The Swiss government announced in April 2019 that the revised tax-at-source law enters into force as of 1 January 2021. Linked to this, the federal tax authorities published the Circular Letter no. 45 in June 2019 with the goal to clarify uncertainties and to harmonize the cantonal approaches and by that eliminating current existing differences.
This article focuses on the attention points for Swiss employers or foreign companies with Swiss employer obligations. The points that are relevant for employees will be published in another article. So, stay tuned for this as well!
Requirement for new instructions regarding tax-at-source declarations
Employers are required to file the tax-at-source declarations with the tax authorities of the canton where the employee is residing and no longer where the employer is located. Under certain circumstances, exceptions may apply, and the declaration can be filed with the tax authorities where the employer is located. Also, the timing of the declaration has changed, and all employers are required to file monthly tax-at-source declarations unless a different filing cycle has been agreed upon with the relevant cantonal tax authorities.
Tax treatment of non-resident employees
Remuneration paid to an employee, who is not a Swiss tax resident, is subject to taxation in Switzerland based on the work performed in Switzerland only. Remuneration for work performed outside of Switzerland is usually not taxed in Switzerland. Hence, it is imperative that non-resident employees document their work location and the workdays occurred during the calendar year. The federal tax authorities clearly describe the determination of a qualifying workday in Switzerland. The employer is then allowed to withhold Swiss tax-at-source on the taxable renumeration only. It is no longer required that upfront approval be obtained with the respective cantonal tax authorities if the required proof of Swiss workdays is submitted together with the tax-at-source declaration.
Application of the economic employer principle
When an employee is temporarily seconded by their foreign employer to a subsidiary or another fixed place of business in Switzerland and performs work under the umbrella of the subsidiary or the fixed place of business, but is still remunerated by the foreign employer, the question arises whether the employee is subject to taxation in Switzerland and what obligations the employer has in this respect. Together with the Circular Letter the federal tax authorities published a directive on how to determine if the Swiss subsidiary or fixed place of business qualifies as economic employer and they also introduced thresholds to exempt certain short-term secondments from taxation in Switzerland. It is therefore crucial that every short-term secondment and extended business travels into Switzerland are carefully reviewed prior to the commencement, to ensure that the correct tax-at-source approach is taken.
Timing of reporting Swiss tax-at-source – monthly versus annually
In the past, certain cantons determined the tax-at-source tax rates based on a monthly period and other cantons based on an annual period. However, there were inconsistencies in determining the tax-at-source tax rates in non-standard situations within the cantons that applied the same method. The federal tax authorities have with the Circular Letter published detail explanations including example of calculations for both approaches to eliminate inconsistences and to introduce the application of a more unified approach amongst the cantons.
Our recommendation for action
It is important that the employers prepare their payroll system and implement the necessary changes in advance of 1 January 2021 to ensure a smooth transition to meet the new tax-at-source requirements. Especially employers with cross-border activities and employees are exposed to employment situations, which may lead to non-compliance and should pay special attention to the enhanced requirements.
Payroll departments may need support in interpreting legal changes and to implement them in their payroll systems. Exactio offers tailored workshops during which we discuss the required changes with your payroll team and other stakeholders to ensure that you are ready to withhold Swiss tax-at-source according to the new legislation.
Other articles that may be of interest...
Remote working - Permanent establishment risks for employers in Switzerland
Considerations for employers when allowing their Swiss based employees to work remotely from home
Swiss taxes at a glance
A tax guide for foreigners and expats
Introduction of the Economic Employer principle in Switzerland
Together with the new source tax regulations, the Circular Letter 45 issued by the Federal Tax Administration came into force on 1 January 2021, which focuses on the harmonisation of the withholding tax collection process as well as the introduction of the economic employer principle across Switzerland.
Important court ruling of the German Federal Fiscal Court relevant for Executive Employees (leitender Angestellte), resident in Germany and working in Switzerland.
Relevant for employees who are resident in Germany and working in Switzerland for a Swiss employer, having the 'executive employee' status.
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