Hiring cross-border workers from Germany: withholding tax, Gre-1 and social security

Cross-border workers from Germany: the starting point for employers

Germany is the most important recruitment market for many companies in north-western Switzerland, in the Basel, Schaffhausen and Zurich areas and around Lake Constance. Special rules apply to you as the employer of cross-border workers from Germany, above all for withholding tax: the double taxation agreement between Switzerland and Germany contains its own cross-border commuter rule.

It is important to distinguish between the permit and the tax status: for the G permit, returning home once a week is sufficient, while the cross-border rule for tax purposes generally requires a daily return. A person holding a G permit is therefore not automatically a cross-border commuter for tax purposes.

G permit for employees from Germany

German nationals benefit from the Agreement on the Free Movement of Persons. With an employment contract, they are generally granted the G permit (cross-border commuter permit) by the migration office of the canton of employment. You can submit the application as the employer; you usually need the employment contract, an identity document and proof of residence.

If the person lives in Germany but holds a different nationality, other rules apply depending on their origin. Clarify this before the contract is signed.

Withholding tax: a maximum of 4.5 per cent with a certificate of residence

Under Article 15a of the double taxation agreement, the salary of cross-border commuters is in principle taxed in Germany. Switzerland may levy withholding tax of no more than 4.5 per cent of the gross salary, which is credited in Germany. In the payroll software, you use separate rates for cross-border workers from Germany.

The requirement is the certificate of residence from the German tax office responsible for the place of residence (form Gre-1), which the employee hands to you. For subsequent years it is extended with form Gre-2. If there is no valid certificate, you generally apply the ordinary withholding tax rate – which is considerably more expensive for the employee and leads to queries.

• Request the Gre-1 before the first payroll
• Monitor validity and request the Gre-2 in good time for each new year
• Only set up the capped rate in the payroll software with a valid certificate
• Keep the certificates in the personnel file

The 60-day rule: recording and certifying non-return days

If, for work reasons, a person does not return to their place of residence on more than 60 working days in a calendar year, they lose their cross-border commuter status for tax purposes. For part-time work or a start during the year, the limit is reduced proportionately. Typical non-return days are business trips with overnight stays, installation assignments and training courses lasting several days.

As the employer, you certify the non-return days at year end using form Gre-3. If cross-border commuter status is lost, different withholding tax rules apply. Record the days on an ongoing basis, for example in expense or travel claims, rather than waiting until December.

Senior executives: a special rule in the agreement

For senior executives of a Swiss corporation, such as managing directors, directors or persons with general power of attorney (Prokura), the agreement provides a special rule: under certain conditions, their salary can be taxed in Switzerland even though they live in Germany. Check the tax treatment before you assign such a role or grant signing authority.

Social security and home office

If the person works exclusively in Switzerland, they are covered by Swiss social security: AHV/IV/EO, unemployment insurance, accident insurance and – above the entry threshold – the pension fund. You process contributions as for all other employees.

Home office in Germany changes the picture. Under the general rules, the insurance obligation can shift to Germany once 25 per cent or more of the work is done in the country of residence. Germany and Switzerland apply the framework agreement on teleworking: on your application, the person remains insured in Switzerland with less than 50 per cent home office. The A1 certificate, which you apply for through your compensation fund, serves as proof.

For tax purposes, home office days are usually unproblematic for people who meet the cross-border commuter rule. For people outside that rule, however, every working day in Germany can shift the right to tax. Record home office in writing.

Health insurance: your employees' right of option

Cross-border workers from Germany are in principle required to take out Swiss health insurance under the KVG, but can apply for an exemption within three months of starting work and take out insurance in Germany instead. The decision is generally permanent.

What matters most for you as the employer is whether, and to what extent, you contribute to the premiums if the employee is insured in Germany. This should be clarified and recorded in writing before work starts. Also make new employees aware of the deadline – many only find out about it too late.

Checklist: hiring cross-border workers from Germany

These steps should be completed before or shortly after the first working day:

• Clarify place of residence and daily return
• Apply for the G permit at the cantonal migration office
• Request the Gre-1 before the first payroll, the Gre-2 every year
• Set up the withholding tax rate for cross-border workers from Germany
• Register with the compensation fund, pension fund, accident insurer and daily sickness allowance insurer
• Agree the home office share and apply for the A1 certificate
• Record non-return days on an ongoing basis and issue the Gre-3 at year end
• Provide the salary certificate and withholding tax certificate for the German tax return

Common mistakes with cross-border workers from Germany

These mistakes most often lead to corrections and back payments:

• Capped rate applied without a valid Gre-1 or Gre-2
• Non-return days from business trips not recorded
• Home office of 25 per cent or more without an application under the framework agreement
• Management role assigned without checking the rule for senior executives
• Employee's move to Switzerland not updated

How PROFINIO supports you with cross-border workers from Germany

We set up withholding tax correctly for your cross-border workers from Germany, monitor the Gre-1 and Gre-2, record non-return days and prepare the certificates at year end. If you wish, we take over the entire payroll administration. We advise your employees on health insurance and on the documents for their German tax return.

Frequently asked questions