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Tax issues are one of the most sensitive aspects of international assignments for both the employee and the company. This is because taxes not only influence the cost structure, but also the personal acceptance of the assignment.
The decisive factor here is not only whether and where a tax liability arises, but also how this is actually implemented and administered (e.g. through tax deductions, shadow payroll or specific tax regulations such as tax equalization). All this is not theory, but everyday life for global mobility and payroll.
In this article, we take a practical look at the tax principles for assignments abroad from Switzerland. And, above all, what companies should specifically address in order to keep the effort, risks and costs of international assignments under control.
1. Tax liability abroad
Whether and when an employee becomes liable to pay taxes in the country of assignment depends on several factors. For example, the duration of the stay, the type of activity and the question of who is considered the economic employer. A frequent point of reference is the so-called 183-day rule, which is stipulated in many double taxation agreements (DTAs). However, the 183-day rule only applies under certain conditions and not always in the way it appears at first glance.
If, for example, an employee is operationally integrated into a local organization or is economically supported by a company based there, a tax liability abroad may arise much earlier. And even if Switzerland continues to be entitled to unlimited taxation, there may be a limited tax liability in the country of assignment - with corresponding effects on payroll and HR.
Important for practice:
Companies should already clarify in the planning phase whether and from when on a tax liability could arise in the country of assignment. If this is recognized too late, there is a risk of additional claims or other undesirable consequences for the company.
2. Where the salary is taxed
If the employee becomes liable for tax in the country of assignment, a simple payment via the Swiss payroll is often no longer sufficient. In many cases, a so-called shadow payroll is required. In this case, the salary is still paid from Switzerland, but the salary is also declared and taxed in the country of assignment. The aim of shadow payroll is to ensure that local tax obligations are met without having to relocate the entire payroll system abroad. It is usually implemented via local payroll partners or tax consultants and should be integrated into the international assignment planning at an early stage.
Split payroll is also regularly used for long-term assignments. In this case, the salary is split between two countries. This requires close coordination between the payroll in Switzerland and abroad in order to declare all salary components and benefits both in Switzerland (for social security purposes) and abroad (for tax purposes and possibly for foreign social security contributions).
Important for practice:
Shadow payroll is not a technical detail, but an integral part of a smooth international assignment process. It should be considered and set up right from the start, not as an afterthought. Ideally, this is done in close coordination between HR, Payroll and external partners.
3. Tax protection - Fairness and predictability through clear models
International assignments from Switzerland can lead to considerable additional or (less common) reduced tax burdens for employees. In order to create clarity here and avoid unnecessary discussions, many companies rely on standardized tax solutions in the form of tax equalization or tax protection.
Such models ensure the greatest possible transparency and predictability. This is because the employee knows in advance how the international assignment will affect their financial situation from a tax perspective and the company can plan the costs better. Three variants have become established in practice:
- Tax equalization: The employee is treated as if they were still only working in Switzerland. He pays a hypothetical Swiss tax (so-called hypotax). The company bears or receives any additional tax burdens, as well as possible benefits.
- Tax protection: The employee is protected against tax disadvantages. If the employee has to pay more tax in the country of assignment than in Switzerland, the employer pays the difference. The employee may keep any tax advantages.
- Tax assistance: The company supports the employee by providing tax advice. However, it does not assume any financial obligations.
Important for practice:
Which model is chosen depends on the size of the company, the volume of assignments and the assignment strategy. It is crucial that the chosen arrangement is properly documented, clearly communicated and bindingly set out in the international assignment agreement. A uniform tax philosophy also helps to ensure fairness and clarity across different assignments.
4. What companies should specifically regulate
Clear processes and responsibilities are needed to ensure that tax issues do not become a stumbling block. Because if you react too late, you risk unnecessary costs, unnecessary complexity and, in the worst case, employee frustration.
The following points should, therefore, be clarified in advance of any international assignment:
- Which tax regulation model applies to whom?
- How is coordination carried out internally? Responsibilities between HR, Payroll and Finance must be clearly defined.
- Who handles communication with external tax advisors?
- How is the tax regulation documented? In the assignment contract, in the expat policy or through a separate internal guideline?
- How is the tax regulation explained to the employee? The more comprehensible, the fewer questions and uncertainties in the process.
Important for practice:
Tax issues in particular are not just purely technical matters, but are also of emotional importance. This is because they affect the employee's trust in the assignment and the company. A well-documented, transparent and pragmatic approach is, therefore, the best protection against conflicts.
Conclusion
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.
