Withholding tax when working from home

As a result of the dissolution of the previous work organisation, new questions arise in connection with the cross-border separation of place of residence and place of work. Especially with regard to withholding tax on employees who previously had their place of work in Switzerland and lived abroad and who are now actually no longer working in Switzerland due to the current situation.

The tax authorities have issued special regulations for the short-term solution of these questions, which you can see below.

International regulations

Consultation Agreement Switzerland and Germany

Under the DTA, Switzerland and Germany have concluded a provisional agreement (consultation agreement) on the effects of the corona crisis on cross-border workers. This contains the rule that cross-border commuters or weekly residents who, because of COVID-19 measures, had to carry out their work activity not physically in Switzerland, as is usually the case, but in their home, will be taxed in Switzerland. The provisions of the understanding enter into force on 11 March 2020 and remain in force until 30 June 2020. From that time onwards, the agreement shall be tacitly renewed from the end of each month until the end of the following month, unless one party terminates it by written notification to the competent authority in the other state at least one week before the beginning of the following month.

Consultation Agreement Switzerland and France

There is also a provisional agreement between Switzerland and France on the taxation of cross-border commuters and weekly wage earners in the case of home offices. According to this agreement, existing tax treaties are to apply as before as long as the Covid-19 exemptions are in force. This is to ensure legal certainty. Cross-border commuters who work from home are thus subject to the same tax regulations as if they were physically active at their previous place of work. The earned income is therefore taxed in Switzerland.

The provisions of the understanding entered into force on 14 March 2020 and remained in force until 31 May 2020, at which point the understanding shall be tacitly continued at the end of each month. It ceases to apply when both states have lifted their health regulations restricting the free movement of natural persons. On 13 May 2020 both states agree that the understanding will remain in force until 31 December 2020. After that date, it will cease to be in force, unless the development of the health situation in one of the two contracting states requires a further extension or a new agreement.

Consultation Agreement Switzerland and Italy

Switzerland and Italy have also concluded a provisional mutual understanding agreement (consultation agreement) on the impact of the coronavirus crisis on cross-border employees under the DTA. The understanding agreement comes into force on February 24, 2020 and stipulates that due to extraordinary health regulations as a result of the Covid-19 pandemic, the same tax rules apply to cross-border commuters working from home as if they had been physically present at their place of work without the measures. Specifically, this means that the working days in the home office are deemed to be working days in the state in which the person would have stayed to carry out their work without the measures and would have been compensated for this. This regulation corresponds to the consultation agreements between Switzerland and Germany and France.

National regulations

In principle, the rules of Switzerland's consultation agreements with Germany, France and Italy apply.

Communication of the Canton of Zurich

During the corona crisis, a large proportion of the workforce, including those resident abroad, worked from home. This circumstance arises questions and uncertainties, especially for those subject to withholding tax, which the tax administration of the Canton of Zurich tries to clarify in its communication.

The tax office of the Canton of Zurich informed in its communication that employees with foreign residence who usually work in Switzerland, but now had to work from home, are subject to Swiss withholding tax. This regulation does not apply for the days that a person spends working from home as previously regulated by employment contracts and are therefore not caused by the corona crisis.

Temporary activities from home, due to the measures to combat the coronavirus, also have no effect on taxation of cross-border commuters according to the relevant DTA. This order applies retroactively from 24 February 2020 until 31 December 2020 at the latest. Employees subject to withholding tax can apply for a revision in the case of double taxation within 90 days of its detection.

Communication of the Canton of Zurich

Communication of the Canton of Basel Stadt

The tax administration of the Canton of Basel-Stadt follows the communication of the Canton of Zurich.

Communication of the Canton of Geneva

The tax administration of the Canton of Geneva also stipulates that working days which a foreign employee is temporarily unable to perform in Switzerland due to the pandemic, but which are covered by employers in Switzerland are paid in Switzerland, are also taxed in Switzerland.

Communication of the Canton of Lucerne

The tax administration of the Canton of Lucerne published its newsletter on 8 September 2020, in which it describes all measures connected with the corona crisis and their consequences for income taxes. With regard to the taxation of withholding tax payers who worked from home during the corona crisis, the tax administration of the Canton of Lucerne has not yet defined any explicit regulations.

Communication of the Canton of Lucerne

Final remark

How other cantons might handle this situation is not known at present. For the sake of simplicity and uniformity, it is quite possible that they will, like the Canton of Basel-Stadt and Canton of Geneva, also follow the communication of the Canton of Zurich. We will update this overview on a regular basis. Other cantons have not yet explicitly commented on this topic. In any case, Switzerland's consultation arrangements with Germany, France and Italy apply.