Facts of the Case
A German citizen residing in Konstanz (Germany) is employed by AB Service AG, headquartered in Zurich (Switzerland), as a service technician. He will carry out most of his work in neighboring countries. This constitutes a so-called cross-border employment relationship.
Living and Family Situation
- The employee lives in Konstanz, Germany, with his wife and their two children.
- His wife is not employed.
- The children (aged 16 and 18) still live in the same household with the employee.
Work Situation
- AB Service AG, based in Zurich, is the employer.
- The employee commutes daily from Konstanz to Zurich, i.e., he crosses the border to work in Switzerland every day and returns to Germany in the evening.
- The job also includes regular work assignments of several days in France.
- Additionally, the employee works 20% of the time from home (home office) in Germany.
Remuneration
- The salary is paid from Switzerland (the Swiss employer transfers the salary to the employee's account)
Immigration Solution
There is no need for action regarding the home office work in Germany. The main place of work is Zurich, Switzerland. Since the employee does not have a residence in Switzerland, this is a classic case of a cross-border commuter. Therefore, before starting work, it is necessary to apply for a cross-border commuter permit (G permit) with the Zurich Migration Office. The application must be submitted by the employer in Switzerland.
If the employee works at multiple locations within Switzerland, additional declarations of consent must be obtained from the respective cantons or employers to ensure the validity of the permit.
The employee is also scheduled to have short-term assignments in France. Since he does not reside in France but works there occasionally, these workdays must be reported in France under the Posted Worker Notification requirement. France enforces these reporting requirements very strictly.
Tax Solution
In a cross-border context, determining the tax residency of the employee is crucial. Typically, tax residency is established in the country where the employee has their residence or habitual abode, or where their center of life interests lies.
In our example, the employee resides and habitually stays in Germany. Therefore, he is considered a German tax resident and is subject to unlimited taxation in Germany on his worldwide income.
The employer is based in Switzerland, where the employment is carried out under a standard employment contract. From Switzerland's perspective, the employee is subject to limited tax liability because he does not reside in Switzerland.
Under the double taxation agreement (DTA) between Switzerland and Germany, there is a special rule for taxing cross-border commuters, which applies in this case.
According to the so-called cross-border commuter taxation rules:
- If the employee returns to their country of residence on more than 240 days per year (i.e., a maximum of 60 non-return workdays), they qualify as a "true cross-border commuter." In this case, Switzerland levies a flat 4.5% withholding tax on gross income.
- If the employee exceeds 60 non-return workdays per year, they are considered a "non-true cross-border commuter." Then, regular Swiss withholding tax applies to the workdays spent in Switzerland.
Additionally, the employee must file an income tax return in Germany and declare the income there. For true cross-border commuters, Germany retains the taxation rights over the income.
In principle, Germany has the taxation right over the workdays in France, provided those days are not taxed in France. The applicable double taxation agreement between Germany and France and its 183-day rule are decisive. If the employee does not stay in France for more than 183 days in a calendar year, does not receive remuneration from France, and if the costs of the work are not borne by a French permanent establishment, there is no tax liability in France.
Social Security Solution
Both in social security and tax law, the country-of-employment principle generally applies. This means that employment income is usually subject to contributions in the country where the work is performed. In our example, the employee works in Germany, Switzerland, and France.
The introduction of the Agreement on the Free Movement of Persons aimed to prevent a person from being subject to social security obligations in multiple countries and to ensure that contributions are only due in one country.
Therefore, assessing the applicable social security legislation under EU Regulation (EC) No. 883/2004 is essential. If at least 25% of the work is carried out in the country of residence (here: Germany), e.g., through home office or other local work, then social security contributions are due in that country.
In this case, the employer must register in Germany and pay social security contributions on the entire income there. The employee would then be exempt from social security obligations in both Switzerland and France.
It is advisable to examine the exact distribution of working hours between countries at an early stage to determine the applicable social security legislation clearly. Additionally, an A1 certificate must be obtained for all activities performed in other countries.
In our case:
Since the employer and a portion of the work are in Switzerland, and the activity in Germany only accounts for 20% of the total working time, the employee is generally subject to Swiss social security obligations. This includes the Swiss old-age, survivors', and disability insurance (AHV/IV), unemployment insurance (ALV), and pension fund (BVG). The Swiss employer must deduct the respective social security contributions from the salary and remit them to the competent authorities.
Regarding health insurance, there is a right of option, meaning the employee can choose whether to be insured in Switzerland or Germany – provided this choice is officially exercised within the deadline after starting work in Switzerland.
Special attention must be paid to documenting home office days. If the work in Germany reaches or exceeds 25% of the total working time (e.g., through increased home office), this would shift the social security obligation to Germany under the applicable agreement. Therefore, complete and traceable documentation of workdays per country is essential.
Given that only one country should have social security jurisdiction among EU member states and Switzerland, and since the employee works in the employer's country (Switzerland) and less than 25% in his country of residence, the obligation lies with Switzerland. In France, he can be exempt from social security as part of this multi-state employment arrangement.
However, the employee must obtain a Swiss-stamped A1 certificate for each activity in France, confirming Swiss social security coverage.
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.
