Employees in an executive position
Pursuant to art. 15 par. 4 of the Double Tax Treaty D-CH the salary of directors (Direktor), executive directors (Geschäftsführer) or authorised representatives (Prokurist) of a Swiss company can be taxed in Switzerland. Germany excludes the taxation of such salary provided the salary is taxed in Switzerland. Different to employees without executive position, the salary is fully taxed by the country of the domicile of the company irrespective where the work is actually performed.
In the past, art. 15 par. 4 of the Double Tax Treaty D-CH was only applicable if the employee has been registered in the commercial register specifying his/her executive position. According to the consultation agreement between Germany and Switzerland of April 6, 2023, this is no longer a strict condition. It is now sufficient if the employee is registered in the commercial register with single or collective signatory power. Furthermore, employees who are not registered in the commercial register but have nonetheless a similar executive position can also apply the new rules. However, such position must be at least equal to an authorised representative and must be demonstrated to the tax authorities. This can be done with corresponding circular resolutions or the signature regulations of the company, taking into account also further factors such as salary amount, salary level within the company, number of employees with signatory power or the non-application of maximum working hours under the applicable employment law.
If the corresponding conditions are met, the salary of an executive employee of a Swiss company is subject to income tax only in Switzerland. The Swiss income tax of employees resident in Germany will be directly deducted by the employer from the salary as tax at source (Quellensteuer).
The new consultative agreement between Switzerland and Germany can be downloaded here.
Executive employees qualifying as cross-border commuters
If an executive employee also qualifies as a cross-border commuter (Grenzgänger) under the Double Tax Treaty D-CH the taxation rules are different. Pursuant to art. 15a of the Double Tax Treaty D-CH the salary of cross-border commuters resident in Germany is mainly subject to income tax in Germany. This also applies to executive employees. Switzerland has the right to tax such salary at a rate of maximal 4.5% whereas this Swiss tax can be credited against the German income tax.
An employee domiciled in Germany does not qualify as a cross-border commuter if he/she fails to return to Germany on more than 60 days per year provided that the reason for not returning is connected to his/her work. The qualification of “non-returning days” is further defined in consultative agreements. According to the negotiation protocol between Switzerland and Germany of June 24, 1999, unreasonableness of a daily return is generally assumed if the road distance is more than 110 km or if the time required to travel from the place of work to the place of residence (there and back) by the means of transport normally used exceeds 3 hours. According to the consultation agreement between Switzerland and Germany dated July 15/18, 2022, working days that an employee (cross-border commuter) performs at his or her place of residence (home office) are also not considered non-returning days (see also BMF letter dated July 26, 2022). However, the previous Corona-related special regulations between Switzerland and Germany expired on June 30, 2022.
Taxation of board members of a Swiss company
For board members of a Swiss company who are resident in Germany special rules apply in accordance to art. 16 of the Double Tax Treaty D-CH. This allows Switzerland to fully tax directors’ fees whereas a tax at source will be applied. The rate of the tax at source varies depending on the canton in which the Swiss employer is domiciled. The board member resident in Germany can credit the Swiss tax against the German income tax.
Secondment of employees from Germany into Switzerland
In principle, salary for work performed in Switzerland is subject to income tax in Switzerland. An exception applies to short term assignments to Switzerland of employees domiciled in Germany, if such employees stay less than 183 days per calendar year in Switzerland and if the employer has no domicile and no permanent establishment in Switzerland. Companies in Germany can therefore assign employees to Switzerland for a limited time without triggering Swiss tax consequences for such employees.
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