In more detail
The Covid 19 pandemic and successive lock-downs have consequently developed the practice of remote working for "international" workers. In this context, France had entered into mutual agreements with bordering countries to neutralize the impact of remote working on the taxation of the income for border and cross-border workers.
On 22 December 2022, France and Switzerland entered into two long-term agreements concerning the taxation of border and cross-border workers. These agreements are applicable as of 1 January 2023
As a reminder, Article 17 of the double tax treaty between France and Switzerland provides that, in principle, salaries are taxable in the State of residence of the employee, unless the latter carries out his/her activity in the other State1.
In addition, the agreement on the taxation of the remuneration of border workers provides that these workers, going daily to the premises of their employer in the other State, remain taxable in their State of residence.
The 22 December 2022 agreements soften these rules and provide that:
- Cross-border workers who perform part of their activity remotely remain taxable in the State of their employer as long as remote working from their State of residence does not exceed 40% of their working time.
- Border workers who perform part of their activity remotely do not lose the benefit of their specific tax status as long as remote working from their state of residence does not exceed 40% of their working time.
It should be emphasized that this tolerance is only an opportunity for the cross-border worker to maintain the application of his/her current tax regime, not an obligation. Indeed, the worker has the possibility to refuse to benefit from this tolerance and thus to have his/her income taxed in his State of residence for the days worked there.
France and Switzerland intend to formalize this agreement by signing an amendment to the double tax treaty and to the agreement concerning the regime for border workers.
It is expected that if the amendment are signed before June 30, 2023, the provisions of the mutual agreement will apply until 31 December 2024. If not signed before that date, the provisions of the agreement will cease to apply as of 1 July 2023.
If this tax tolerance applies up to 40% of remote work, it should be noted that the portion of the time spent in a country is not the same for social security affiliation of these workers. Indeed, in application of the Regulation (EC) n° 883/2004 dated 29 April 2004, the worker is affiliated to the social security of the State where he/she exercises his activity. If the worker carries out his/her activity in several States, he/she is affiliated to the social security system of the State where he/she carries out the substantial part of his activity (more than 25% of the working time or of the remuneration).
The social security agreement, aimed at neutralizing the effects of remote working on social security affiliation in the context of the pandemic, has been extended until 30 June 2023.
After this date and in the absence of an increase of the 25% threshold at an European level, it will be necessary to anticipate the effects of the application of the tolerance provided for by these tax agreements on the social security affiliation of French tax resident workers.
1 Article 17. 2 of the Agreement also provides for a temporary mission clause according to which salaries remain taxable in the State of residence if the worker stays less than 183 days in the other State, is remunerated by an employer located in the State of residence, and the burden of remuneration is not borne by a permanent establishment of the employer in the other State.
