Switzerland and Italy sign new deal on taxing cross-border workers

No one was crossing this Swiss-Italian border crossing at Ligornetti in May owing to the Covid pandemic Keystone / Pablo Gianinazzi

Switzerland and Italy have signed a new agreement on the taxation of cross-border commuters and a protocol amending the double taxation agreement. The agreement settles a legal issue that had been unresolved for several years, said Foreign Minister Ignazio Cassis.

Cassis said the wait for the signing of the agreement, which had been initialled in December 2015, had caused a “profound malaise”. Its signing in Rome on Wednesday “reaffirmed the vitality of relations” between the two countries. The agreement replaces one agreed in 1974.

For “new” cross-border commuters – those who start working in Switzerland after the agreement enters into force – the withholding tax rate will be 80% in favour of Switzerland, instead of the 70% provided for in the agreement initialled in 2015. These people will be taxed in Italy in the normal way. Rome will eliminate double taxation if necessary.

People who work or have worked in cantons Ticino, Graubünden or Valais between December 31, 2018, and the entry into force of the new agreement are considered “current cross-border workers”. They will be taxed only in Switzerland.

Until the end of the 2033 tax year, the cantons will continue to pay 40% of their withholding tax revenues to the municipalities in which they reside. After this date, Switzerland will no longer pay any compensation and will retain the entire tax revenue generated.

Definition of cross-border worker

Bern and Rome have furthermore precisely defined who is considered a cross-border worker: someone who lives in a municipality within 20km of the border and who “in principle” returns home every day.

This definition would apply to all current and new cross-border workers from the entry into force of the agreement, the foreign ministry said.

In the event of blatant abuses, the authorities of both countries will be able to consult each other with a view to revoking the current border status for the people concerned.