Cross-border commuters: a permit with special conditions

Around Basel, on Lake Constance, in Geneva or in Ticino: every day, thousands of people commute from abroad to work in Switzerland. They are cross-border commuters, with a working life that crosses national borders. But however simple the commute looks, the rules on tax and social insurance are complex. This article gives a compact overview of the key points employers should keep in mind.

Cross-border commuters at a glance: how it works

Cross-border commuters live abroad and work in Switzerland, and return to their place of residence at least once a week. This is made possible by the Agreement on the Free Movement of Persons (AFMP) between Switzerland and the EU. It allows citizens of all EU/EFTA states to work in Switzerland without living there.

The big advantage: border zones no longer exist. People can live in any EU/EFTA state and work in any Swiss canton, as long as they return abroad every week.

Anyone who meets these conditions can apply for a cross-border commuter permit (G permit). The canton of the place of work is always responsible. Important: the G permit is always tied to a specific employer. A change of job therefore always requires a new permit.

The G permit is usually valid for five years if the employment contract is open-ended or runs for more than one year. For shorter employment (more than three months but less than a year), its validity follows the length of the contract. For assignments of less than three months, the online notification procedure applies.

Possible, but not simple: cross-border commuters from third countries

People who are not from an EU or EFTA state can also work in Switzerland as cross-border commuters under certain conditions. They must live in a country bordering Switzerland, hold a permanent right of residence there and have lived in the defined border zone for at least six months. These zones are set out in the bilateral agreements with each neighbouring country.

As with cross-border commuters from EU/EFTA states: returning to their place of residence at least once a week is mandatory.

In addition, the labour market requirements must be met, in particular proof that no suitable worker from Switzerland or the EU/EFTA area is available. The first cross-border commuter permit is usually issued for one year and is limited to the canton of the place of work.

Cross-border commuting is a complex subject, and not only for third-country nationals. The legal basis, special rules and how they are applied in practice differ considerably from one country of residence to another.

To keep things clear, the rest of this article focuses on cross-border commuters living in Germany. If you employ people from other countries, we recommend having the specific situation checked individually by a specialist.

Getting tax right for cross-border commuters

For the taxation of cross-border commuters, what counts is not the free movement agreement but the double taxation agreement (DTA) between Switzerland and the country of residence. The DTA sets out which country has the right to tax and how double taxation is avoided.

Employees who work in Switzerland but are not subject to ordinary taxation are generally subject to Quellensteuer (withholding tax): the tax is deducted directly from the salary and paid by the employer to the tax office.

For cross-border commuters, the DTA distinguishes two categories: genuine cross-border commuters and weekly residents (colloquially “non-genuine cross-border commuters”). This distinction affects both the amount of withholding tax in Switzerland and taxation in Germany.

Genuine cross-border commuters in principle return to their residence abroad every day and spend no more than 60 nights a calendar year in Switzerland (non-return days). If they meet this condition, they count as genuine cross-border commuters for tax purposes. In these cases, the salary is taxed in Switzerland at a flat withholding tax rate of 4.5% on the taxable gross salary.

In practice, people often assume there is a choice here. There isn’t. Anyone who meets the conditions must be classed as a genuine cross-border commuter and is taxed at the flat rate accordingly.

The criteria are set out in the consultation agreement of 12 October 2018 between Switzerland and Germany. A genuine cross-border commuter is someone who:

• has a place of work in Switzerland no more than 100 km from their home in Germany (shortest route by car)

or

• has a journey time by public transport of less than 1.5 hours each way.

In addition, a certificate of residence from the German tax office is required: GRE-1 for the first registration, GRE-2 for an extension.

Taxation then works as follows. Switzerland levies 4.5% withholding tax each month, deducted directly from the salary. At the start of the following year, the employer issues a Lohnausweis (salary certificate) showing the gross salary and the tax withheld for the previous year. In Germany, the entire worldwide income (including the Swiss salary) is then taxed. The withholding tax already paid in Switzerland is credited against the German tax liability.

German tax offices favour this arrangement, so be careful with “sham” cross-border commuting.

Weekly residents, the so-called “non-genuine cross-border commuters”, are taxed at the ordinary withholding tax rate, unlike genuine cross-border commuters. This means the tax rate is progressive and depends on the gross salary: the higher the income, the higher the rate.

Unlike for genuine cross-border commuters, the entire Swiss salary is taxed in Switzerland. Germany taxes only the income earned there. The Swiss salary is, however, included when calculating the German tax rate (known as the progression proviso), so it affects the amount of tax indirectly.

One workplace, two countries, one social insurance

For social insurance, the rule is that cross-border commuters are in principle subject to the social insurance law of the country in which they work. So anyone who works in Switzerland is usually insured in Switzerland, regardless of living abroad. Since the EU/EFTA framework agreement on cross-border telework was introduced, cross-border commuters may work at most 49.9% of their working time from home in their country of residence without their social insurance obligation changing. Only from a share of 50% or more does the country of residence become responsible for social insurance.

For employers, this means working from home is possible in principle, provided the split of working time is clearly agreed, documented and traceable. If the share of working from home is below 50%, an A1 certificate can be requested for certainty, confirming that the employee stays in Swiss social insurance.

This rule applies not only to classic cross-border commuters but to all cross-border employment within the EU/EFTA states, whether or not the person commutes daily.

In practice, the focus is often on the contribution side, that is, where the social insurance contributions go. The benefits side matters at least as much, though. If, when a claim arises (for example illness or accident), it turns out that a different country should have been responsible, the insurance can refuse to pay. This can leave serious gaps for the person concerned and, in some cases, raise liability questions for the employer.

Another point concerns employees with additional employment in another EU/EFTA country. In such cases, you have to check whether Switzerland remains responsible or another country. Within the EU/EFTA area, only one country can determine the social insurance obligation.

With two countries involved, such situations can usually be clarified fairly easily. As soon as three or more countries are involved, it becomes much more complex. A careful check is then essential, ideally early and together with the responsible compensation office (Ausgleichskasse), for example through an A1 determination of responsibility.

Conclusion: well informed, well prepared

Cross-border commuters work across borders, which makes a lot possible but also makes some things more complex. Whether it’s the right taxation or the correct social insurance: clarity creates certainty, for companies and employees alike.

If you check early, document carefully and bring in specialist support when in doubt, you are on the safe side. With the right knowledge, working together across national borders can run smoothly.