Taxation of foreign employees in the home office

The increasing prevalence of remote working and cross-border home offices brings tax challenges and uncertainties for companies. For employees who are residents in Switzerland for tax purposes, double taxation agreements can play a role, especially the “assembler clause”, which states that if the employee stays in the host country for less than 183 days, the salary is taxed in Switzerland. For employees residing abroad, the place of work principle applies and the salary is taxed at source in Switzerland, with the exact taxation depending on specific double taxation agreements. A key issue is also the possibility of establishing a permanent establishment abroad through home office work by senior employees, which can lead to additional tax liabilities for the company.
While cross-border home office is an attractive working model, it poses significant tax risks for employers. Companies need to be aware of the complex regulations and potential tax liabilities in different countries to avoid falling into tax traps. It is crucial to be proactive about state regulations and agreements and take appropriate precautions.

The earned income of employees who work at home abroad should continue to be taxed in Switzerland, provided that Switzerland obtains the right of taxation through international agreements. This step aims to protect tax revenues in Switzerland. Specifically, a legal framework was provided for in an agreement with France. On 9 June 2023, the Federal Council decided to review national tax law and launched the necessary consultation process.

Cross-border commuters from abroad pay withholding tax on their earned income in Switzerland. However, under existing agreements, income earned from home office work can be taxed by the employee’s country of residence.

Last year, Switzerland and France agreed in an addendum to the double taxation agreement that cross-border commuters will pay withholding tax in Switzerland on all their earned income from 1 January 2023, provided they do not spend more than 40% of their working time in the home office. This additional agreement is to be finally ratified on 30 June 2023. The new draft law will integrate this principle into Swiss tax law. This will ensure that the income of employees resident abroad is taxed in Switzerland, even if they do not physically work in Switzerland.