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Switzerland | Employment Tax | New tax agreement for Italian cross-borders in Switzerland

Switzerland | Employment Tax | New tax agreement for Italian cross-borders in Switzerland

October 3, 2023

28 September 2023

Employment Tax

Switzerland | New tax agreement for Italian cross-borders in Switzerland

Impact: High

Summary

The bulletin provides an update about the new tax agreement signed on July 17, 2023 regarding the taxation of the Italian daily cross-borders working in Switzerland. This new agreement will affect the taxation of this specific category of taxpayers in the following three Cantons: Ticino (TI), Valais (VS) and Graubünden (GR).

Current special tax regime

Since October 1974, the Italian cross-borders working in Switzerland (TI, VS and GR) and
living in Italian municipalities located less than 20 kilometers from the Swiss border are subject to a special tax regime in place between Switzerland and Italy:

The Swiss employment income is fully taxed in Switzerland through the withholding tax procedure and with a specific tax rate for cross-borders.
There is neither a taxation in Italy nor an obligation for the employees to disclose such Swiss employment income to the Italian tax authorities.
The Swiss government retrocedes 40% of the total annual withholding tax of such cross borders covered by the special tax regime to the Italian government. The concerned employees are not involved in this process at all. It is a pure employer’s obligation to ensure the correct taxation.
The individual should not have more than 45 non-return days due to work related purpose

There is a transitional agreement for existing cases in place (see further explanations hereinafter).

New Agreement as of January 1, 2024

A new agreement has been signed on July 17, 2023 and will enter into force as from January 1, 2024. The new special tax regime will cover all the cross-borders who will be starting to newly work as a cross-border in one of these cantons after July 17, 2023. Saying this, for calendar year 2023 those cross-borders will also be treated based on the 1974 tax regime and will swap to the new regime as of January 1, 2024. The “old cross-borders” will benefit of a transitional regime (see below).

The new rules which will be in place as from January 2024 are the following:

Only 80% of the gross professional income is subject to Swiss withholding tax, still at the same specific cross-border tax rates.
It is the responsibility of the employer to calculate, settle and pay the withholding tax accordingly. The calculation principles are the same than for any other B permit holders. Saying this, the following should be taken into consideration for the calculation:

• Annualization of the monthly salary to determine the tax rate;
• consider the non-period elements;
• make the potential necessary adjustments/corrections in the last pay slip of
the year when all the annual compensation components are known and final.

To ensure that the withholding tax calculation is correct, the employer must refer to the tax authorities’ instructions. Those are not published yet.
Switzerland does not need to retrocede any longer any amount of the Swiss withholding tax paid to the Italian government. Newly, the process is done at individually level through the Italian tax return filing.
As it is already the case for all the Italian taxpayers (cross-borders were the only exception), the full Swiss compensation will be subject to taxation in Italy as per the four ordinary progressive tax rates in place (23%, 25%, 35% and 43%). To avoid any double taxation, the Swiss withholding tax already paid will be considered as a foreign tax credit. Meaning, that the taxpayer will pay the difference between the Italian tax liability and the Swiss withholding tax to the Italian tax authorities directly.
As from the tax year 2024, it will be mandatory for the concerned employees to declare the full income to the Italian tax authorities to determine the above mentioned remaining balance due.
The individual should not have more than 45 non-return days due to work related purpose.

Transitional regime for the “old cross-borders”

As previously mentioned, the new agreement signed in July 2023 will enter in force as from
January 2024. However, only the employees who started newly working as a cross-border after July 17, 2023 will be subject to the new tax regime.

For the “old cross-borders”, the previous special tax regime in place since 1974 remains applicable, with the following transitional regime process:

 The “old cross-borders” will be under the transitional regime until the tax year 2033.
As from January 1, 2034, the “old cross-borders” will be taxed under the provisions of the new agreement signed in 2023.

We recommend employers to carefully check the situation of each cross-border employee in order to determine which tax regime and related withholding tax process will be applicable as from January 2024. Moreover, adjustments to the payroll may need to be introduced.

Useful links

Canton Ticino, Tax at source authorities

https://www4.ti.ch/dfe/dc/dichiarazione/imposte-alla-fonte-1/informazioni-sullimposte-alla-fonte

Canton Graubünden, Tax at source authorities

https://www.gr.ch/IT/istituzioni/amministrazione/dfg/stv/berechnen/Seiten/quellensteuer.aspx

Canton Valais, Tax at source authorities

https://www.vs.ch/web/scc/source

Official list of the Italian municipalities part of the special tax regime of October 1974
https://m4.ti.ch/fileadmin/DFE/DC/DOC-IF/aa_comuni/lista_comuni_frontiera_2018.pdf

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Natalia Graf
Director
natalia.graf@vialto.com

Franziska Tschirky
Senior Manager
franziska.tschirky@vialto.com