Frontier workers: Swiss Government adopts new agreement with Italy - Tax and Legal blog

12.07 (1)

On 11th August 2021, the Swiss Federal Council adopted the dispatch on the new frontier workers` agreement between Switzerland and Italy. The agreement significantly improves the current regulation on the taxation of frontier workers. It also contributes to maintaining good bilateral relations between the two countries and resolves a political impasse which lasted more than five years.

After years of negotiations, controversies and postponements the Swiss and Italian governments managed to find a mutually satisfactory solution and signed the new agreement about frontier workers on 22nd December 2020.

The participants in the negotiation included the authorities of the cantons Ticino, Graubünden and Valais as well as the trade unions and The Association of Italian Border Municipalities.

Paraphrased in 2015, the agreement has since then been refined given that no final agreement arose from the first negotiations. The Italian border municipalities and trade unions initially showed strong resistance to elements of the agreement. On the Swiss side the authorities from the cantons Ticino, Graubünden and Valais exerted pressure on the Swiss Government to sign the agreement as soon as possible in order to solve perceived wage dumping. This has been one of the hottest topics on the political agenda of the frontier cantons in recent years.

Under the new agreement, Switzerland will withhold 80% of the ordinary withholding tax levied on the income of new cross-border commuters who begin work in Switzerland. New frontier workers will also then be taxed at the ordinary rate in Italy, with double taxation being eliminated.

Please note that new cross-border or frontier commuters are those persons who enter the cross-border labour market after the new agreement comes into force.

Cross-border commuters who work or have worked in the cantons of Ticino, Graubünden and Valais between December 31, 2018 and the date of the new agreement coming into force (known as current cross-border commuters) will be subject to a transitional regime. This category of workers will in fact continue to be taxed exclusively in Switzerland, which will then pay a “refund” (ristorno) of 40% of the withholding tax levied in Switzerland to the Italian border municipalities until the fiscal year 2033.

According to the new agreement, cross-border commuters are identified as those who reside within 20 kilometres from the border and who return, in principle, to their domicile every day (maximum 45 days per year without returning and only for professional reasons). This new definition will apply to all cross-border commuters (new and current) from the date when the new agreement comes into force.

The new agreement contains a provision designed to prevent potential abuse of current cross-border workers` statuses which will be reviewed every five years. The agreement also contains a clause which provides for consultations and possible periodic adjustments regarding remote-working.

Deloitte's View

From our point of view, it is very good news that finally, after such lengthy negotiations, a new agreement between Switzerland and Italy has been reached. It is also hoped that the Italian Parliament will ratify the agreement as soon as possible so that it can now enter into force.

Although this agreement is a step in the right direction, there are still some issues that will need to be discussed. For example, according to the agreement, there should be one country of residency in order to avoid cases of double taxation. However, there is no explanation given as to how this should be done. Therefore, we hope for a simple and practice-oriented solution from the respective authorities.

In recent years this topic has been the subject of many political and popular discussions within the border cantons and municipalities.

If you have any questions about this topic or would like to share your views please do reach out to us.

Key contacts

D.Wigersma.110x110

David Wigersma - Partner, Global Employer Services

David has 20 years of experience in the area of international corporate and individual taxation planning. He specialises in addressing the complex compliance needs of a cross-border workforce with varied elements of compensation.

Email 

Dominique Frison110x110

Dominique Frison - Senior Manager, Global Employer Services

Dominique works as a Senior Manager in the Global Employer Services (GES) Practice for Deloitte Switzerland. He has more than 10 years of experience as an individual tax specialist and focuses on tax at source as on payroll and shadow payrolls topics. Before he joined Deloitte, he worked as a tax commissioner for the tax authorities of the canton of Zurich. Dominique is a certified fiduciary and holds an Executive MBA in international individual taxation.

Email

Capture

Nicolas Sandrinelli - Consultant, Global Employer Services

Nicolas is a consultant within the Global Employer Services team of Deloitte in Switzerland. He supports clients on a variety of topics relating to international expatriate taxation, social security and global mobility. Nicolas holds a M.A. degree in Economics, Banking and Finance from the University of Zürich. He was also employed as an intern in statistical research for the ETH Zürich during his studies.

Email

Comments

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.