A member of the board of directors is the highest supervisory and management body of the public limited company and either manages the business itself or delegates the management to third parties. Board members are often selected based on their experience and expertise as well as their network.

The domicile of the board of directors does not play a role here, so Swiss stock corporations also like to appoint board members abroad. However, this leads to several challenges.

There are already different answers to the question of the extent to which a board of directors is an employed or self-employed activity. For example, there is already no uniform handling in national law from an immigration, tax, and social security perspective. This does not get any easier in an international comparison.

Sample
 Global Pharma AG, based in Zug, has two foreign members of the Board of Directors:

  • Lisa Miller is a British citizen and resident in England. Ms. Miller is still employed in England by an insurance company in the position of CFO.
  • Peter Frank is a German citizen and resident of Germany. Mr. Frank is a practicing lawyer.

For the Board of Directors mandate, the two must spend an average of 20 days in Switzerland.

Question
 What needs to be considered for the two from a Swiss perspective?

Solution
 From an immigration perspective, both are considered employees and therefore require a work permit to exercise their Board of Directors mandate in Switzerland. A 120-day permit can be obtained for both of them. Alternatively, the notification procedure could also be used for Mr. Frank. However, he would then always have to report the individual days and a corresponding confirmation of registration would have to be issued. This is quite time-consuming from an administrative point of view.

In some cantons, it is mandatory that the registration procedure is carried out first and a 120-day permit can only be obtained once this has been exhausted. This must therefore be discussed in advance with the specific canton.

Directors' remuneration is subject to withholding tax in Switzerland. In the canton of Zug, the withholding tax rate of 25 % is applied at a flat rate. Depending on the double taxation agreement, double taxation is avoided either using tax credit or tax exemption.

For both, this means that they must declare the director's fee in their tax return, but this only affects the determination of the tax rate. Taxation in Switzerland is the definitive tax burden.

In Switzerland, the remuneration of the Board of Directors is also subject to social security contributions. Based on a bilateral agreement or an agreement on the free movement of persons, a board member may be exempt from the social security obligation, or the insurance obligation may be shifted to the country of residence. The situation for the two board members is therefore as follows:

  • Lisa Miller: Because she is employed in England and is physically active in England for more than 25 %, she is subject to compulsory social insurance in England. Accordingly, British social security contributions must be deducted from the Swiss director's fee.
  • Peter Frank: His situation is somewhat less favorable. In Germany, he is self-employed as a lawyer and the Board of Directors mandate in Switzerland is considered a dependent activity, which means that he is subject to social security contributions in Switzerland. This means that he would also have to pay social security contributions for his legal fees in Switzerland.

Conclusion
 There are several challenges to overcome in connection with board members who are resident abroad. Each situation must also be carefully examined and considered individually.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.