Latest tax and social security developments regarding home office

With the COVID-19 pandemic, home office has become an established method of work for companies nationally and across borders. While it is often highly appreciated by employees, it also poses some risks for employers. Home office can potentially establish a permanent establishment. The same risk exists in an international context.

In this area, in addition to corporate tax considerations, social security aspects also need to be taken into account. The Swiss Tax Conference ("SKK") has published an analysis on home office and the potential establishment of a permanent establishment.

The SKK has concluded that, in most cases, home office for employees does not constitute a permanent establishment, for the following reasons:

The good news from the SKK analysis is that the tax risk of a permanent establishment in an intercantonal context is relativized for employees in a national setting. However, each case needs to be examined and assessed individually. For example, managing directors who primarily work from home can establish a permanent establishment at the place of activity, particularly in small-scale situations where operational management is in the hands of a single person.

Regarding employees, from a tax and social security perspective, when a lump-sum compensation for home office is paid (since 2022 after COVID-19), the absolute amount of compensation is checked, as well as whether the home office is voluntary or mandated. As long as the home office is voluntary, any amount can be agreed upon. In the case of forced home office, the lump sum must, on average, cover the expenses.

Typical acquisition costs during the home office period cannot be claimed for tax purposes by employees (e.g., travel expenses, meals outside the home). Under certain conditions, the costs for a dedicated home office can be deducted.

The COVID-19 agreements concluded with neighboring countries have become void. Regarding the issue of a corporate permanent establishment, the same criteria generally apply as in domestic law (fixed place of business, business activity of the company). Home office exceeding 40% can jeopardize the status of cross-border workers. If cross-border workers spend more than 49.9% of their individual working time in a foreign home office, this establishes a social security contribution obligation for the Swiss employer in the residence country (EU/EFTA) of the cross-border worker. Therefore, home office for cross-border workers should only be allowed up to 20% of their working time. Due to the individual assessment and the far-reaching consequences of tax liability abroad, a tax clarification of home office practices regarding cross-border workers is recommended, especially if more than one day of home office per week is granted.