The start of the new tax year 2024 is accompanied by many changes. We are happy to provide you with an overview of important changes.

VAT and Customs

We would like to take this opportunity to remind you that at the end of 2022, the Swiss people ap-proved an increase in VAT rates with effect from January 1, 2024. The background to the increase is the financing of the “AHV” (“Alters- und Hinterlassenenversicherung”, “Old-age and survivors' insur-ance”).

As a result, the following VAT rates will apply from January 1, 2024:

 

So far

New

Standard rate

7.70%

8.10%

Reduced rate

2.50%

2.60%

Special rate for accommodation services

3.70%

3.80%

If you require further details and explanations about the changes to the VAT rates, please refer to our blog post published in August 2023. Further information and sample forms for invoicing from 2024 can also be found on the SFTA website.

Individual taxes in regards Direct Federal Tax

There will be no significant changes to taxes for private individuals in 2024. Various deductions will be adjusted slightly upwards due to inflation:

Deduction

2023

2024

Training and further education

12’700

12’900

Double income deduction

13’600

13’900

Child deduction

6’600

6’700

Support deduction

6’600

6’700

Married status deduction

2’700

2’800

Deduction from the tax amount per child

255

259

Pillar 3a (with pension fund)

7’056

7’056

Pillar 3a (without pension fund)

35’280

35’280

Childcare deduction

25’000

25’500

Higher interest on arrears and remuneration

Anyone who pays direct federal tax in advance will now receive a refund interest rate of 1.25% (2023: 0%). However, anyone who misses the payment deadline must now pay 4.75% interest on arrears (2023: 4%).

Introduction of equalization and compensation interest at cantonal and municipal tax level

We would also like to draw your attention to the fact that certain cantons are reintroducing equaliza-tion interest as of 2024. For example, the canton of Zug is introducing equalization interest of 2%. In principle, this interest will apply to all outstanding amounts against the respective tax administration as at 1.1.2024. The right to establish deviating rules at the different cantonal levels is reserved. We therefore recommend that you contact your tax authority to clarify your situation with regard to any unpaid tax debts as at 1.1.2024.

Both individuals and legal entities are affected by equalization interest.

Due to the renewed introduction of equalization interest, the cantons will introduce compensatory interest as a counterpart.

Changes in the canton of Zurich

Since 2016, the canton of Zurich has dropped a total of 13 places in terms of profit tax rates com-pared to other cantons. Current tax burden data shows that the canton of Zurich now has the highest ordinary profit and capital tax burdens in the country. In response to this, the Department of Finance has taken measures to make the canton more attractive again. The plan is to ease the burden on companies slightly, while shareholders will be asked to pay more. Specifically, a reduction in the sim-ple profit tax rate from 7 to 6 percent is planned. This would reduce the overall tax burden from 19.7% to 18.2% (direct federal tax, state and municipal taxes in the city of Zurich, calculated on pre-tax prof-it). In addition, the taxation of dividends from qualified participations is to be increased from 50% to 60%.

Although these changes are planned, their implementation is not scheduled until 2025.

In our last article, we took a closer look at the social security subordination rules for cross-border activities and the resulting problems. It must always be considered that, in addition to the social security perspective, the tax perspective must also be examined. The applicable double taxation agreements (DTAs), the supplementary agreements or mutual agreements and the separate cantonal special agreements with the border states must be taken into account.

We would like to take this opportunity to remind you that at the end of 2022, the Swiss people ap-proved an increase in VAT rates with effect from January 1, 2024. The background to the increase is the financing of the “AHV” (“Alters- und Hinterlassenenversicherung”, “Old-age and survivors' insur-ance”) place of work principle, according to which the country of employment can tax income from employment if the work is actually physically performed in that country. If certain working days in cross-border employment relationships are no longer physically performed at the employer's registered office in the country of activity, but in the home office in the country of residence, this can lead to a different allocation of the right to tax salaries.

For the example of an an international weekly resident with residence and family domicile abroad and place of work in Switzerland, this means that Switzerland may tax the Swiss working days based on the place of work principle. However, each individual working day performed in the home office at the foreign place of residence is subject to tax abroad and must be exempt from tax in Switzerland accordingly. If the home office activity abroad reaches a certain level, it must be examined whether the foreign country of residence has the exclusive right to tax the employment income as a result of the application of the so-called "assembler's clause" in accordance with Art. 15 para. 2 of the respective DTA. This special provision applies if the employee spends a total of less than 183 calendar days in Switzerland (working days including weekends and holidays) and the remuneration is not paid by an employer in Switzerland or a permanent establishment of the foreign employer located there. If the conditions are met cumulatively, Switzerland loses its right of taxation as the place of work.

Another exception to taxation at the place of work can be found in the taxation of international weekly residentFor example, a new consultation agreement on the application of Art. 15 para. 4 DTA Germany was concluded with Germany on 6 April 2023. According to this agreement, the provisions of this article will also apply to "senior executives" with residence and family domicile abroad and place of work in Switzerland, this means that Switzerland may tax the Swiss working days based on the place of work principle. However, each individual working day performed in the home office at the foreign place of residence is subject to tax abroad and must be exempt from tax in Switzerland accordingly. If the home office activity abroad reaches a certain level, it must be examined whether the foreign country of residence has the exclusive right to tax the employment income as a result of the application of the so-called "assembler's clause" in accordance with Art. 15 para. 2 of the respective DTA. This special provision applies if the employee spends a total of less than 183 calendar days in Switzerland (working days including weekends and holidays) and the remuneration is not paid by an employer in Switzerland or a permanent establishment of the foreign employer located there. If the conditions are met cumulatively, Switzerland loses its right of taxation as the place of work.

So far New Standard rate 7.70% 8.10% Reduced rate 2.50% 2.60% Special rate for accommodation services 3.70% 3.80% of cross-border commuters. As in the area of social security, various special consultation agreements and regulations with countries bordering Switzerland had to be observed from a tax perspective due to the COVID-19 pandemic until recently. Although these have since ceased to apply, the increase in home office work as a result of the pandemic has provided an important impetus. Against this backdrop and the fact that employees increasingly want to work from their place of residence, various new regulations have recently been concluded with neighboring countries in the area of taxation of cross-border commuters.

Individual taxes in regards Direct Federal Tax There will be no significant changes to taxes for private individuals in 2024. Various deductions will be adjusted slightly upwards due to inflation:

Higher interest on arrears and remuneration Anyone who pays direct federal tax in advance will now receive a refund interest rate of 1.25% (2023: 0%). However, anyone who misses the payment deadline must now pay 4.75% interest on arrears (2023: 4%).

Introduction of equalization and compensation interest at cantonal and municipal tax level We would also like to draw your attention to the fact that certain cantons are reintroducing equaliza-tion interest as of 2024. For example, the canton of Zug is introducing equalization interest of 2%. In principle, this interest will apply to all outstanding amounts against the respective tax administration as at 1.1.2024. The right to establish deviating rules at the different cantonal levels is reserved. We therefore recommend that you contact your tax authority to clarify your situation with regard to any unpaid tax debts as at 1.1.2024. Both individuals and legal entities are affected by equalization interest. Due to the renewed introduction of equalization interest, the cantons will introduce compensatory interest as a counterpart.

Changes in the canton of Zurich Since 2016, the canton of Zurich has dropped a total of 13 places in terms of profit tax rates com-pared to other cantons. Current tax burden data shows that the canton of Zurich now has the highest ordinary profit and capital tax burdens in the country. In response to this, the Department of Finance has taken measures to make the canton more attractive again. The plan is to ease the burden on companies slightly, while shareholders will be asked to pay more. Specifically, a reduction in the sim-ple profit tax rate from 7 to 6 percent is planned. This would reduce the overall tax burden from 19.7% to 18.2% (direct federal tax, state and municipal taxes in the city of Zurich, calculated on pre-tax prof-it). In addition, the taxation of dividends from qualified participations is to be increased from 50% to 60%. Although these changes are planned, their implementation is not scheduled until 2025.

In the area of the coordination of national social security systems, in the case of a substantial activity in the country of residence within the EU/EFTA/CH, the insurance status can change from the employer country to the country of residence, provided that a substantial activity is carried out in the latter. This mainly occurs in cross-border constellations where, in addition to a work activity on the employer's premises, a home office activity is carried out in the country of residence.

Until the outbreak of the COVID-19 pandemic resp. the lockdown on 11 March 2020, a workload of 25% of the total activity on average was considered to be a substantial activity. Thus, up to a maximum of 24.9% of the total activity could be performed in the home office without a change of insurance status.

Due to the special situation in connection with the coronavirus, a flexible application of the subordination regulations was agreed within the EU/EFTA and in relation to Switzerland, according to which the insurance subordination should not change due to the pandemic-related restrictions. Thus, a person is considered to be employed in the country of employment (and thus subject to the social security system there) even if he or she is physically unable to perform his or her work there and must perform 100% of the working days in the country of residence in the home office. In principle, an A1 certificate was not required in such circumstances. Within the EU/EFTA/CH-States this flexible regulation was extended until 30 June 2023.

According to the old regulation before the lockdown, in the case of a 100% workload, a home office activity of 2 days (40%) would lead to a change of social security status to the country of residence and the employer would subsequently be liable for social security contributions in the employee's country of residence and for the payment of the corresponding social security contributions. An A1 certificate confirming the applicable social security legislation would also have to be applied for. Under the flexible application regime during the COVID-19 pandemic, however, there would be no change in social security status despite performing more than 25% of substantial work in the country of residence and no need to apply for an A1 form would arise.

In order to continue a facilitation of social security subordination after 30 June 2023, Switzerland and certain EU and EFTA states have signed a multilateral agreement. The agreement provides that persons working in the state in which their employer's registered office is located may perform up to 50% cross-border telework (maximum 49.9% of working time) in the state of residence without the subordination for social insurance changing from the state of the employer's registered office to the state of residence.

In order for the agreement to apply to their employees, Swiss employers must apply for an A1 certificate (maximum validity 3 years, renewable) from their OASI compensation fund via the ALPS platform (Applicable Legislation Portal Switzerland). The same applies to foreign employers whose Swiss employees wish to work from their home office. They must apply for an A1 certificate from the competent foreign authority.

This exception is only applicable to situations involving two states that have signed the agreement. In the case of home office in a state that has not signed the multilateral framework agreement, or for an employer based in a state that has not acceded to the agreement, the ordinary rules and procedures applied before the pandemic will apply again as of 1 July 2023 (materiality threshold of 25% of the activity, need to apply for an A1 certificate). The agreement is also not applicable if, in addition to teleworking in the country of residence, the employee carries out other activities there, such as visiting customers, or has an employment relationship in another EU/EFTA state.

It should be noted that the above regulations only apply to the area of social security. The tax perspective must be examined separately and based on the respective applicable double taxation agreements, the supplementary agreements or memorandums of understanding, as well as the separate cantonal special agreements with the border states. A more in-depth discussion of the tax approach will be addressed in the next blog post. It should already be mentioned that a new mutual agreement has entered into force with France on 1 January 2023. A new cross-border commuter agreement and an amendment protocol also entered into force with Italy on 17 July 2023. In relation to Germany, the new consultation agreement of 6 April 2023 concerning "senior employees" must be taken into account.

In the wake of digitalization, more modern forms of work have found their way into our everyday working lives, enabling mobile working independent of an actual office infrastructure. The term "remote work" has become established as a generic term for work that is not performed on the employer's premises. The term "home office" is used to describe the form of work performed in the private home of the employee's main place of residence. The word combination "workation" covers work at a vacation location and "bleisure work" covers work from a leisure location. Employees who do not perform their work at a fixed location are included under the term "Digital Nomads". Co-working space" or a "shared office" is a workplace that is flexible in terms of time and location and is shared by several people.

Employers hope to gain a strategic advantage on the labor market by offering modern forms of work. In addition, they are no longer only active on the national market, but also accept orders abroad. If employees are sent to other countries to fulfill these orders, this entails in particular reporting obligations. What these constellations have in common is that the potential risks are often not sufficiently considered. In addition to the aforementioned aspects of reporting law, social security law, labor law and direct and value-added tax aspects must also be considered. Failure to comply with these regulations can result in heavy fines and sanctions. The tax and, in particular, value-added tax risks can also be considerable in certain constellations. 

Workation

It may sound a bit paradoxical, but working on vacation is an absolute dream for many employees. What sounds so simple, however, hides numerous stumbling blocks.

In the case of "workation", in contrast to a classic secondment, the duration of the work is not clearly defined. It can last from a few days to several months. From the point of view of labor law, the remuneration, vacation days, working hours and rest periods, etc. must be correctly defined. It is important to create clear conditions by means of a supplementary agreement to the employment contract or a general "workation policy" in order to avoid later disputes. For example, it must be clearly defined which part of the workation is considered vacation and which part is considered working time. As soon as the activity has a connection to the Swiss market, the mandatory provisions of Swiss labor law and the applicable collective labor agreements, including minimum wage regulations, must also be observed.

Apart from that, workation within Switzerland is basically unproblematic. However, workation abroad is not quite as simple. Even within Europe, local legislation varies greatly. Depending on the duration of the activity, questions may arise regarding the employee's personal tax or social security obligations, the establishment of a permanent establishment by the employer in the vacation country, or work and residence permits. In order to avoid unexpected inconveniences such as compliance obligations in different countries, we recommend implementing a uniform workation regulation and defining exactly in which countries and over which period of time workation is approved.

In cooperation with various foreign consulting firms, the Deutsche Visa und Konsular Gesellschaft (DVKG) and the digitization company ESCRIBA, we can offer standard solutions for the majority of cases. We can assist in the development of a workation policy or conduct personalized workshops on the most important do's and don'ts. With the help of DVKG, an automated application and approval process can be set up, which enables all involved parties in a company to process the application in an uncomplicated manner.

Homeoffice

In contrast to workation, the activity in the home office has a certain continuity and is usually not limited to a few weeks. From a labor law perspective, working outside the employer's country of domicile entails the risk that the place of work may change and that the employer may find himself before a foreign court in the event of labor law disputes and, in the worst case, foreign labor law may apply.

From the point of view of social security law, a substantial activity in the country of residence within the EU/EFTA/CH can change the insurance status. A substantial activity is considered to be a workload of 25% or more of the total activity on average, with efforts being made to increase this threshold. In the worst case, this can lead to the employer having to register with the social security authorities of a foreign country and settle the corresponding contributions. In Switzerland, this situation has long been known in the inbound relationship under the term of the so-called "genuine/non-genuine ANOBAG". However, the same problem can also arise in reverse if a Swiss employer or an EU employer becomes liable for social security contributions for its employees in another EU country. In relation to third countries, the respective bilateral social security agreements must be considered. As a rule, this results in a twofold assessment, whereby the contributions in one country can potentially be reduced. 

From a tax perspective, there is a risk that a company may establish a permanent establishment in the country of residence of its employees due to their home office activity. The consequence is the allocation of a part of the company's profit. This is particularly the case if essential activities are carried out on a permanent basis or decisive business decisions are made outside the employer's place of business in a home office in a fixed business facility. According to the analysis of the Swiss Tax Conference (SSK) on the effects of teleworking on the intercantonal tax segregation of companies dated 26.04.2022, it is now at least clear that home offices in Switzerland do not generally constitute a permanent establishment. This is particularly the case because the company does not establish a sufficient right of use in the employees' premises. In the international context, it can also be assumed as a rule that, according to the current opinion of the OECD, the use of home office by cross-border commuters or the activity at Workation only constitutes a permanent establishment of the company in exceptional cases. However, the foreign tax authorities, in particular Germany and Austria, partly deviate from the OECD's view and are less reserved when it comes to the assumption of a home office permanent establishment. In this context, the possibility of a so-called representative permanent establishment must also be considered. Under certain conditions, a permanent establishment can also be established without a physical facility being available, namely if a person has a de facto power of attorney and also usually exercises this power (so-called dependent representative with power of attorney). Finally, there is a practice in certain cantons according to which managing directors who work for a foreign company from their home office in Switzerland establish a permanent establishment here. According to their opinion, the concepts of obligation or choice in the context of the organization of their work or the place from which it can or must be carried out are relative for executives who work as managing directors. As far as the activities of managing directors with signatory powers are concerned, according to this line of reasoning, these are not auxiliary activities by definition. Even if the managing directors do not make any significant decisions from Switzerland or have direct or indirect contact with clients, these cantons nevertheless assume a certain permanence and therefore the establishment of a permanent establishment purely on the basis of the function as managing director with predominant residence in Switzerland.

Cross-border provision of services

Employed persons from EU/EFTA countries can work in Switzerland without a permit for up to 90 working days per calendar year. However, their assignments must be reported online to the State Secretariat for Migration SEM. This is associated with the verification of compliance with minimum wage and working conditions. This means that in most cases, foreign employers must pay their employees a supplement to their normal salary for work assignments in Switzerland. Violation of the reporting obligations as well as non-compliance with the minimum wage regulations are strictly sanctioned by the cantons.

What many Swiss companies are not aware of is that the European Union also has reporting and registration obligations as well as minimum wage regulations (Equal Pay). The EU reporting obligations apply to posted workers, whose stay - depending on the country - must be reported to the labor authority, the social security authority or the occupational safety authority before the assignment. The EU Posted Workers Directive has been implemented in many EU/EFTA countries in such a way that the employer must report the business traveler - even if the stay lasts only one day. Failure to comply with the reporting obligation leads to considerable sanctions and far-reaching consequences such as sanction payments, legal penalties, entry bans and even exclusion from the local market. It is therefore worthwhile to check the respective reporting requirements at an early stage.

As part of our cooperation with the German Visa and Consular Society, we can provide a simple process to complete the EU declaration with just a few entries.

CONCLUSION

The aspects described above present employers with major administrative hurdles. For example, there is often a lack of appropriate internal processes that ensure compatibility with the employment, reporting, social security and tax aspects described above. In the worst case, a company is not even aware of existing risks. Through our network and with the help of our electronic applications, we can implement an automated process that reduces the administrative effort to a minimum. We can also provide with an automated alarm system that triggers an alarm in the event of special constellations, so that we or our network partners can then initiate a more in-depth investigation. In this way, possible risks can be identified at an early stage and appropriate measures can be taken.

Die zunehmende Globalisierung der Wirtschafts- und Arbeitswelt kann zu steuerlich relevanten Bezugspunkten zu mehreren Staaten und damit zu potentiellen internationalen Doppelbesteuerungskonflikten führen. Bei bestehender staatsvertraglicher Grundlage können Doppelbesteuerungskonflikte durch die Anwendung eines Doppelbesteuerungsabkommen (DBA) vermieden werden. Die DBA-Berechtigung knüpft dabei an die (steuerliche) Ansässigkeit an.