The latest draft of the French finance bill for 2023 foresees that employment income received by French residents from a non-French employer would no longer be subject to the monthly tax at source withholding obligation in France.However, in exchange, foreign (including Swiss) employers would have the obligation to report to the French authorities, on an annual basis, the amount of taxable income paid to their French resident employee.
The settlement of French income taxes would then take place via the employee through the tax instalment system (acomptes contemporains).
Since the introduction of the French tax at source system in 2019, foreign employers need to register with the French tax authorities and remit monthly French income tax at source on behalf of their employees residing in France, for the employment income taxable in France.
In practice, this obligation has put Swiss employers in a difficult position. Under Swiss criminal law provisions Swiss employers are not allowed to remit taxes to a foreign state. This prohibition led to compliance issues for a Swiss employer with employees performing duties on French territory such as in the case of remote working.
Based on the draft bill, the responsibility to remit taxes would shift from the employer to the employee:
- The employee would pay taxes on Swiss employment income through tax instalments (acomptes contemporains). This is already the case for the employees who fall under the daily cross-border agreement signed between France and the following 8 cantons: Bern, Basel-Land, Basel-Stadt, Jura, Neuchâtel, Solothurn, Vaud and Valais.
- The employer would no longer have a monthly tax at source withholding obligation but an annual reporting obligation instead.
It is unclear at this stage whether the proposed changes would also apply to the Swiss employer of employees on assignment from Switzerland to France.
The draft bill foresees implementation from January 1st, 2023.
The suggested change is welcome especially in a post-pandemic context.
It would enable Swiss employers to organise remote working and allow their employees to perform workdays outside of Switzerland, especially from home, without facing continued non-compliance risks.
However, as it also brings an additional reporting obligation for Swiss employers, it substantially reduces but does not completely eliminate the need for Swiss employers to interact with the French tax authorities.
Developments on this draft bill will need to be closely monitored as the number of days Swiss employees can work from home in France might also be affected by:
(a) the social security coordination rules which are currently under discussion at EU level; and
(b) the long-term solution currently in discussion between Switzerland and France to succeed to the provisional agreement dated May 13, 2020. Whilst its application has just been extended until December 31, 2022, the French authorities have mentioned that this extension would be the last one.
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