As of January 1st 2021, new source tax regulations as determined in circular letter 45 came into force, significantly disrupting the tax landscape and overhauling long-standing practices across Switzerland.

In addition, the continued and ever changing Covid-19 related lockdowns, travel restrictions and subsequent modified compliance requirements are adding complexities for both Employees and Employers as we approach the 2020 tax filing season. We are summarizing the key aspects to consider now below.

Key aspects of the new source tax regulations:

  • Increased employer obligations, especially around payroll reporting and source tax withholding and remission for Employees’ subject to taxes at source, and regulation of the cadence, in which such taxes must be reported and remitted by the Employer going forward
  • Increased application of the Economic Employer principle for all Inbound Assignees who’s stay in Switzerland exceeds 90 days (“Zurich-practice”), also for Cantons previously not observing these principles
  • 20-days approach for determination of foreign workdays, i.e. there is an irrefutable presumption that there are 20 workdays per month, even if the actual workdays in a particular month may vary
  • 31st March is the deadline for any reconciliation or application regarding source taxes, previously accepted applications at a later stage based on Cantonal practice (i.e. Canton Basel-Stadt) will no longer be allowed
  • “Quasi”-residency required (90% of the family income allocated to Switzerland) in order to claim additional deductions. A tax return filing will be required to make these claims. There will be no more source tax tariff corrections for such cases
  • All Swiss tax residents subject to taxation at source, whose annual or annualized gross income exceeds CHF 120K / year, will have a tax return filing obligation, alternative Cantonal regulations (Geneva) are no longer applicable
  • A complete and correct calendar signed by both Employee and Employer will be required to request exemption of non-Swiss workdays
  • The new source tax regulations will have a significant impact on existing rulings, that stipulate deviating agreements, especially in the Canton of Zurich

COVID-19 and home office

  • On 12th January 2021, the Zurich tax authorities published an additional guidance regarding the taxation (at source) of Swiss non-residents working from home due to the Covid-19 crisis. This new guidance is an overhaul to previously communicated evaluations on the treatment of Covid-19 related home office workdays
  • It is expected that other Cantons will adapt the Zurich practice in this regard
  • Due to the amicable agreements Switzerland has concluded with its neighboring countries (Germany, France, Liechtenstein and Italy), Covid-19 related home office workdays are to be treated as if the work had been performed at the regular place of work, i.e. no (detrimental) tax consequences are expected. Further, these amicable agreements have been extended, currently until 31st March 2021 and depending on the developments of the Covid-19 situation, further extensions are to be expected
  • For all other countries, the right of taxation will be determined based on the applicable double tax treaties, thus Covid-19 related home office workdays can significantly change the tax position 2020 for residents of these countries
  • The flexible approach with regards to the relevant social security scheme and the application of the 25% rule for EU/EFTA countries has also been extended and you can find more information on our blog here

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