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11 June 2019 / nieuws

Social security obligations in Switzerland – an overview

In order to determine whether an individual with an international background is obliged to pay Swiss social security contributions a detailed analysis of facts in each specific case is necessary and the conclusion is not always self-explanatory. Here is what you need to consider.

Employment tax

In situations with multiple jurisdictions involved the determination of the applicable social security system and therewith contribution payment obligations is based on a complex international legal framework coordinating the domestic systems, if any, and national domestic laws.

Basic principles

Swiss and EU/EFTA citizens or residents are in principle subject to social security contributions in only one country, usually at the place where this individual performs his/her (dependent) employment activities. Self-employment is considered subordinate to dependent employment. Marginal activities being less than 5% are not taken into account when determining the country where social security obligations have to be paid.

Similar rules apply for Non-EU/EFTA citizens or residents, if that country has a bilateral social security agreement with Switzerland.

The income from activities performed by a Swiss resident individual in countries that has no bilateral or multinational social security agreement with Switzerland is subject to Swiss social security contributions, resulting in a fragmentation and even a potential overlapping of social security obligations.

Employment activities in several countries

In connection with activities performed in several EU/EFTA countries, the following principles apply:

 

Number of employers

Place of work
(i.e. substantial part)

Social security obligation

i)

One employer

In several countries including country of residence

In country of residence, if at least 25% of employment in that country; otherwise in country of employer’s registered seat.

ii)

One employer

In several countries but not including country of residence

In country of employer’s registered seat.

iii)

Several employers

In several countries but not including country of residence

In country of residence.

iv)

Several employers

In several countries including country of residence

In country of residence, if at least 25% of employment in that country; otherwise in country where the substantial part of work is being performed.

In case of additional potentially as self-employed qualified activities like e.g. board memberships the outcome of the analysis for the social security obligations may change significantly. Activities in NON-EU/EFTA countries with or without bilateral social security agreements with Switzerland may again cause a fragmentation and even overlapping of social security obligations.

Special situations

(a) Board membership

The management of a company (directorship or similar) is from a Swiss social security law perspective always considered a substantial activity, i.e. never a marginal activity ,due to its nature. From a Swiss law perspective, the manager is a dependent employee and the respective activities for the benefit of the Swiss registered company. Therefore such activities are always subject to Swiss social security contributions. Even if the director is not a Swiss resident and does not effectively perform his activities in Switzerland. This even applies if the remuneration of the director is not paid directly to him/her but to a foreign company, or if no remuneration is paid at all.

As a consequence, a Belgian resident self-employed individual may unintentionally become obliged to pay Swiss social security contributions on his/her entire income due to the acceptance of a board membership in a Swiss registered company.

Based on the respective bilateral agreements, residents of India, Canada, the Philippines, South Korea or the US who are a director of a Swiss company, are not subject to Swiss social security contributions, if that country qualifies their directorship activities as self-employed activities.

(b) Lump-sum taxation

Individuals subject to the lump-sum taxation regime in Switzerland are generally considered unemployed persons and do have to pay Swiss social security contributions on their deemed income and wealth capped at approximately CHF 25,000 per annum. However, if the analysis of their employment situation results in an allocation of their social security obligation to their country of residence, they are nevertheless required to pay Swiss social security contributions based on their effective income received instead of the deemed income and wealth.

Summary

Summarizing the above, multinational employment situations involve a complex legal framework and substantial administrative hurdles with regard to social security obligations. We recommend a careful analysis of the given fact pattern well in advance of a potential relocation to or from Switzerland and/or the acceptance of and start into a new employment in Switzerland.



Social security obligations in Switzerland – an overview

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