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The preparation of a salary certificate for short-term assignees from Switzerland can pose a variety of legal, tax, and administrative challenges. Below are some of the most common challenges encountered when preparing a salary certificate, illustrated by an example:
Example
Anna Meier (Swiss citizen) has been working as a Marketing Manager at SwissGlobal AG in Zurich for three years. As part of SwissGlobal AG's international expansion, Anna Meier was selected for a short-term assignment of nine months in the United States. Her task is to support the market launch of a new product in the USA and to develop a local marketing strategy.
Anna Meier resides in the city of Zurich and will not give up her apartment or deregister in Switzerland during her assignment in the U.S. The assignment is planned for the period from 1 August 2024 to 30 April 2025. During this time, Anna Meier will work at the company's US branch in New York.
Her salary, as well as all additional payments, will continue to be paid from Switzerland, and she will remain subject to the Swiss social security system.
Anna will retain her base salary of CHF 120,000 per year. Additionally, she will receive:
- The actual accommodation costs in New York amounting to USD 4,000 per month (net).
- The actual flight and travel expenses at the beginning and end of the assignment.
- One home leave.
- A cost-of-living allowance of USD 1,500 per month (net), which covers food and travel expenses in the USA.
Determination of Tax Residency and Tax Liability
A key aspect in preparing a salary certificate is determining in which country the employee is tax resident. For short-term assignees (typically assigned for less than 183 days), the question arises as to whether the employee remains subject to taxation in Switzerland or whether the employment income is taxable in the host country.
The first step is to check whether a tax obligation exists in Switzerland and/or in the host country according to national law. The second step is to examine whether a double taxation agreement (DTA) exists between Switzerland and the host country and to determine which country is granted taxation rights under the agreement. In many cases, employees on a short-term assignment (183-day rule or economic/actual employer) remain subject to Swiss taxation.
Solution for our example: According to the double taxation agreement between Switzerland and the U.S., the 183 days are calculated within a 12-month period. Consequently, from 1 August 2024, Anna Meier will be subject to tax on her employment income in the U.S., even if she spends fewer than 183 days in the USA in the 2024 calendar year.
This also means that, from 1 August 2024, a shadow payroll must be set up in the U.S., and U.S. taxes must be deducted from her remuneration.
However, as she retains her residence in Switzerland, she will still require a Swiss salary certificate for the entire 2024 period. Consequently, an additional sheet should be created for the salary certificate, detailing which remuneration components are already subject to taxation in the U.S. and the amount of U.S. tax paid.
It is also possible to issue two salary certificates: one for the period from 1 January to 31 July and another for the period from 1 August to 31 December.
The reason for splitting or adding an additional sheet to the salary certificate is to ensure that Anna Meier does not have to pay tax twice on the same income—both in the U.S. and in Switzerland. The responsible Swiss tax officer requires the relevant information on income already taxed abroad to make a proper assessment. In Switzerland, the income taxed in the U.S. will only be considered for determining the tax rate.
Calculation of the Correct Social Security Contributions
The correct allocation of social security contributions (AHV/IV/EO in Switzerland) for short-term assignees is another challenge. In addition to the national legal provisions of the involved countries, possible intergovernmental regulations (bilateral or multilateral agreements) must also be examined.
Solution for this example: A social security agreement exists between Switzerland and the USA, allowing Anna Meier to remain insured in Switzerland and be exempt from social security contributions in the USA.
Conclusion
The preparation of a salary certificate for short-term assignees from Switzerland requires a precise understanding of tax and social security regulations in both Switzerland and the host country. Companies must ensure compliance with both national and international regulations. The administrative burden and complexity increase due to the need to consider different currencies, legal frameworks, and tax obligations.
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.
