Hiring cross-border workers from Italy: new agreement, 20-kilometre zone and withholding tax

The new Switzerland–Italy cross-border agreement

Since 1 January 2024, the new agreement between Switzerland and Italy on the taxation of cross-border workers has been applied. It replaces the 1974 agreement and distinguishes between existing and new cross-border workers. For you as the employer, this means you need to know which rule applies to each person and set up the withholding tax deduction accordingly.

Who counts as a cross-border worker under the agreement?

Under the agreement, a cross-border worker is someone who lives in an Italian municipality whose territory lies wholly or partly within 20 kilometres of the border, works in the canton of Ticino, Graubünden or Valais and, in principle, returns to their place of residence every day. The municipalities concerned are set out in lists.

If a person lives further away, works in another canton or does not return every day, the agreement does not apply. Their salary is then taxed at source under the general rules of the double taxation agreement. The G permit alone says nothing about tax status.

Existing cross-border workers: transitional rules

Anyone who worked as a cross-border worker in the border area between 31 December 2018 and the entry into force of the agreement on 17 July 2023 counts as an existing cross-border worker. Transitional rules apply to these people: their salary continues to be taxed at source exclusively in Switzerland.

For the personnel file, it is important that the status can be proven, for example with previous employment contracts, salary certificates and permits. Whether the status is retained after a change of job depends on the circumstances – check this with every new hire.

New cross-border workers: reduced withholding tax in Switzerland

For new cross-border workers, Switzerland levies withholding tax of no more than 80 per cent of the ordinary withholding tax. Italy also taxes the salary, credits the Swiss tax and grants cross-border workers an increased tax-free allowance. Separate rates are used for this in the payroll software.

To apply the correct rate, you need reliable information when the person joins on their municipality of residence, when they started working as a cross-border worker and any previous employers in Switzerland. The cantonal tax authority may request supporting documents.

• Check the municipality of residence and whether it lies within the 20-kilometre zone
• Document existing or new cross-border worker status
• Set up the appropriate rate in the payroll software
• Update changes of residence immediately

Telelavoro: home office up to 25 per cent

Switzerland and Italy have agreed that cross-border workers can work up to 25 per cent of their working time from home in Italy without losing their cross-border status for tax purposes. Anyone who works more from Italy risks different taxation – with consequences for your withholding tax settlement.

For social security, too, responsibility can shift to Italy under the general rules once 25 per cent or more of the work is done in the country of residence. Whether special teleworking rules can be applied in relation to Italy must be checked on a case-by-case basis against the current position. Agree home office in writing and record the days.

Social security and pension provision

If your employees work exclusively in Switzerland, they are covered by Swiss social security: you process AHV/IV/EO, unemployment insurance, accident insurance and – above the entry threshold – the pension fund just as for all other employees. If they become fully unemployed, Italy is generally responsible for benefits.

Health insurance: KVG or Servizio Sanitario Nazionale

Within three months of starting work, cross-border workers from Italy choose between Swiss health insurance under the KVG and the Italian health system. The decision is generally permanent.

Italy has also introduced a health levy for certain cross-border workers insured in the Italian system. How it is implemented and whether the employer plays any role should be checked against the current position. Make new employees aware of the deadline early.

Checklist: hiring cross-border workers from Italy

These points should be clarified before the first payroll:

• Check the municipality of residence: inside or outside the 20-kilometre zone?
• Check the place of work: Ticino, Graubünden or Valais?
• Clarify and document existing or new cross-border worker status
• Apply for the G permit at the migration office
• Set up the withholding tax rate matching the status
• Register with the compensation fund, pension fund, accident insurer and daily sickness allowance insurer
• Agree home office in writing and record the days
• Inform employees about the health insurance deadline

Common mistakes with cross-border workers from Italy

Since the new agreement, we have seen these mistakes particularly often:

• Existing or new cross-border worker status not checked or not documented
• Existing status carried over unchecked after a change of job
• Municipality of residence outside the 20-kilometre zone not spotted
• Home office above 25 per cent without checking the consequences
• Change of residence not updated

How PROFINIO supports you with cross-border workers from Italy

For every hire, we check whether the person counts as an existing or new cross-border worker, set up the appropriate withholding tax rate and keep track of home office days and changes of residence. If you wish, we take over the entire payroll administration. We advise your employees in Italian on health insurance and their tax return in Italy.

Frequently asked questions