General information on the subordination under social security law
The Agreement on the Free Movement of Persons between Switzerland and the EU/EFTA provides, among other things, for the coordination of social security in accordance with the regulations in force in the EU/EFTA. The scope of this agreement covers citizens of Switzerland and the EU/EFTA states who are subject to the legislation of one of the corresponding states. It determines in which country a person becomes liable for social security contributions, whereby responsibility is assigned to only one state at a time. This is also the case if a person has corresponding points of contact in different countries or receives income from several countries.
The following table presents the principles of the social security law subordination (not all possible scenarios are covered):
|Employment||Social security subordination|
|Employed in only one country||In the country, where employment activity is performed|
|Employed in several states (incl. country of residence)||In the country of residence, provided that more than 25% of the total employment activity is carried out there. Otherwise in the country in which the employer has its legal seat.|
|Employed and self-employed in several country||In the country in which the employment activity is carried out
In addition, it should be mentioned that for the definition as employed or self-employed activity, the legal provisions of the member state in which the activity is carried out apply in any case.
These regulations are not applicable to nationals of third countries or in the case of gainful employment in a third country.
Moving to Switzerland – Participation in a GmbH & Co KG in Germany
Ms Müller (German national) is gainfully employed in Switzerland after having moved here from Germany. She still holds a stake in a German GmbH & Co KG and receives profit distributions from the corresponding participation on a regular basis. This income qualifies as income from self-employment for German social security purposes.
Ms Müller therefore pursues both an employment and a self-employed activity in two member states (Switzerland and Germany). In application of the subordination rules described above, Ms Müller is to be subordinated to the legal provisions of the country in which she pursues the employment activity, which in this case is in Switzerland. This subordination relates to all income from gainful employment, which means that the income from self-employment and the profit distributions from the German GmbH & Co KG are also subject to social security contributions in Switzerland. Thus, Ms Müller must register separately with the compensation office for the self-employment. The Old Age and Disability (“AHV”) contributions currently amount to 10.0% of the income from self-employment. This also applies if Ms Müller is not involved in the business activities of the GmbH & Co KG, but acts as a passive partner.
Further case studies
a) Foreign employer
Individuals domiciled in Switzerland who are gainfully employed here are, in principle, compulsorily insured under the AHV. This is also the case for Mr. Smith (Dutch citizen), who moved to Switzerland with his family during the pandemic. He continues to work from Switzerland for his employer based in the Netherlands. Mr. Smith clarified the tax situation in Switzerland regarding his income and assets in detail before the move and budgeted for the costs. He had not considered that he would also have to pay Swiss social security contributions on his earned income. In connection with the practical implementation of such cases, we refer to the blog: Stolperfalle ANobAG - KPMG Schweiz (home.kpmg) vom 11. Januar 2022 (article in German).
b) Lump-sum taxation in Switzerland
If a person domiciled in Switzerland is not gainfully employed, he or she owes AHV contributions for persons not being in a gainful employment until retirement age is reached. These are calculated based on the assets and the pension income. Since 1 January 2022, the AHV contributions for persons not pursuing a gainful employment amount to a maximum of CHF 25,150 per year and person.
Mr. and Mrs. Maurer have moved to Switzerland to spend their retirement by Lake Lucerne. They are subject to lump-sum taxation and are therefore not gainfully employed in Switzerland. In addition to the income and wealth tax owed (cantonal and communal taxes as well as direct federal tax) due to the lump-sum taxation, the couple must pay AHV contributions for non-employed persons of CHF 25,150 each annually until they reach retirement age.
Conclusion and action taking
The tax consequences of an individual moving to Switzerland are usually comprehensively clarified before the move. However, often too little attention is paid to the social security aspects. This can lead to unpleasant surprises in the sense of unexpectedly owed social security contributions in Switzerland. When planning a relocation to Switzerland, it is advisable to also consider the social security contributions.