Germany–Switzerland · Employment
Swiss Employer with an Employee in Germany: Tax, Payroll and Social Security
When a Swiss company employs someone who lives in Germany, German tax and social security obligations may arise, particularly if the employee regularly works from Germany. The employee’s taxation, German wage tax withholding, Swiss payroll, social security and the Swiss company’s potential exposure to a German permanent establishment must each be assessed separately.
Four separate areas
An employee in Germany does not automatically create the same obligations for the employee and the employer
Where a Swiss employer has an employee in Germany, it is often assumed too quickly that all obligations either remain exclusively in Switzerland or automatically arise in Germany.
In practice, several legal questions need to be distinguished. The employee may be liable for German income tax even though the Swiss employer is not required to withhold German wage tax. At the same time, the employer may have social security obligations.
Regular work from Germany may also require an assessment of whether the Swiss company itself establishes a taxable presence in Germany.
Employee taxation
Where is the employee resident, and in which country do they physically perform their work? Articles 15 and 15a of the Germany–Switzerland double taxation agreement are particularly relevant.
German wage tax withholding
Is the Swiss employer required to withhold German wage tax under section 38 of the German Income Tax Act (EStG)?
Social security
Is the employment subject to Swiss or German social security law? The proportion of time spent working from home can change the outcome.
Employer taxation
Could the home office in Germany create a permanent establishment or another taxable presence for the Swiss company?
Income tax
Residence in Germany generally results in German taxation of worldwide income
If the employee lives in Germany and is subject to unlimited tax liability there, Germany generally also taxes the salary paid by the Swiss employer.
This does not mean that Switzerland cannot have taxing rights. The Germany–Switzerland double taxation agreement allocates those rights primarily by reference to where the work is physically performed and any applicable special rules.
- Establish German tax residence
- Check cross-border commuter status
- Record German and Swiss working days
- Apply Article 15 or Article 15a of the treaty
- Take Swiss withholding tax into account
- Prepare the German income tax return
Article 15a of the treaty
The cross-border commuter rules may apply where an employee lives in Germany and commutes to Switzerland
The Germany–Switzerland double taxation agreement contains a special rule for typical cross-border commuters. Article 15a may apply if the employee is resident in Germany, works in Switzerland and generally returns regularly to their German home.
In this case, the salary is generally taxed in Germany. Switzerland, as the country where the work is performed, may generally levy withholding tax of no more than 4.5% of gross remuneration.
Work-related days on which the employee does not return home must also be monitored. For employment throughout the year, cross-border commuter status may be lost if there are more than 60 relevant non-return days.
Outside the commuter regime
Outside Article 15a, the physical place of work becomes central
If the employee does not qualify as a cross-border commuter under Article 15a, the general employment income rule in Article 15 of the treaty normally applies.
Days physically worked in Germany are generally German working days. Days worked at the Swiss office are generally Swiss working days.
Depending on the circumstances, the salary may therefore need to be allocated between Germany and Switzerland. The familiar 183-day rule must not be considered in isolation: the conditions concerning the employer and who bears the remuneration also matter.
| Working arrangement | Key tax considerations | Typical outcome |
|---|---|---|
| Resident in Germany, working daily in Switzerland | Check Article 15a of the treaty | Cross-border commuter taxation may apply |
| Resident in Germany, regularly working from home and at a Swiss office | Commuter status and places of work | Article 15a or allocation by working days |
| Resident in Germany, working entirely from a German home office | Germany as the country where the work is performed | Salary generally taxable in Germany |
| Frequent work-related overnight stays in Switzerland | Non-return days | Cross-border commuter status may be lost |
| Work in Germany, Switzerland and third countries | Country in which each working day is spent | Allocation across several countries required |
Section 38 EStG
An employee’s German income tax liability does not automatically require the Swiss employer to withhold German wage tax
Under section 38 EStG, German wage tax withholding obligations apply in particular to employers with a residence, registered office, place of management, permanent establishment or permanent representative in Germany.
A Swiss company without such a German connection therefore does not become subject to German wage tax withholding merely because an employee lives or works in Germany.
- Check whether the employer has a German permanent establishment
- Consider whether there is a permanent representative
- Assess international hiring-out of employees separately
- Do not automatically assume a German wage tax obligation
- Assess the employee’s income tax liability separately
- Arrange German advance tax payments where necessary
No German payroll
The employee may still owe German income tax even if no German wage tax is withheld
If the Swiss employer has no obligation to withhold German wage tax, this does not mean that an employee living in Germany does not have to pay German tax on their Swiss salary.
The tax is then generally collected through the German income tax assessment. The tax office may also set quarterly advance income tax payments.
This cash flow effect should be taken into account, particularly for higher Swiss salaries. Swiss withholding tax, especially the 4.5% applicable to cross-border commuters, may be significantly lower than the final German income tax liability.
German wage tax obligations
Becoming an employer for German wage tax purposes creates ongoing payroll obligations
If the Swiss employer becomes subject to German wage tax withholding under section 38 EStG, the standard German wage tax obligations generally apply.
Wage tax withholding
German wage tax generally has to be withheld when each salary payment is made.
Wage tax returns
Withheld wage tax generally has to be reported to the tax office responsible for the establishment and remitted within the applicable deadlines.
Payroll records & processing
German wage tax obligations also entail corresponding recordkeeping and payroll accounting requirements under German law.
Working from home in Germany
Regular work from Germany should be assessed before the homeworking arrangement is introduced
A Swiss company can generally allow its employee to work from Germany. However, doing so may change the tax and social security treatment of the employment relationship.
For income tax purposes, a day spent working from home in Germany is generally a German working day. However, for a cross-border commuter under Article 15a of the treaty, a day worked at their German home does not automatically result in the loss of commuter status.
Social security is governed by separate rules. A substantial proportion of work in Germany, the country of residence, can already be relevant under the general rules for work in multiple countries. The special telework framework agreement, however, allows homeworking of at least 25% but less than 50% while retaining Swiss social security coverage, subject to certain conditions.
Income tax
Article 15 or Article 15a of the treaty determines how the salary is treated for tax purposes between Germany and Switzerland.
Social security
The 25% rule and the telework framework agreement determine which social security system applies.
Employer exposure
A permanent homeworking arrangement may require an assessment of potential German permanent establishment or representative risks.
Swiss company
An employee in Germany does not automatically create a German permanent establishment
Employing someone who lives in Germany does not, by itself, mean that the Swiss company has a permanent establishment in Germany.
Where the employee regularly works from home, however, it should be assessed whether the company actually has a fixed place of business in Germany or whether the employee’s role creates exposure through a representative.
- Check whether the home office is at the employer’s disposal
- Assess the permanence of its use
- Analyse the employee’s role
- Consider authority to conclude contracts
- Assess sales activities and customer contact separately
- Examine management functions particularly carefully
Home office as a permanent establishment
What matters is how the company actually uses the home, rather than the home itself
A private home is typically at the employee’s disposal rather than the employer’s. Ordinary homeworking therefore does not automatically create a permanent establishment for the Swiss company.
The risk may increase, however, if the work is intended to be performed permanently from Germany, the company does not provide a suitable workplace in Switzerland, it effectively needs the home office for its business activities, or the work in Germany involves a significant business function.
Senior employees or individuals with extensive authority to conclude contracts may also raise questions concerning representatives or the company’s place of management.
Managing directors
The risk is generally higher for managing directors and senior executives
If a managing director or another senior executive, rather than an ordinary employee, works permanently from Germany, it is also necessary to examine where significant business decisions are made.
Moving central management functions to Germany can have considerably broader consequences than simply employing someone who works from a German home office.
In addition to a permanent establishment, this may raise questions about the Swiss company’s place of effective management and tax residence.
Social security
Employment with a Swiss employer may remain subject to Swiss social security despite the employee’s German residence
If the employee works exclusively and physically in Switzerland, Swiss social security law generally applies in a typical case covered by the European coordination rules.
If the employee also regularly works in Germany, the rules for employment in multiple countries apply. Under the general rules, performing a substantial share of work of at least 25% in Germany, the country of residence, can generally result in German social security coverage.
An important special rule applies to habitual cross-border telework. Subject to the conditions of the multilateral framework agreement, Swiss social security law may continue to apply where at least 25% but less than 50% of the work is performed from home in Germany.
| Working arrangement | Social security | Typical action required |
|---|---|---|
| 100% of work performed in Switzerland | Generally Switzerland | Standard Swiss registration |
| Less than 25% homeworking in Germany | Generally remains in Switzerland in a typical case | Assess and document work in multiple countries |
| At least 25% but less than 50% telework in Germany | Swiss coverage may continue under the framework agreement | Application and A1 certificate |
| 50% or more of work performed in Germany | Framework agreement does not apply | Reassess under the general rules |
| Regular work in additional countries | More complex assessment of work in multiple countries | Framework agreement may not apply |
A1 certificate
The applicable social security legislation should be formally documented
For cross-border work, the applicable social security system should not be determined solely by the company’s internal payroll arrangements.
The outcome is generally documented by an A1 certificate. If Swiss social security coverage is to continue under the framework agreement despite substantial telework in Germany for a Swiss employer, an appropriate exception agreement must be applied for.
If the working arrangement changes significantly, the existing social security classification should also be reviewed.
Employer obligations
A switch to German social security can also create German obligations for the Swiss employer
If the employment is subject to German social security law under the international coordination rules, arrangements must also be made for the practical administration of German contributions.
The foreign employer is not exempt from social security obligations simply because the company is based in Switzerland.
Before permanently increasing the proportion of work performed in Germany, the employer and employee should therefore clarify which system applies and which registration, reporting and contribution processes need to be established.
Practical process
Structuring Swiss employment with an employee in Germany
Determine residence and treaty residence
First, establish whether the employee is resident in Germany for tax purposes.
Document the working arrangement
Plan and document Swiss office days, homeworking in Germany, business trips and work in other countries realistically.
Determine whether Article 15a or Article 15 applies
Check the cross-border commuter rules and, where relevant, non-return days before applying the standard allocation by working days.
Check German wage tax obligations
Establish whether the Swiss employer must withhold German wage tax under section 38 EStG.
Assess permanent establishment and representative risks
Analyse the employee’s role, the home office arrangement, the employer’s right of disposal and authority to conclude contracts.
Determine the applicable social security system
Apply the rules on the proportion of work performed in each country, the 25% threshold and, where relevant, the telework framework agreement.
Coordinate the A1 certificate and payroll
Formally document the applicable social security legislation and align it with Swiss or German payroll.
Arrange the employee’s German income tax compliance
Coordinate the tax return, Swiss withholding tax and any German advance income tax payments.
Common mistakes
What Swiss employers often overlook when employing someone in Germany
“We are a Swiss company, so only Swiss law applies”
Living or working in Germany can trigger German tax and social security obligations.
Equating German income tax with German payroll
The employee may owe German income tax even though the Swiss employer is not required to withhold German wage tax.
Failing to record days worked from home
Actual working days are essential for tax, social security and, where relevant, the employer’s tax exposure.
Applying the 49.9% rule to tax
The telework threshold relates exclusively to social security. It is not a tax exemption threshold for working from home.
Ignoring permanent establishment exposure
A home office does not automatically create a permanent establishment, but certain roles and arrangements may require a detailed assessment.
Retaining Swiss social security without checking the rules
Regular work in Germany may lead to a change of system if no applicable exception agreement is in place.
Further tax knowledge
Related topics
Frequently asked questions
Swiss employers with employees in Germany
Can a Swiss company employ someone in Germany?
Does an employee living in Germany have to pay German tax on their Swiss salary?
Does a Swiss employer automatically have to remit German wage tax?
What happens if no German wage tax is withheld?
Does a day worked from home in Germany count as a German working day for tax purposes?
Does an employee working from home in Germany automatically create a permanent establishment?
What if the Swiss company’s managing director works from Germany?
Which country’s social security system covers the employee?
Can the employee work in Germany two days a week and remain covered by Swiss social security?
What happens if 50% or more of the work is performed from home in Germany?
Does the employee need an A1 certificate?
Should the Swiss employer have the working arrangement reviewed before it starts?
Germany–Switzerland advisory services
Does your Swiss company employ someone in Germany?
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