start of the processing or collection of the data.
• Data is protected by default (privacy by default).
• Profiling - i.e. also the automated processing of personal data - is expressly provided for and regulated by law.

4. New obligations

• Mandatory impact assessment for data processing operations that pose a high risk to the personality or fundamental rights of data subjects.
• Keeping a register of data processing activities. However, for certain companies, however, exemptions have been introduced.
• Rapid notification to the Federal Data Protection Commissioner in the event of a data breach.

It should be noted that some specific obligations depend on the size of the company or the type of data processed.

Finally, it should be noted that criminal sanctions have been strengthened in the nDSG by setting the maximum fine at CHF 250,000. The civil or public law consequences of a breach of the nDSG must also be taken into account.

It is therefore essential that each company carries out an analysis to determine what the consequences of the nDSG are for the company and, if necessary, takes the necessary measures to comply with the regulations as soon as possible (e.g. drawing up data protection declarations, introducing specific consents, especially when collecting applicant data, reviewing data transfer contracts, analysing the way in which data is stored, especially when transferred abroad, etc.).

Payroll 

The new cross-border commuter agreement between Switzerland and Italy - New withholding tax rate codes as of 1 January 2024

For payroll, the new cross-border commuter agreement between Switzerland and Italy means an adjustment in the withholding tax rate codes, which must be implemented correctly as of 1 January 2024. For the "new" cross-border commuters (persons who are newly considered cross-border commuters as of 17 July 2023), Switzerland will now retain 80 percent of the regular withholding tax on income. For these "new" cross-border commuters, new withholding tax rate codes (R, S, T, U and V) will be introduced in Switzerland in the cantons of Graubünden, Ticino and Valais. Since the new cross-border commuters will additionally be subject to ordinary taxation in Italy, eliminating double taxation, the income will be reported to Italy each year by means of an electronic data exchange.

For "old" cross-border commuters (were already cross-border commuters between 31 December 2017 and 17 July 2023), who were previously taxed with tariff code F and for whom the transitional regulations of the new agreement are applicable, the ordinary withholding tax rates (A, B, C, H and G) will now apply. The tariff code F will no longer exist.

For Swiss employers with Italian cross-border workers, we recommend the following steps:

• Review of the cross-border worker population:
  • which persons are considered "old" cross-border commuters
  • do the "new" cross-border commuters meet the requirements for cross-border commuter status
  • new from 17.7.2023 as employed on the Swiss market
  • residence remains in Italy and is less than 20 kilometers from the Swiss border
  • daily return to place of residence
• Allocation of the tariff codes for "old" and "new" cross-border commuters
• Payroll accounting software: adjustment of the new withholding tax rate codes for "old" and "new" cross-border commuters
• Tracking of non-return days: introduction of a tracking system for non-return days in order to be able to confirm the cross-border commuter status to the authorities
• Electronic reporting obligation: income must be reported to the tax authorities no later than March 20 of the following year for the tax year in question

Immigration

ETIAS to be introduced in 2025 at the earliest

• ETIAS (European Travel Information and Authorisation System) is a new travel and travel authorisation system - similar to the ESTA in the USA - which, after some postponements, should have been introduced throughout Europe by 2024. According to information from the State Secretariat for Migration, the introduction of the ETIAS will probably be delayed until May 2025.
• For entry into the Schengen area, such a travel authorisation will be required for third-country nationals from visa-free countries as of the introduction of the ETIAS. With this risk assessment of travelers, ETIAS is intended to prevent illegal immigration and increased internal security. 
• Unlike the Schengen visa, ETIAS is not a visa and will be available to apply online through a centralized EU system with little effort.
• The ETIAS travel authorisation is valid for short stays up to 90 days and is not a substitute for a work or student visa. If a person from a visa-exempt country does not have a valid ETIAS travel authorisation, he or she will be denied entry into the Schengen area.
• Switzerland is actively participating at the European level in various working and expert groups of the European Commission and the European Border and Coast Guard Agency Frontex and will implement the introduction of the ETIAS according to the EU timetable.

Article written by Gordana Muggler, Julie Eggenschwiler and Nathalie Schmid-Bessard