Following long and extensive negotiations, the Swiss and Italian authorities agreed to modify the taxation modality which is applicable to the Italian-Swiss cross-borders since 1974. The new agreement provides a clear definition of “cross-border” and simplifies the overall process.  

The Swiss parliament already finalized the approval process. However, for what it concerns the Italian side, the agreement is still under review of a parliamentary commission and the discussion in the Senate has still not been scheduled (Parlamento Italiano – Disegno di legge S. 2482 – 18ª Legislatura ( It is not easy to estimate if the Italian Parliament will be able to discuss and approve the new protocol in both Chambers (Chamber of Deputies and Senate) within the end of the year. The new protocol will enter into force upon the exchange of ratification instruments and its provisions will apply from January 1st of the year following the entry into force of the cross-border worker agreement.

In the meantime, the cross-border workers will continue to be taxed according to the existing tax treatment that is the principle of cross-border workers being taxed on their earnings in the State in which the employment is carried out. Thus, Italian cross-border commuters working in Switzerland are taxed exclusively at source in Switzerland on the income from their gainful employment. In return, however, in order to compensate for the costs associated with cross-border commuters living on their territory and to finance public infrastructure, the cantons of Valais, Ticino and Graubünden pay back part of the Swiss tax liability (40% of it) to the neighboring Italian municipalities (through the central State).

The new agreement amends the treaty by replacing paragraph 4 of article 15 of the tax treaty between Switzerland and Italy to avoid double income taxation and will replace the cross-border worker agreement signed in 1974. As per the new agreement (article 2), an employee is regarded as a cross-border if the below conditions are met (agreement of 1974 not containing any formal definition of the frontier worker):

  • individual is resident for tax purposes in a commune situated wholly or partly within the area of 20 km from the frontier with the other Contracting State,
  • performs work as an employee in the frontier zone of the other Contracting State for a resident employer, a permanent establishment or a fixed base in that other State, and
  • returns in principle daily to his principal place of residence in the State of residence (in respect of Switzerland, the Cantons of Graubünden, Ticino and Valais and in relation to Italy, the Regions of Lombardy, Piedmont, Valle d’Aosta and the Autonomous Province of Bolzano);

The article 3 states that the taxes due in the Working State cannot exceed 80% of the source taxes due (included local taxes) and have to be collected through the tax at source method. The residency State will have the right to tax the employment income earned in the other Country but it will be requested to limit the taxation in order to avoid any risk of double taxation according to the Article 24 of the tax treaty between the two countries.

This means that the Swiss withholding tax rate will be 80% of the ordinary one. The Italian cross-borders will then be taxed in Italy through the ordinary taxation system (i.e. filing of a tax return) with the possibility to avoid any double taxation by claiming the Swiss foreign tax credit and also benefiting from a tax-free allowance under the Italian tax law. In this frame, the Italian authorities have anticipated the increasing to EUR 10’000 of the “free-tax area”, full deduction of the Swiss family allowances and recognition of the voluntary pension contributions.

However, the new regime will only apply to “new frontier workers” when the agreement comes into force. Individuals who are already cross-border workers on that date or who have been subject to this regime between 31 December 2018 and that date will remain subject to the old tax rules (“current border workers”) and the date of entry into force of the new agreement. Until the end of 2033, the cantons concerned will pay 40% of the tax liability received from the withholding tax to Italy. Thereafter, from 2034 onwards and according to Swiss authorities’ understanding, they will retain the entire amount generated. From an Italian perspective, it is unlikely that the Italian tax authorities will continue to tax exempt the professional income without receiving a financial compensation. In this frame, we are waiting for an Italian tax authorities’ official interpretation which should be released once the agreement will enter into force.