Cyrilla Duforêt (left) and Melanie Marquez divide their professional lives between Switzerland and Cuba.
Courtesy
More and more Swiss now have a hybrid life, working part of the year in Switzerland and part of the year abroad. But international mobility can lead to issues with taxes, social security, and social life.
Melanie Marquez works in sunny Cuba for several months a year during the Swiss winter. She and her associate Cyrilla Duforêt own a tourism and sports company which organises vacations on the Caribbean island; they also run a gym in Bern.
At first, they spontaneously seized business opportunities as they arose, but “after a somewhat uncertain phase, we realised it was important to clarify things administratively,” Marquez says.
Determining tax residence
When you work in two countries, one of the first questions to ask yourself is where to declare your income and pay taxes.
If, as a Swiss resident, you work abroad for a Swiss company that has no local branch office, your income is only taxable in Switzerland – as long as you are not in the foreign country for more than 183 days per year.
However, if you work abroad for a foreign company, your income is taxable in that country – even if you are not a tax resident there. “Being a tax resident in Switzerland doesn’t mean you don’t pay taxes in the other country,” says Nicole Töpperwien, CEO of Soliswiss, a co-operative that provides advice to Swiss Abroad.
It is also essential to understand at what point you acquire the status of a tax resident in the foreign country.
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Distinguishing business from personal
Under Swiss law, a company’s tax residence is based on the location of its headquarters or “effective management”. The distinction between the tax residence of a company and that of an individual is important, because they can differ.
Marquez and Duforêt’s situation is fairly straightforward as their company is listed with the Swiss registry of commerce. They also both live in Switzerland for most of the year.
Nonetheless, tax “residency conflicts are common”, Töpperwien says. “It’s important to establish as clear a situation as possible that works with the rules of the different countries.”
Double taxation
Generally speaking, unless a tax treaty specifies otherwise, any tax resident in Switzerland is taxed there on worldwide income.
Switzerland has double-taxation agreements (DTAsExternal link) with many countries. These agreements prevent individuals and companies from being taxed twice on the same income. A DTA defines which country can tax which income.
Even if all or part of your income has already been taxed in another country, it is generally necessary to declare global wealth and income in your tax domicile.
“Without an agreement, double taxation is possible. However, in certain cases, Switzerland takes into account the fact that you’ve already had to pay taxes in another country,” Töpperwien says. But she warns that “not declaring anything in Switzerland or only declaring partially can qualify as tax fraud, even if the income has been taxed elsewhere”. In addition, “if you’re not paying taxes anywhere, there’s a problem”, she says.
Announcing departure or arrival
Some Swiss municipalities require notification of your departure if you plan to spend more than three consecutive months (90 days) abroad – at which point they consider you a Swiss Abroad, which has tax implications.
Töpperwien says most municipalities are accommodating and open to negotiating foreign stays as long as six months or occasionally a year, without registering a departure. Rules can also vary from canton to canton. Töpperwien strongly recommends “always getting in touch with the municipality and the tax authorities”.
Managing finances in multiple countries
As co-owner of a tourism company in Scandinavia, Karin* has enjoyed snowy winters for over ten years. She also works as a travel agent in Switzerland.
It can be complicated to own a business in a country where you do not speak the language fluently and whose administrative processes are unfamiliar. “Without a partner who knows the local system, I probably never would have taken the plunge,” she says.
In cases like Karin’s, it’s important to separate business and personal finances and to structure cash flows clearly for the tax authorities. Having bank accounts in each country becomes virtually indispensable.
Although it’s perfectly legal to own firms in multiple countries, “choosing your company’s legal structure and the way you set things up are very important, because these have tax and social-security implications,” Töpperwien explains.
Gaps in social security benefits
Anyone working in Switzerland is legally subject to the Swiss social security system, even if they do not live in the country full-time. Most other countries have a similar requirement. Yet working in several countries doesn’t necessarily mean that you have to pay into each one’s social security system.
Switzerland has social security agreementsExternal link with over 50 EU and EFTA (European Free Trade Association) countries as well as 22 other countries. In the EU/EFTA, the goal is to limit affiliation to a single country, even for people who work in several countries.
Things become more complicated if Switzerland does not have an agreement that covers your situation. This can result in paying into more than one social security system. It can also lead to gaps in contributions.
According to Töpperwien, part-time Swiss Abroad often fall prey to the administrative back and forth. Those who frequently modify their residency status with their Swiss communes can undermine their social security and fiscal stability. Old-age pensionsExternal link are especially at risk. “To benefit from a good pension later on, it’s preferable to contribute consistently [into the pension scheme] of a single country,” Töpperwien advises.
Virtually every person’s case is unique, since it depends on their specific work circumstances (salaried employee, self-employed, seconded, etc.), on the foreign county involved, and on the presence or absence of an agreement. It is therefore advisable to contact the social security authorities directly to discuss your particular situation.
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Social life can suffer
Juggling life in two countries might appear exciting, but it has its drawbacks.
“We live between two worlds. Each time you return to one of them, you have to re-immerse yourself before you feel at home again,” says Marquez. Duforêt adds that “people sometimes have the impression that we’re constantly on vacation. But that doesn’t reflect the reality at all”.
Karin notes the fatigue and stress caused by preparations for relocating. “Nearly a year in advance, I had to go look for an apartment locally, find a sub-tenant for my home in Switzerland, and make the place habitable for someone else… When you leave for three months, it’s almost like moving, especially with a child!”
Karin admits that her social life has suffered as a result of her prolonged absences. “The phase leading up to departure is so intense – between work, family life, and preparations – that there’s little time left for socialising with friends.”
Planning is key
Töpperwien feels it is critical that part-time Swiss Abroad plan their careers carefully – and consult with an adviser specialising in international tax law and social security law.
Few experts understand the complex arrangements, especially when they involve countries outside the EU/EFTA zone. “Advice is therefore often expensive,” Töpperwien says, “but essential in order to avoid serious mistakes”.
Edited by Samuel Jaberg
Adapted from French by K. Bidwell/ds
*pseudonym
