Export Knowhow

When exports import problems

Positive trends abroad provide many opportunities for exporters. The fact that border checks for travellers have vanished in Europe gives the impression that there are no barriers to business either. But that’s the wrong conclusion to draw.

Mann bei der Computer-Nutzung

Anyone who actively acquires clients, makes decisions for the company and moves into new markets, is not just sending goods over the border. Export companies are increasingly offering their products with services attached. To do this they deploy staff internationally. On every trip abroad, those employees are in another sovereign state and subject to the laws of that country.

Take the example of a head of sales who regularly visits clients in Germany. She is resident in Germany and works in Basel, close to the border, but she spends one day a week working from home for the Swiss company. Let us take a closer look at that: she is a cross-border commuter and in some circumstances can be subject to social insurance and tax in both Switzerland and Germany.

How does social security work for cross-border commuters?

To put it simply, the rule between Switzerland and the EU/EFTA is that staff are subject to the social insurance rules of their country of residence if they perform at least 25 percent of their work in the country of residence. Working at home one day a week, as in our example, already comes to 20 percent. If you add on visits to clients in Germany, the 25 precent threshold is easily exceeded. The employer will now (unwillingly) have to contribute to the social insurances in the employee’s country of residence, resulting in consequences for potentially higher amounts, correct reporting and liabilities for this. The “wrong” assessment can have consequences when insurance benefits have to be paid.

Home office as a place of business

If the employee works for her employee from home, this raises the question of whether a home office becomes a place of business (permanent establishment) for the employer. Double taxation treaties and the OECD set certain minimum conditions for a permanent establishment, but a home office can meet these already. Several countries definitely take this view. The employer has a place of business for tax purposes at the location of the home office if the conditions are met. Hence, the employer has to submit a tax return at this location and is liable for tax on the profit generated allocated to thatplace of business.

Income tax and withholding tax obligations

Increasing activity in Germany may mean the loss of cross-border commuter status. The employer then has to deduct withholding tax at a different rate. With a permanent establishment in Germany comes the obligation to deduct income tax in Germany as well.

Our example raises several issues. Dealing with these proactively can avoid problems later. It is worth noting that similar issues arise when actual services are executed abroad.

  • Do employees outside Switzerland have to pay tax, and how much does this cost?
  • Are they insured under the correct social insurance system?
  • Should they be provided with an apartment or just a hotel room?
  • Does the activity abroad have to be reported?

In our experience, activities abroad often creep up unnoticed and so stay below the radar for those concerned. It is just the normal course of business that triggers the increased presence abroad. Sometimes issues only emerge years later, when there is an external audit by the authorities for example, or social insurance has to pay a benefit. This is distinct from traditional assignments. With these, everyone is well aware of the full range of problems and there are established processes in place.

Handy tips for dealing with staff abroad

One key final point is this: the authorities have become more sensitive in recent years. Exchanges are increasingly common or countries require registration and reporting, with painful fines for non-compliance. It therefore seems necessary to closely supervise foreign activities right from the start and to develop an awareness of the issues that come up.

Employees can be given rules on how often they are permitted to be abroad, what they can and can’t do (mandatory dos and don’ts) and instructed to record all days spent working abroad in their country of residence. The potential risks of increased activity abroad should be analysed at the earliest stage possible. We recommend exporters investigate the administrative steps required in other countries. That way, exports will not import problems.

Share

Official program