Taxation and Cross-Border Workers in Switzerland15 July 2021
Cross-border workers are allowed to claim social deductions both in Switzerland and in their home countries, as the motion to change taxations rules was rejected.
In June Marco Chiesa, a conservative Ticino MP presented a motion to the Council of States to stop the practice of the possibility of claiming double social deduction by cross-border workers. Taxpayers who work in Switzerland and earn income here, but reside abroad, can claim social deductions in two countries – their home one and Switzerland. Cantons are obliged to take into the account a deduction for family expenses while calculating withholding tax for foreigners. The motion of Chiesa was rejected by majority of deputies. This means taxation rules stay as they were, and around 340,000 cross-border workers can still claim double social deduction.
Switzerland, France, Italy, and Germany have an agreement that allows Swiss canton to subtract withholding tax form cross-border employees’ salaries. It is a different mechanism than the one applied to Swiss residents employed in the country, that declare income and pay taxes every month in installments. Taxes paid by cross-border workers in Switzerland are deducted from their tax liability in their home country. This applies to all G-permit cross-border workers and also foreigner who are not permanent residents but work in Switzerland. The total gross income from all employments, including benefits from accident insurance or invalidity, are taken into the account when calculating the withholding tax rate. Little changes to the taxation at source system were introduced this year, to comply with EU/EFTA agreement’s rules on the free movement of persons. Their aim is to eliminate disparities when treating cross-border workers subjected to the withholding tax rules and those with ordinary taxation regime. However, changes are not significant. Still, it is unknown how the end of talks between the EU and Switzerland on one bilateral deal might influence cross-border workers and taxation system.
Where do the collected taxes from cross-border workers go to? Majority of them stays in Switzerland, but some portion is distributed also to the respective countries of residents or regional authorities. For instance, in 2020 Geneva canton paid 315 million Swiss francs collected from 2019 taxes to French regional authorities. As many as 87,000 cross-border workers commute from France to Geneva every day for work. As per agreement from 1973, 3.5% of all collected taxes from cross-border workers is given to France, out of which 76% goes to Haute-Savoie and the remaining part to Ain. These are two regions from which majority of cross-border employees come from. Meanwhile the Ticino canton’s authorities paid around 90 million Swiss francs to Italy in 2020, from which around 67,000 cross-border workers in the canton come.