FAQ work in Switzerland – employer abroad

We answer the most frequently asked questions and give a brief overview of the situation if you work in Switzerland but your employer is based abroad.

  • I live and work in Switzerland hired by a company abroad – can I be a freelancer?

    In short: no.

    We regularly receive inquiries from people who have recently moved to Switzerland and are now wondering whether they can continue to work with one or more clients abroad. However, when a contractor acting as an independent contractor works for a client in a framework that resembles an employment relationship from a Swiss legal perspective, this is called pseudo self-employment which results in a real employment. So, the clients abroad become employers (from the perspective of Swiss law). This has far-reaching consequences for both parties.

  • What is pseudo-self-employment

    Pseudo self-employment occurs when a contractor acting as an independent contractor works for a client in a framework that resembles an employment relationship. This is particularly often the case if the contractor in Switzerland works for only one client, is thus financially dependent on this client and is often also bound to the client’s instructions in a special form.
    Sometimes it also happens that a pseudo self-employment is established if the contractor has several clients.

  • How is pseudo-self-employment determined in Switzerland?

    The cantonal social security office checks whether a pseudo-self-employment exists. Only criteria of an economic nature are used for the assessment. The individual case is always examined, and no general statements can be made as to which category the person concerned will ultimately be placed in. However, if one of the following two criteria is met, the suspicion of pseudo-self-employment is very likely, as a financial dependency can be derived from these criteria:

    • the contractor generates 50% or more of its income from a single client
    • the contractor has less than three different clients

    It is important to note that the following circumstances are NOT indications to eliminate the suspicion of pseudo-self-employment:

    • in the business contract, the contractor is expressly designated as self-employed
    • the client transfers the responsibility for social insurance to the contractor in the contract
    • Presentation of a certificate of self-employment of the contractor issued by the social security office.
    • Contractor is registered with AHV and pays regular contributions
  • What are the implications of pseudo-self-employment for the two parties?

    In principle, it has greater consequences for the client abroad if the contractor is found to be in pseudo-self-employment. Since, from the point of view of the law, this is in fact an employment relationship, the client is obliged to pay a proportion of the social security contributions for the contractor.

    For the contractor, the determination of pseudo-self-employment has no financial consequences, but they must either enter into a “proper” employment relationship with their client abroad or otherwise ensure that the determined pseudo-self-employment is dissolved.

    The contractor can solve this by either working for several clients so that they are not financially dependent on a single one, or by registering as an ANobAG if it is indeed an employment relationship with the client abroad.

  • Which options do I have?

    If you live in Switzerland and work for an employer who does not have a place of business in Switzerland, the employment relationship is subject to a number of peculiarities because the employer is not subject to social security contributions in Switzerland. To avoid legal problems for the employee and employer due to pseudo self-employment, there are two common ways for the employee to legally pursue the employment relationship: either as an ANobAG or by registering with a payroll company. In this article, we explain to you what the two setups are all about and where the advantages and disadvantages of the two models lie.

  • What is ANobAG?

    The abbreviation ANobAG stands for employee without a contributing employer. Since the social security law in Switzerland stipulates that both employer and employee pay pro rata contributions into the social security system, the following problem arises in the constellation “employee in Switzerland – employer abroad”: The employer is not liable for social security contributions in Switzerland if he has no place of business here. This means that the only person liable to pay contributions is the employee living in Switzerland.

    From a social security perspective, the employment relationship is only legal if both the employer and employee contributions are paid. To this end, the concept of ANobAG was introduced, whereby the employee registers as such and henceforth pays both contributions to the social security system.

  • What is a payroll company?

    A payroll company can be an alternative for the ANobAG model. In this case, the employee is employed by the payroll company in Switzerland. The payroll company then invoices the employer based on the employee’s performance and then pays the employee.

    The payroll company takes care of paying the social security contributions in the same way as an “ordinary Swiss employer”. The payroll company therefore pays the net wage to the employee after deducting the employee contributions and charges the “employer” abroad the total wage costs (including social security) plus a (usually) percentage-based commission.

  • ANobAG vs Payroll – which is better now?

    It is not possible to make a general statement as to whether it is better to register as an ANobAG or as an employee with a payroll company. The individual case and the respective circumstances must be considered.

    The following table shows the main features of the two models:

      ANobAG Payroll
    Where is the employee employed? Remains employed by the employer abroad (natural legal relationship) Is employed by the payroll company (triangular relationship)
    Social security in Switzerland Yes (1st and potentially 2nd pillar) Yes (1st and 2nd pillar)
    Responsible for administration Employees (substitution possible) Payroll Company
    Price More cost efficient as no third party is involved High cost due to scaling price
    Potential hurdles Salary negotiation

    International taxation during stay abroad

    Branches

    Legal uncertainty in the event of conflict

    Black sheep in highly competitive market

    Risk does not lie with the payroll company

     

  • What are the up- and downsides of ANobAG?

    Advantages ANobAG

    • Natural legal relationship between parties remains intact

    The great advantage of the ANobAG model is that the employment relationship remains with the employer abroad. It is therefore the natural legal relationship, as the de facto employer also remains the contractual employer. This is important from many points of view, but especially in terms of legal certainty between the two contracting parties.

    • No effort for the employer (no payroll necessary)

    Moreover, it is as easy for the employer to handle as with a contractor. Namely, there is no need for payroll work, as this burden is transferred to the employee.

    • Lower costs

    In addition, the cost of running an ANobAG model is lower than a payroll company because there is no need for another party between the employer and employee.

     

    Disadvantages ANobAG

    • Difficult salary negotiation

    However, the ANobAG model is not without its drawbacks. When negotiating the salary, it is necessary to make sure that the employer and the employee are talking about the same thing. Does the transferred salary represent the gross salary or should it cover all costs, i.e. gross salary + employer contributions? What is the employee’s take-home salary in each case? This problem can be easily solved with the appropriate support.

    • International taxation for stays abroad

    There are two other aspects that should not be ignored. If the employee performs part of his work while physically staying in the country of the employer, these working days could be taxed in the respective country. Therefore, in case of regular work with stay in the country of the employer, another solution should be used – we will advise you on this without any obligation.

  • What are the up- and downsides of a Payroll company?

    What are the benefits of a payroll company?

    The employee enjoys the following benefits when employed by a payroll company:

    • Setup is easy to understand

    The concept of payroll companies is simple and easy to understand for both parties.

    • Simple handling

    The process is simple for both parties: the payroll company enters into a contract with the de facto employer and hires the employee. The entire administrative effort lies with the payroll company.

    What are the disadvantages of a payroll company?

    As attractive as a working relationship with the employer abroad via a payroll company may seem at first glance, it comes with disadvantages:

    • Employment relationship with previous employer is lost

    The employee must terminate his employment contract with the previous employer and then be re-employed by the payroll company. There is therefore no direct contractual relationship between the employee in Switzerland and the employer abroad. This can be particularly problematic in the case of legal disputes or, for example, specific salary models such as employee share ownership.

    • Costs are high and scale with salary

    Since the costs of the payroll companies are usually based on percentages, there are considerable cost differences, especially for higher salaries, compared to the ANobAG model, in which the costs are determined independently of the salary. The difference can quickly amount to several thousand francs per year – which could otherwise be used additionally as salary or saved for the employer, or both (when the savings are shared).

    • Depending on the payroll company, caution is advised

    There are payroll companies that advertise attractive conditions but then fail to deliver what they promise. An example of this is when weekly commuting employees are promised that travel costs and other expenses can be reimbursed tax-free. However, without approved expense regulations, this is not compliant and such expenses can hardly be approved. This can have serious consequences for the employer abroad (through contractual passing on of liability) and also employees (through after-tax proceedings), as the tax office can levy taxes on the “lump sums” paid out. Thorough screening before contracting with a payroll company is therefore essential to reduce the risk of being hired by a “black sheep”. If an expense policy is advertised, it should be available for reviewing upon request.

  • What are the duties of an ANobAG?

    With the status as an ANobAG (and employer in the EU/EFTA area), contributions must be made to the following social insurance schemes:

    • Contributions for the 1st pillar

    Both ANobAG and the foreign employer must register with Swiss social security. The ANobAG agrees with his employer that he will transfer the employer amounts to the social insurance.

    It is paid into all 1st pillar insurances:

    • AHV: Old-age and survivors insurance
    • IV: Disability insurance
    • EO: Income replacement regulation

    The amount of the contribution rates is based on those in the canton of residence of the ANobAG.

    • Contributions for the 2nd pillar

    The ANobAG must join an occupational pension scheme (BVG) as provided for in the 2nd pillar.

    • Accident insurance

    Likewise, accident insurance (UVG) must be taken out.

    • Family allowance

    The family allowance is payable by the ANobAG. Depending on the canton, this allowance varies in the amount of the contribution rates.

    • Administrative expenses

    An administrative fee, the amount of which varies from canton to canton and amounts to a maximum of 3% of the AHV contribution, is also due.

    The amount of the contributions (as of 01.01.2021) can be found in the following table:

    Social security Contribution rate (employee + employer contribution)
    AHV/IV/EO 10,6%
    ALV (up to CHF 148,200) 2,2%
    ALV (from CHF 148,201) 1,0%
    Family allowance varies depending on the canton (1.1% – 2.83%)
    Administrative expenses max. 3% of the AHV contribution
    Accident insurance Varies depending on the contract
    occupational pension plan (BVG) Varies depending on the contract

     

    If the employer is not based in the EU/EFTA area, there is no obligation to join the occupational pension scheme. However, this can be taken out voluntarily.

  • What does tax at source mean?

    Tax deduction at source means that the employers or the insurance carriers (both called “employer” hereinafter for simplification) directly deduct the taxes owed from the salary or
    the wage-loss replacement benefit (e.g. unemployment benefits, injury payments or sick pay) and deliver them to the cantonal tax office.

  • Who is liable to tax at source?

    Persons are liable to tax at source if they:

    • are resident in the canton of Zurich and neither hold a C permit nor are married to a Swiss national or a person holding a C permit or
    • are resident abroad and work for an employer with domicile in the canton of Zurich as cross-border commuters or with second residency in Switzerland (regardless of their citizenship)
    • are resident abroad and work as an employee in international traffic for a company
      with domicile in the canton of Zurich (regardless of their citizenship).
  • Which benefits are subject to taxation at source?

    The following benefits are subject to taxation at source: gross earnings from employment (salary incl. commissions, allowances, length-of-service awards, anniversary gifts, gratifications, bonus payments, termination pays, tips, payments in kind, royalties, non cash benefits from equity incentice plans etc.), as well as wage-loss replacement benefits
    for temporarily restricted or interrupted employment (e.g. unemployment benefits, sick pay, disability benefits, injury payments and disability pensions paid by disability insurances or accident insurances).

  • What are the tax tariffs?

    The following tax rates apply:

    • Tariff A (with or without church tax) for single persons (unmarried, separated, divorced, widowed)
    • Tariff B (with or without church tax) for married persons with single income
    • Tariff C (with or without church tax) for spouses with dual income
    • Tariff G for wage-loss replacement benefits, which are disbursed, respectively not disbursed pursuant to the insured salary stipulations by the insurance carrier.
    • Tariff E (5%) for benefits paid in the simplified settlement procedure to combat illegal employment (as from 01.01.2008)
    • Tariff H (with or without church tax) for single persons (unmarried, separated, divorced, widowed) who live in the same household with minors or children in their first vocational education and are mainly responsible for their maintenance
    • Tariff L (4,5%) for German cross-border commuters who meet the requirements of tax rate A
    • Tariff M (4,5%) for German cross-border commuters who meet the requirements of tax rate B
    • Tariff N (4,5%) for German cross-border commuters who meet the requirements of tax rate C
    • Tariff P (4,5%) for German cross-border commuters who meet the requirements of tax rate H
    • Tariff Q (4,5%) for German cross-border commuters who meet the requirements of tax tariff G

    Registered partnerships:

    • Tax tariff B, C, M and N also apply for registered partnerships (Federal Act on the Registered Partnership between Same-Sex Couples of June 18, 2004, SR 211.231).

    Calculation of tax tariff C:

    • In case of tax tariff C, the employment income of the other spouse is taken into account as a lump sum for the determination of the tax rate.

    Tax rate applying in case of several employments:

    • If a person liable to tax at source receives salaries from several employments (incl. wage-loss replacement benefits paid by insurance carriers), each taxable entity must determine the applicable tax rate in line with the tax at source rate as follows:
      – based on the effective total income
      – or based on the effective percentage of total working time
      – or extrapolating to a 100 % employment
      – or by extrapolation of the other spouse’s income defining the tax rate, maximally taken into account in tax tariff C (see calculation basis for tax rates).
  • How is tax at source calculated?

    Tax at source is calculated by applying the applicable tax tariff to the gross monthly salary plus additional allowances (e.g. family allowances). In the canton of Zurich, the month constitutes the tax period. There is no jahre year-end adjustmentin the taxation at source procedure.

  • Who determines the applicable tax at source tariff?

    When hiring new employees liable to tax at source or in case of potential changes, the employer must notify the cantonal tax office, tax at source department. Based on the reported data, the employer has to determine the tax tariff themselves. If the employee does not provide reliable information on his/her personal financial situation, the employer shall apply the following tax tariffs:

    • Tax tariff A0Y (Y = with church tax) for single employees and employees with undetermined civil status
    • Tax tariff C0Y (Y = with church tax) for married employees
    • The tax tariffs are published together with the calculation basis and are obtainable at the cantonal tax office (https://www.zh.ch/de/finanzdirektion/steueramt.html).
  • Who is required to pay church tax?

    In the taxation at source procedure, employees have to pay church tax according to their denomination, regardless of their domicile. Church tax must be paid if the employee liable to tax at source is a member of the denomination of a national church in Zurich. This applies to the following denominations:

    • Roman Catholic denomination (röm.-kath.)
    • Christian Catholic denomination (christ.-kath.)
    • Continental Reformed denomination (evang.-ref.)

    The church tax liability is reflected in the tax tariff designations as follows:

    • Y: liable to church tax
    • N: not liable to church tax
  • How are child expenses accounted for?

    When applying the tax tariff, the employer has to determine the child deduction taking into account the following:

    • for minor children, whose parent is liable to tax at source and has physical or legal custody, or
    • for children full of age in their first vocational education for whose maintenance the person liable to tax at source is mainly responsible
  • How are alimony payments taken into account for calculating taxes at source?

    Owing to the obligation to pay spouse and/or child alimony, the employee liable to tax at source can apply for the adequate granting of “child deduction” at the cantonal tax office, tax at source department, provided that in the person is resident in Switzerland and if it is proven that: the alimony payment constitutes economic hardship (minimum subsistence level not allowed for).

    Application deadline: Until March of the following year

    Form: Form-free submission in writing (not by e-mail)

    Consideration of the effectively paid alimony by filing an annual ordinary tax return: Until the end of march of the following year, the persons liable to tax at source who are not subject to retroactive ordinary tax assessment by law (see section below) have the option of having the effective alimony payments taken into account by applying for a retroactive ordinary tax assessment (see section below)

  • What principles must be observed in the taxation at source procedure?

    Obligation to disclose: The persons liable to tax at source must disclose any information necessary to enable the correct tax at source calculation to the employer and the tax authorities. They have to tolerate the tax at source deduction on the salary payment, respectively the wage-loss replacement benefit. In particular, they have to assist the employer completing the registration or modification form.

    Obligation to report: Occurrences must be reported to the employer immediately so they can submit the required modifications to the cantonal tax office. The following occurrences must be reported in particular:

    • Granting of the C permit
    • Granting of the C permit to the spouse
    • Change of civil status (marriage, judicial or actual separation or divorce)
    • Births of children
    • Taking on an additional employment
    • The spouse taking on an additional employment
    • Payment of wage-loss replacement benefits (unemployment benefits, pensions, alimonies, etc.) to the spouse
    • Change of residential address in Switzerland and abroad
    • Change of denomination
  • Can the tax at source deduction be corrected retroactively?

    Ordinary taxation at source procedure

    Reasons (final) for a correction in the taxation at source procedure:

    • Objection to the liability to pay tax at source
    • Errors in the determination of the taxable income or the income defining the tax rate
    • Errors in the applicable tax tariff

    Deadlines, form and jurisdiction:

    • At the latest by the end of March of the following year
    • The request must be submitted electronically to the cantonal tax office, tax at source department including all required supporting documents

    Reservation:

    • In these cases, the cantonal tax office reserves the right to conduct a retroactive ordinary tax assessment, asking the person liable to tax at source to give his/her consent to the retroactive ordinary tax assessment within 30 days (otherwise the tax deduction at source remains final)

    Tax audit in case of international double taxation

    Reasons for a tax audit:

    • Proof of international double taxation

    Deadlines, form and jurisdiction:

    • At the latest within 90 days after detection of double taxation (usually upon delivery of the foreign tax assessment notice)
    • Submit in writing (not by e-mail)
    • State or provide the request and the evidence (foreign tax assessment notice and a calendar with a detailed record of the days worked in Switzerland and abroad, signed by the employer and the person liable to tax at source)
    • The request is to be submitted to the cantonal tax office, tax at source department
  • Can the tax authorities make retroactive corrections to the taxation at source?

    If source taxes were underwithheld due to an error by the employer (false application of tariff and/or determination of wrong gross salary) the cantonal tax office has the right to reassess the source tax retroactively 5 years after the respective tax year has passed. After 5 years the cantonal tax office reserves the right to collect the additional tax by initiating a post-tax procedure.

  • What does retroactive ordinary tax assessment mean?

    Retroactive ordinary tax assessment required by law

    If the person liable to tax at source is resident in the canton, he/she is subject to retroactive ordinary tax assessment required by law if the following conditions apply:

    Your gross annual income amounts to at least CHF 120’000:

    • If a partial year tax liability applies due to moving to Switzerland from abroad, the annualised gross income taxed at source is applicable. Irregular benefits are taken into account without annualisation.
    • If the person liable to tax at source is married, both spouses are assessed retroactively provided that one of the two spouses reaches the applicable income limit
    • Until the liability to pay tax at source ends, retroactive ordinary tax assessments are conducted throughout the following years, even if the income temporarily or permanently falls below the applicable income limit of CHF 120‘000
    • The tax deducted at source is credited to the ordinary taxes free of interest

    You wish to claim back withholding tax on income from movable assets. Or your taxable income which is not subject to taxation at source (e.g. income from securities or real estate) amounts to at least CHF 3’000 or/and the taxable assets amount to at least CHF 80’000 (for individuals), respectively to CHF 160’000 (for jointly taxable persons):

    • Under these circumstances, persons liable to tax at source are obligated to ask the cantonal tax office, tax at source department, to send them the tax return forms for a retroactive ordinary tax assessment. They must do so by the end of March of the following year.
    • Until the liability to pay tax at source ends, retroactive ordinary tax assessments are conducted throughout the following years, even if the income temporarily or permanently falls below the applicable income limit mentioned above.
    • The tax deducted at source is credited to the ordinary taxes free of interest
    • The cantonal tax office may conduct such retroactive ordinary tax assessments by law.

    Retroactive ordinary tax assessment upon request by a person liable to tax at source with domicile in Switzerland

    Persons liable to tax at source resident in Switzerland, who are not assessed retroactively as required by law can submit a request for retroactive ordinary tax assessment on a voluntary basis:

    • This request can be submitted without stating specific reasons
    • Such a request is particularly required
      – to obtain equal treatment with persons who are subject to the ordinary tax assessment, or
      – to apply for a refund of the tax on income from movable assets, provided that the conditions set forth in section above are not met, or
      – to retroactively claim tax reduction for deductible expenses which are only taken into account as a lump sum or not at all in the tax at source tariff.

    This may involve the following expenses in particular:
    Ø actual professional expenses
    Ø advanced professional training expenses
    Ø contributions to employer-sponsored and private pension plans (2. Säule / Säule 3a)
    Ø expenses for childcare by third parties
    Ø alimony and support payments
    Ø illness and disability related expenses
    Ø interest on debt
    Ø donations

    Deadline:

    • At the latest by the end of March of the following year
    • In case of failure to meet the deadline, the request will not be considered

    Form:

    • The request must be submitted electronically to the cantonal tax office, tax at source department
    • If the request is not submitted in due form, a period of 10 days will be granted for rectification. In case of failure to meet the extended deadline, the request will not be considered

    Consequences:

    A request submitted in due form and time cannot be withdrawn

    If the requirements for a retroactive ordinary tax assessment upon request are met, retroactive ordinary tax assessments are conducted by law throughout the following years until the liability to pay tax at source ends. The tax deducted at source is credited to the ordinary taxes free of interest

    Retroactive ordinary tax assessment upon request by a person liable to tax at source with residency abroad

    Persons liable to tax at source resident abroad can submit a request for retroactive ordinary tax assessment. Such a request is particularly required to claim deductible expenses which are only taken into account as a lump sum or not at all in the tax tariff (see section above.).

    You must provide the evidence that:

    • at least 90% of the worldwide family income is taxed in Switzerland (quasi[1]domicile), or
    • the situation is comparable to that of a person resident in Switzerland, or
    • there are deductions which, in line with the double taxation treaty, the country of employment has to bear

    Deadline:

    • At the latest by the end of March of the following year
    • In case of failure to meet the deadline, the request will not be considered

    Form:

    • The request must be submitted electronically to the cantonal tax office, tax at source department
    • A Swiss mailing address must be provided
    • If the request is not submitted in due form, a period of 10 days will be granted for rectification. In case of failure to meet the extended deadline the request will not be considered

    Consequences:

    • A request submitted in due form and time cannot be withdrawn
    • The tax deducted at source is credited to the ordinary taxes free of interest
    • The request has to be resubmitted every year

    Change from taxation at source to ordinary tax assessment

    A person previously taxed at source and resident in Switzerland is assessed as per the ordinary tax assessment for the entire tax period if:

    • that person is granted the C permit
    • that person marries someone holding a C permit or a Swiss citizen

    The tax previously deducted at source is no longer owed as of the month following the granting of the C permit or marriage. The tax deducted at source is credited to the ordinary
    taxes free of interest

    Change from ordinary tax assessment to taxation at source

    On the other hand, divorce and factual or legal separation from a Swiss national or a spouse holding the C permit results in the spouse, who was originally liable to tax at source, being taxed at source again as per the beginning of the following month. Until the liability to pay tax at source ends, a retroactive ordinary tax assessment is conducted. Any advance payments already made and taxes deducted at source will be credited. If the spouse with Swiss citizenship or C permit dies, the surviving spouse, who is in principle liable to tax at source, becomes subject to taxation at source again. In the period of less than a year until the death date, the spouses are assessed jointly under the ordinary tax assessment. As of the day after the death date, the surviving spouse is assessed under retroactive ordinary tax assessment. Retroactive ordinary tax assessment is conducted until the liability to pay tax at source ends.

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