Depending on the personal situation of the employee, the duration of his assignment and existence of a double taxation agreement, the assignment can lead to a taxation of the employee in the host country (for outbound cases) or in Switzerland (for inbound cases). In all these cases, the Swiss employer has clear duties.
a) To Switzerland – Inbound
A foreign employee is subject to source taxes in Switzerland. The host country employer is responsible for paying this source taxes, which is based on the gross salary of the employee. If the employee is paid by the home company, the income tax basis for the inbound very often remains unclear. Is it solely employment income? Are allowances included or not? How are allowances to be treated? In addition, how do taxes paid by the host employer have to be considered? Does a shadow payroll have to be set-up and does a Swiss salary certificate have to be issued?
In any case, the host country employer is responsible for remittance of the correct taxes. This obligation cannot be waived by the employer and passed on to the employee! The risks for the employers are significant: Non-compliance can cause serious damage. The source tax, which is deductible from the employee’s gross income, cannot be passed on to the employee. It has to be extrapolated to 100% (so called Gross-up). A tax burden from 35% can therefore quickly turn into nearly 54%! This tax burden remains with the employer!
b) From Switzerland – Outbound
The employee operating abroad can be liable to pay taxes according to foreign tax law. Many foreign countries have tax withholding systems similar to the source tax system in Switzerland. Depending on the country, taxes have to be paid on a monthly, on a quarterly or on a yearly base. The tax base and the remittance modules are determined by the tax law of the respective country. The risks for the employer are significant. As foreign countries often have higher tax rates than Switzerland, possible extrapolations to 100% can be immense. Determining the budget for secondments abroad can get completely out of hand. Unlawful behavior can lead to fines and companies be blacklisted as well as temporary disqualification from business activities in the respective country.