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CROSS-BORDER WORKERS

EXPLAINED: What cross-border workers should know about taxation in Switzerland

Cross-border workers can claim social deductions both in Switzerland and in their home countries. Here's what you need to know.

EXPLAINED: What cross-border workers should know about taxation in Switzerland
Cross-border workers enter Switzerland from toen of Como. MIGUEL MEDINA / AFP

Despite a recent reform effort, taxpayers who reside abroad and earn income in Switzerland will be able to continue to claim social deductions both in Switzerland and in their home countries.

Current Swiss law obliges cantons to take into account a deduction for family expenses when calculating withholding tax for non-residents. 

In June 2021, conservative Ticino MP Marco Chiesa (SVP) presented a motion to the Council of States, the lower house of the parliament, to end this practice.

Chiesa argued that tax deductions for children, or young people who are in apprenticeship or at university, are already granted in the taxpayer’s home country.

However, on Wednesday, the majority of deputies rejected this proposal.

This means the current system of taxation imposed on non-resident foreigners who are employed in Switzerland, including an estimated 340,000 cross-border workers, will remain unchanged for the time being.

READ MORE: Reader question: Can I deduct working-from-home costs from my Swiss taxes?

What are the tax rules for cross-border employees in Switzerland?

An agreement between Switzerland and France, Italy, and Germany authorises cantons to subtract withholding tax (also known as taxation at source) from cross-border workers’ wages.

This system is different from the one used by resident workers, who declare their income and pay taxes in monthly instalments throughout the year.

The taxes that cross-border workers pay in Switzerland are deducted from their tax liability in their country of residence.

To determine the withholding tax rate, the total gross income from all employment, including supplementary earnings such as benefits from invalidity or accident insurance, are calculated. 

Employers then forward the levied amounts to cantonal tax authorities. 

This tax system applies only to G-permit border workers and foreigners who are not permanent residents.

This is how it works by country of residence:

Italy

The tax agreement signed between Bern and Rome in December 2020 distinguishes between “new” and “old” cross-border commuters. For those who start working in Switzerland after the agreement enters into force, the withholding tax rate will be 80 percent in favour of Switzerland, instead of the 70 currently. 

France

Under the taxation regime currently in place, permit G holders who work in cantons other than Geneva have their taxes collected by French authorities.

But if their place of employment is Geneva, taxes are paid in Switzerland.

Germany

Since 2019, a ‘day-count’ method is used to determine taxation of border workers.

This relates to 60 ‘non-return days’, defined as a day when the workers can’t return to Germany due to professional duties in Switzerland.

If the 60-day limit is not exceeded, the workers pay taxes in Germany. If it is, employees are subject to the Swiss withholding taxes system.

What about changes to the system?

Some tax changes were introduced in 2021.

Switzerland’s new law on taxation at source is intended to ensure compliance with rules stipulated in the EU/EFTA agreement on the free movement of persons.

Most specifically, its aim is to eliminate disparities in treatment between workers subjected to withholding tax and those under the ordinary taxation regime.

Also, the cantons will be required to standardise the calculation of withholding taxes throughout Switzerland.

Do all of the collected taxes stay in Switzerland?

While most of this money does remain in Switzerland, a portion is paid to the employees’ respective countries of residence or regional authorities there. 

This is how much tax Switzerland pays to workers’ home countries:

In 2022, Geneva paid 343 million francs from 2020 taxes to the French departments from where some 87,000 workers commute to their jobs in the canton each day. 

Under the deal worked out in 1973, 3.5 percent of the tax collected from cross-border workers goes to France, with 76 percent of that total transferred to Haute-Savoie and the rest to Ain — the two regions from which most workers commute to Geneva.

This sum is intended to compensate for the public charges incurred by cross-border workers in their French municipalities. The funds are supposed to be used for infrastructure projects of regional importance, in particular those managing mobility on both sides of the border.

Also in 2020, Ticino authorities had paid of nearly 90 million francs to Italy, collected from approximately 67,000 frontier workers employed in the canton.

Will the failure of negotiations between Switzerland and the European Union impact taxation of border workers?

The full extent of repercussions is not yet known, including on taxes.

However, in a broader sense there is concern in the border cantons that Switzerland’s decision to abandon the bilateral talks will influence their ability to employ G-permit frontier workers.

“Breaking off the negotiations is really problematic for us”, Serge dal Busco, the vice-president Geneva’s government said in an interview with Swiss media.

READ MORE: What impact could the Swiss-EU stalemate have on cross-border workers?

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For members

HEALTH INSURANCE

How to save money by changing your Swiss health policy

Switzerland’s compulsory health insurance is notoriously expensive, but you can lower the cost of premiums substantially by changing your company or coverage.

How to save money by changing your Swiss health policy

The cost of health insurance premiums usually represents at least 7 percent of a typical household budget.

An adult spends nearly 4,600 francs a year on average on the mandatory basic coverage (KVG / LaMal) alone – covering only medical care, not dental. If any extra policies are taken out, the cost is even higher.

Not only that, but premiums have been rising practically each year, and look set to go up again in 2023, possibly by as much as 10 percent — the sharpest hike in 20 years.

READ MORE: Why Swiss health premiums are set to rise — and what you can do about it

Even though these costs are high and climbing, many people keep the same health insurance for years.

However, significant savings — to the tune of thousands of francs a year — could be made simply by switching carriers or plans, from the more expensive to the cheapest ones, according to a new study by the cost comparison site Comparis.

How much and where

The amount of the savings varies depending on policyholder’s place of residence, because rates are determined by cantons.

However, Comparis calculated that over a 10-year period, people living in Zurich could have saved 33,396 francs in premium costs and for those living in Bern this amount is 30,064.

Lausanne residents could cut their costs by 36,494 francs over 10 years, 31, 032 in Geneva, and 33,490 in Basel-City.

“With the strong premium increases expected this fall, the savings potential is even greater,” said Felix Schneuwly, health insurance expert at Comparis.

So how can you save money? Here are some of the ways:

Increase your deductible

In Switzerland, the deductible (franchise) ranges from 300 to 2,500 francs – this represents the medical costs that you have to pay out of your own pocket before your health insurance kicks in.

As with most types of insurance, the lower your deductible, the higher your premiums, and vice-versa.

If you are young, healthy, and are not on any long-term medication then you can save substantially with the highest franchise.

Keep in mind, however, that if you choose the highest deductible and end up having an accident or falling sick and needing medical care, you will have to pay a greater proportion of the costs.

Switch to a less expensive plan.

The standard model for healthcare in Switzerland is that you can consult any medic that you want, and you do not need a referral to see a specialist.

However, there are some types of health insurance plans that have cheaper premiums, but impose certain limits on your access to non-emergency medical care.

For instance:

Health maintenance organisation (HMO)

Under this model, policyholders are required to consult a particular HMO practice. Two disadvantages of this alternative is a limited choice of doctors and you also need a referral to see a specialist.

However, the benefit is a premium reduction of up to 25 percent compared to the conventional insurance.

Family doctor model

Your family doctor, a general practitioner, will be designated by your insurance company and will be in charge of all your non-emergency medical treatment.

He or she will refer you to a specialist if necessary. 

If you opt for this option, you could save 20 percent on your insurance.

READ MORE: Five tips for getting cheaper health insurance in Switzerland

The Telmed alternative

If you choose this option, you have to call a telephone service and get a referral to a doctor or hospital.

This does not apply to medical emergencies and there are other exceptions, such as eye exams and annual gynaecological check-ups.

Total savings could range between 15 and 20 percent. 

Cancelling or changing your policy

If you want to cancel your current insurance policy and take up a cheaper one , you have to do so by registered letter before November 30th.

By then, you will know what your premiums will be in 2023 because your carrier must notify you of the new rates by October 31st.

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