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1 Jun 2023

Home office abroad - Guidelines

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"Hi all, greetings from sunny Spain" - writes an employee to his team, enclosing a picture from the hotel pool. What was the exception before the pandemic has now become the norm. For employers, this brings both advantages and disadvantages. Besides the fact that the employee is top motivated early in the morning because she is jumping into the pool and enjoying the lunch buffet in a couple of hours, there are also legal hurdles that employers must not neglect.

Our legal expert Barbara Hager explains:

Social security abroad

Home office abroad is generally permitted. However, social security and tax aspects must be considered.

The Swiss Labour Law is in principle only territorially applicable. This means that it only applies in Switzerland, but not abroad. However, since labour law is governed by private autonomy, except for the mandatory stipulations, the extent to which work is to be done and the wages etc. can be freely agreed. The regulations of social security law are not subject to private autonomy.

There, the situation is well regulated, at least when working in an EU/EFTA home office: if you work substantially, i.e. 25% or more, in your country of residence, you must be insured there, regardless of where your employer is based. (Subordination rules according to Regulation EU 883/2004).

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Thus, if an employee who has a 100% workload works on average 2 days a week in a German home office and 3 days at the employer's headquarters in Switzerland, social insurance must be settled for this employee in her country of residence, Germany, because she works more than 25% of her workload from abroad.

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Besides the administrative effort, this can be relatively costly, depending on the country.

Those who plan to allow home office abroad for a longer period of time should establish the rules for this at an early stage. According to an EU directive, home office activity abroad is irrelevant from a social security perspective if employees spend around 8.5 percent of their annual working time abroad. With about 224 working days, that is 20 days. So if you want to be on the safe side, you allow a maximum of 20 days per year.

Those who stay abroad for less than the occasional 25 per cent home office and 20 days at a time, have little to fear in terms of social insurance.

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How does it relate to taxes?

Anyone who - as described here in this article - works abroad for a few weeks as a "workation", but remains resident and registered in Switzerland, is not liable to pay tax abroad. This is because, in essence, tax liability applies at the principal place of residence.

If a Swiss company employs (in particular) executive employees or several employees at one location who regularly and continuously work in a cross-border home office, there is a risk that the home office situation could establish a permanent business entity abroad. The company would then run the risk of becoming liable to tax abroad on part of the business profits.

If a double taxation agreement exists between the country of residence, Switzerland, and the country in which the employee is staying or would like to stay for home office purposes, the "183-day rule" offers a defense against fiscal access by the host state. If the employee generally does not spend more than 183 days in the host country during a year and his salary continues to be paid by his Swiss employer (and not by a permanent business entity in the host country that the Swiss employer has there), Switzerland has the sole right to tax the employee's salary.

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If the employer wants to allow employees to work from home abroad, I recommend that the legal framework be explicitly stipulated in the contract, that the employee be informed and that the risks be assessed in each individual case.

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