On 1 January 2024 important changes were introduced to the relationship between Italy and Switzerland relating to the tax legislation applicable to cross-border workers, and to the guidelines relating to remote working.
Historically, cross-border work between Italy and Switzerland has been regulated by the Agreement signed in Rome in 1974 (‘1974 Rome Agreement’)and, also, by the Convention against double taxation of 1976 (the ‘1976 Convention’), still in force between the two countries.
These agreements establish that the wages, salaries and other elements forming part of the remuneration that a cross-border worker receives as consideration for an employed activity are taxable only in the State in which such activity is carried out. For these purposes cross-border worker is generally understood as an employed or self-employed worker who carries out his or her activity in a State other than the one in which he or she resides, and who returns to the State of residence, in principle, daily or at least once a week.
However, technological development and, above all, the Covid emergency have changed the traditional scenarios, requiring both Italy and Switzerland to deal with widespread remote work which, unlike in the past, it is no longer necessarily carried out at the company premises and, in as far as is relevant for these purposes, no longer involves daily cross-border travel.
On 1 January 2024, following the entry into force of Italian Law no. 83/2023 implementing the agreement of 23 December 2020, important changes were introduced to the relationship between Italy and Switzerland relating to the tax legislation applicable to cross-border workers, and to the guidelines relating to remote working as well.
The new tax measures applicable to cross-border workers
With the entry into force of Italian Law no. 83/2023, the process of reviewing the agreements between Italy and Switzerland concerning the cross-border work regime, started by the aforementioned protocol of 23 December 2020, was concluded. The new agreement, formalised by the aforementioned law, amends the 1974 Rome Agreement and the 1976 Convention to reflect the new terms reached between the two countries.
The new provisions agreed between Italy and Switzerland – which entered into force on 17 July 2023, but took effect from 1 January 2024 – concern the definition of cross-border work and the tax regime applicable to the work income earned by the persons concerned. The two countries have agreed that the agreement provisions are subject to review on a five-yearly basis.
In detail, the definition of cross-border worker has been revised by the new agreement and covers any worker resident in a contracting state who is domiciled for tax purposes in a municipality which is totally or partially in the 20 km area from the border with the other contracting State. The border areas covered by the agreement are, for Switzerland, the cantons of Grisons, Ticino and Valais, and, for Italy, the Lombardy, Piedmont and Valle d’Aosta regions and the autonomous province of Bolzano.
To be considered a cross-border worker, the worker must work in the above-mentioned border areas of the other State and return, in principle, to his or her main domicile in the State of residence on a daily basis. The worker retains this statusif he or she does not return to his or her home, for professional reasons, for a maximum of 45 days in a calendar year, excluding holidays and sick days.
For tax purposes, the new agreement provides a distinction between “old” and “new” cross-border workers. A worker is an “old” cross border worker if he or she was a cross-border worker on 17 July 2023 or carried out work in the border area in the period between 31 December 2018 and 17 July 2023. The rules of the previous version of the agreement, which provide for exclusive taxation in the country in which the work is carried out if the worker resides within 20 km of the border between the two States, continue to apply to “old” cross-border workers.
With respect to “new” cross-border workers (i.e. workers who are classified as cross-border workers starting from 17 July 2023), the shared taxation criterion applies.
Therefore, the State where the work is carried out will deduct withholding tax on the income earned by the individual, up to a maximum of 80% of the amount due based on the provisions on personal income taxes, including local taxes.
The worker’s State of residence will also subject the same income to taxation, guaranteeing the elimination of double taxation according to the rules established by the tax convention in force between the two countries (specifically, recognising a credit equal to the taxes paid in the State where the work is carried out or guaranteeing an exemption with respect to the income subject thereto).
Changes relating to remote working
As a result of the provisions which came into force on 1 January 2024, cross-border workers between Italy and Switzerland may carry out their work remotely at their home and up to the threshold of 25% of the working hours, without this having any impact on the relevant tax regime.
Read the full version in Norme e Tributi Plus Diritto of Il Sole 24 Ore.