The Swiss regulations on withholding tax for cross-border commuters make it difficult for employers who work in several cantons to keep track of everything. This is because the same regulations do not apply in every canton, and it also depends on the country in which the cross-border commuter is resident.
Depending on the relevant double taxation agreement or the applicable agreements between the two countries involved, the tax consequences for Switzerland will differ if it assumes the role of employer state.
This issue is further complicated by the fact that there are not only "genuine" cross-border commuters, who commute daily between their place of residence and place of work, but also the group of "non-genuine" cross-border commuters, who stay in the country of work during the week and then return to their "main residence" abroad at the weekend. The term "international weekly resident" is often used in this context.
Finally, there is a third aspect that does not simplify the situation, namely that cross-border commuters also sometimes work from home.
The following case study is intended to illustrate this topic:
Case study
Lisa Meier lives in Freiburg im Breisgau (Germany) and is employed by CHD Pharma AG in Basel (Switzerland). Her place of work is in Basel and she commutes this 75 km distance every day by train. From 1 January 2025, however, her place of work will no longer be Basel, but Zurich, as CHD Pharma AG will be relocating its research department to the company site in Zurich, where Ms Meier will be working from 1 January 2025.
She is thinking about how she should manage the (one-way) journey of 150 km a day or to what extent it would make sense to rent a flat in Zurich or ask for a home office for 2 days a week so that she does not have to commute this long distance every day.
Question: What issues and circumstances must the employer take into account so that the withholding tax can be settled correctly?
For the assessment, we first look at the current situation and then at the new situation that will apply from 1 January 2025.
Current situation - Basel as a place of work
As Mrs Meier commutes daily, she is classified as a "genuine" cross-border commuter. Even if Mrs Meier were to consider renting a flat in Basel and no longer commuting daily, she would be classified as a "genuine" cross-border commuter, as in practice, from a German tax perspective, it is considered that a daily commute of 110 km (one-way distance) can be managed. This means that if a cross-border commuter does not commute this distance, this is regarded as a purely personal decision and from a German perspective no necessity is derived from this, which leads to a different tax result.
Based on this, CHD Pharma AG must deduct a withholding tax of 4.5 % from Mrs Meier's salary in Switzerland, which would also represent the definitive Swiss tax burden.
However, Mrs Meier must submit a tax return in Germany in which the earned income is taxed, taking into account the 4.5% withholding tax.
CHD Pharma AG would obtain a cross-border commuter permit for Mrs Meier and deduct the Swiss social security contributions. With regard to health insurance coverage, Mrs Meier can choose whether she wishes to take out insurance in Germany or Switzerland.
Situation from 1 January 2025 - Zurich as a place of work
With the relocation of her place of work, the new, often greater, distance between her place of residence and place of work means that Ms Meier will no longer be a "genuine" cross-border commuter from 1 January 2025.
This means that taxation in Switzerland will then be carried out at the cantonal withholding tax rate of Zurich, which will then basically also represent your definitive Swiss tax burden. There are only very few options for correcting this definitive tax burden.
It is important to note that if this is to be done, a corresponding application must be submitted by 31 March of the following year.
In Germany, Mrs Meier must also submit a tax return due to her residence in Freiburg im Breisgau (DE), whereby the earned income taxed in Switzerland will only have a rate-determining effect on her other income. The earned income itself will not be taxed in Germany if she only has Swiss working days.
In the event that she would then also like to work in her home office in Germany for one day a week or also has business travel days abroad, these days would be subject to German taxation. This means that in this case the employer must exclude these days from the calculation of Swiss withholding tax. If this is not possible, the taxpayer can apply for the withholding tax on these days to be corrected by 31 March of the following year.
If Mrs Meier rents a flat in Zurich and only commutes once a week between her place of work/place of residence in Zurich and her main place of residence in Freiburg im Breisgau (DE), these additional costs can also be taken into account in certain cases in Switzerland with an application. If the costs are not allowed as a deduction in Switzerland, Mrs Meier would have to claim them in Germany as part of her German tax return.
By renting a flat in Zurich, Mrs Meier would have to register in Switzerland; as a rule, her existing cross-border commuter permit would be withdrawn in the canton of Zurich and a B permit would be issued instead. Mrs Meier would continue to be insured under the Swiss social security system and, based on her residence in Switzerland, would in principle also be subject to compulsory health insurance in Switzerland. An exemption from health insurance in Switzerland is generally no longer possible.
IMPORTANT:
This article only deals with the situation between Switzerland and Germany. In the case of different cross-border commuter constellations, i.e. if other neighbouring countries are involved, different regulations apply in some cases.
or this reason, it is very important to be absolutely clear about the specific situation with all the facts in order to make the right decision regarding the tariff categorisation and the calculation of withholding tax. After all, the employer is ultimately liable for the correct payment of withholding tax.
Conclusion
From the Swiss employer's point of view, it is not easy to keep track of the various withholding tax regulations when dealing with cross-border commuters, especially if you have more than one location in Switzerland and the cross-border commuters have their main residence in different countries.
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.