In chapters 1-4 of our series "Business trips to Switzerland and the EU", we provided an overview of the most important aspects of international social security, taxes, work permits and reporting obligations.

In the following 5th chapter, we will have a closer look at the administrative particularities of a business trip from the USA to Switzerland, using a practical example. Here, too, we focus on the key points of "taxes, social security and work permits", which must be checked (at least briefly) for almost every international business trip.

Example

The Swiss headquarters has a subsidiary in the USA. The CFO for the group of companies lives and works mainly in the USA. He has an employment contract with the US company.

Due to his overall responsibility for the group of companies, the CFO regularly comes to Switzerland for meetings and to carry out part of his work there. The CFO's presence in Switzerland varies between 0 and 8 days per month. The rest of the time, the employee can either work from his home office in the US or from the office in Boston, MA (USA).

Question

  • What needs to be considered when the CFO travels to Switzerland on business regarding social security, taxes and work permits?

Social security coverage (Certificate of Coverage)

Due to their place of residence and work in the USA, employees are generally subject to US social security contributions. To avoid triggering a social security obligation in Switzerland for the Swiss working days, it is advisable to obtain the so-called "Certificate of Coverage (CoC)" in the USA.

The CoC is the equivalent of the A1, which is used for business trips in the EU/EFTA. It certifies that the employee continues to be insured under the US social security system during the business trip to Switzerland and is exempt from Swiss social security contributions.

However, to obtain the Certificate of Coverage from the USA, patience is required above all (in addition to the correct application). Once the application has been submitted, it can take a solid 5-8 months for the certificate to be issued and then sent by post to a US address.

Income Taxes (183-day rule and de facto employer)

If the employee is present in Switzerland for a maximum of 8 days per month, i.e. a maximum of 96 days per year, it is easy to jump to the conclusion that the 183-day rule does not trigger any tax liability in Switzerland. However, this is too short-sighted, as the other two aspects of the 183-day rule must also be taken into account. In simple terms, these are: no assumption of costs in Switzerland or no transfer of costs to Switzerland and no payment of salary in Switzerland.

However, even if all three points of the 183-day rule are fulfilled, in the present case of the CFO with overall responsibility for the Swiss group of companies, we have to deal with the construct of the de facto employer.

This states that an employer in Switzerland is to be assumed if the service provided constitutes an integral part of the business activities of the Swiss company. In other words, a de facto employer exists if, among other things, the activity of the employee from abroad is extremely important for the Swiss company.

Due to the activities of the US American CFO for the entire group of companies, it must be assumed that there is a de facto employer in Switzerland. This also means that the employee is subject to withholding tax in Switzerland for each Swiss working day, and the Swiss working days must be calculated to the exact day.

The 183-day rule no longer applies in the case of the CFO, as his activities are of significant importance to the Swiss organization, and it can be assumed that he makes far-reaching and significant decisions for the group of companies.

Work Permits

The CFO from the U.S. requires a work permit to work in Switzerland. Due to his decision-making powers and frequent stays in Switzerland, it cannot be argued that he is "only" in Switzerland for meetings.

The simplest solution is, therefore, to obtain a 120-day permit for the CFO. Here, the further restriction that he also requires a Schengen visa in connection with the 120-day permit must be taken into account. This ultimately allows him to stay in the Schengen area (including Switzerland) for up to 90 days within 180 days and up to 120 working days in Switzerland in a 12-month period.

Payroll

The main payroll, including salary payments, is managed by the CFO in the USA. Due to the Swiss working days, a so-called "shadow payroll" must be maintained in Switzerland for the calculation of Swiss withholding tax. This is then used to calculate the Swiss taxes and paid by the Swiss company to the relevant withholding tax office. Payment of remuneration does not take place in Switzerland.

Conclusion

For business trips from the USA to Switzerland, a number of administrative aspects must be taken into account, depending on the employee's specific situation. While occasional, short business trips by employees without far-reaching decision-making powers are not particularly complex, several additional aspects must be taken into account for higher-ranking employees in management positions.

Not only must a work permit be obtained on a regular basis, but also the "Certificate of Coverage" for the social security subordination. It is also essential to keep a travel calendar in order to be able to correctly account for and pay Swiss withholding tax as part of a shadow payroll.

Companies are, therefore, well advised to deal with the various administrative aspects of business trips from abroad to Switzerland and to seek appropriate support for the administrative points that they cannot or do not wish to handle themselves.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.