Retaining key staff is essential for the success of a business. Hong Kong employers are fully aware of it and constantly strive to provide more flexibility to their employees, including international mobility. In a series of articles, Fidinam will address some possible work arrangements Hong Kong companies can offer to foreign staff willing to work from Europe. This second chapter is dedicated to Switzerland.
1. From Hong Kong
Options will depend on whether your Hong Kong business has a presence in Switzerland or not. If so (having a subsidiary or a sister company), Hong Kong companies can consider dispatching or transferring their staff under that Swiss entity.
If not, Hong Kong employers can simply decide to keep some staff under Hong Kong payroll while having them work from Switzerland. Either way, this will trigger some consequences in terms of taxes, social contributions and immigration.
1.1 Salary Taxes
When employees are kept under Hong Kong payroll while working from Switzerland, their Hong Kong employer shall keep declaring their remuneration under their Employer’s Return. Subsequently, employees shall keep filing an Individual Tax Return in Hong Kong, reporting the same remuneration.
However, as long as spending less than sixty (60) days per year in Hong Kong, employees working from Switzerland shall be fully exempted from Hong Kong salaries tax. This means no more tax liability, but reporting is still mandatory.
When employees are transferred to and hired by a Swiss entity, they shall in principle no longer pay salary taxes in Hong Kong. However, having a staff abroad fully dedicated to the production of Hong Kong income may characterize the presence of a permanent establishment of the Hong Kong company in the relevant jurisdiction (Switzerland) with profits taxable locally. This is to be assessed on a case-by-case basis, and we recommend seeking advice upfront.
1.2 Social Contributions (MPF)
Consequences in terms of Mandatory Provident Fund (MPF) shall be similar whether the foreign staff is kept under Hong Kong payroll while working from Switzerland or transferred to a Swiss entity, becoming its new employer.
In fact, foreign employees working and residing overseas (Switzerland), who do not hold any Hong Kong employment visa, have no sufficient ties with Hong Kong to fall under the Mandatory Provident Fund (MPF) Scheme. Hence, no MPF contributions shall be due. This might differ for staff splitting their time between Hong Kong and Switzerland and/or holding an Employment Visa entitling them to work from Hong Kong.
Besides, foreign staff originally working in Hong Kong and transferring to Switzerland may ask for an early withdrawal of their MPF contributions if they permanently leave Hong Kong.
1.3 Immigration (Visa)
If no longer working from Hong Kong, foreign staff (even if still under Hong Kong payroll) are not required to hold any Employment Visa. Sporadic visits to Hong Kong can be sufficiently substantiated by a Tourism Visa. However, this differs if the frequency of the visits to Hong Kong increases and/or if foreign staff need to work from Hong Kong over longer periods of time (exceeding short business trips).
2. In Switzerland
Whether foreign employees work in Switzerland for a Hong Kong or a Swiss employer, this triggers Swiss taxes, social contributions, and immigration consequences to anticipate.
2.1 Taxes: Ordinary, Swiss tax at source and Expatriate Regime
As a federal state, there are three levels of taxation in Switzerland: federal, cantonal and communal. Thus, individuals are taxed differently depending on their canton of residency.
Swiss tax residents are taxed on their worldwide income from business activities, permanent establishments and/or real estate located abroad.
Individuals working in Switzerland will be subject either to the ordinary regime or to the tax at source regime, depending on their personal and professional situation. A specific regime exists for foreign nationals who do not perform any lucrative activity. Moreover, being an expatriate in Switzerland provides some benefits.
The tax at source regime
Individuals working in Switzerland concerned by the tax at source regime are (i) foreign nationals who are domiciled in Switzerland who do not hold a settlement permit (C permit) and (ii) cross-border commuters who are tax residents outside Switzerland.
Employers are required to withhold taxes directly on the gross income and to remit the funds to the tax authorities. The applicable tax rate depends on the declared personal situation (single, married, children, spouse working), meaning that the employee must ensure that the employer knows all the relevant information to deduct taxes properly.
The ordinary taxation
Foreign nationals holding a C permit are subject to ordinary taxation and therefore must declare their worldwide professional and personal income along with their worldwide wealth. Moreover, the taxpayer will have the right to claim for specific deductions. It should be noted that married couples must file joint tax returns.
Individuals subject to tax at source who meet one of the following conditions are also required to file a subsequent tax return reporting worldwide income and assets, if
- their gross salary exceeds CHF 120,000 per year, or
- they own real estate located in Switzerland, or
- they earn other taxable income not subject to withholding tax, or
- they have taxable wealth.
For income tax, the maximum tax rate is 11.50% at the federal level, while the maximum tax rates at the cantonal and communal levels vary according to cantons. For wealth tax, the maximum tax rate is 1% at the cantonal and communal levels (not applicable at the federal level).
There is no tax on capital gains from movable assets in Switzerland.
The lump sum taxation
Lump sum taxation is a simplified assessment procedure for foreign nationals who are domiciled in Switzerland for the first time (or after at least 10 years spent outside the country) and who are not gainfully employed in Switzerland.
In substance, the tax is levied on a deemed income that derives from the annual cost of living in Switzerland and abroad for themselves and their dependents, and not on their worldwide income and wealth. At the federal level, the minimum taxable income must be at least CHF 400,000, which may vary at the cantonal level (also CHF 400,000 in Geneva).
Expatriation benefits
Expatriates who are specialized employees with exceptional qualifications and temporarily dispatched to Switzerland by their non-Swiss employers (for 5 years maximum) can benefit from specific tax deductions.
The regime aims at covering the additional costs linked to the expatriation to Switzerland (i.e. cost of housing, moving/travel expenses, private school fees), allowing expatriates to deduct a lump-sum allowance (CHF 1,500 per month, i.e. CHF 18,000 per year at the Federal level).
Moreover, employees who perform an activity which implies a strong power of duty can receive a monthly fixed representation allowance from their employer, instead of claiming back actual expenses. This allowance is tax-free up to a certain amount, depending on the residency canton and the annual gross income, but the maximum amount is up to CHF 100,000 per year.
2.2 Social Contributions
All employees working for a Swiss employer in Switzerland must be enrolled in the Swiss social security system, which relies on the 3 pillars:
- Pillar 1, also called AVS, is the mandatory standard minimum (5.3% for the employee’s contributions and 5.3% for the employer’s);
- Pillar 2 is an additional mandatory social coverage, also called pension fund (LPP). It is linked to the Swiss employer and its rate depends on the institution;
- Pillar 3 is a fully voluntary additional social coverage. The yearly contributions are limited.
The contributions are fully tax-deductible from the gross income for ordinary taxation purposes.
Individuals working in Switzerland for a foreign employer (posted workers) are entitled to request a Swiss social security exemption if they maintain their home social security obligation.
2.3 Immigration (Visa)
Swiss passport holders do not need a visa/working permit to work and reside in Switzerland. Most other foreign nationals need a permit to work in Switzerland.
Different types of work visas and residence permits are available, depending on the nationality (citizens of EU/EFTA countries or third-country nationals) and the type of work or residence contemplated in Switzerland. The cantons are responsible for delivering the permit.
Full details of the available visas are available on the Swiss Government website.
Fidinam has offices worldwide and can assist you with all administrative and tax difficulties triggered by these flexible working arrangements, both in Hong Kong and in Switzerland. Contact us via the form below to seek advice or email us at info@fidinamgw.com.
