CROSS-BORDER WORKERS: NEW REGULATIONS BETWEEN ITALY AND SWITZERLAND STARTING IN 2024

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Switzerland has always been a traditional destination for cross-border workers who have found and continue to find employment in the traditional sectors of commerce, industry, and hospitality, but also, particularly in Ticino, in highly specialized fields such as banking, consulting firms, or professional practices. The cross-border worker status allows these individuals to receive a Swiss salary, benefiting from higher amounts, while maintaining residency in Italy and remaining subject to the Italian healthcare system.

As mentioned, this matter is governed by bilateral agreements between Italy and Switzerland, specifically:

1) Agreement between Italy and Switzerland of October 3, 1974, on the taxation of cross-border workers;

2) Agreement between Italy and Switzerland signed on December 23, 2020, intended to replace the 1974 Agreement.

Between 2014 and 2015, Italy and Switzerland began negotiations for a new Agreement on the taxation of income from employment earned by cross-border workers. This new Agreement, intended to replace the old 1974 Agreement, was signed on December 23, 2020, and will come into effect on January 1, 2024.

The 2024 Agreement clarifies two aspects that were sources of doubt and interpretation under the previous Agreement:

  1. Article 2, letter a) defines the territorial scope of application, specifying that, for Switzerland, the “border area” includes the Cantons of Grisons, Ticino, and Valais, and for Italy, the Regions of Lombardy, Piedmont, and Aosta Valley, as well as the Autonomous Province of Bolzano, specifying the 20 km limit from the border area with a detailed listing of the relevant Cantons and Italian Regions for qualifying as a cross-border worker;
  2. Article 2, letter b) defines, unlike the previous 1974 Agreement, the notion of a cross-border worker by specifying that such a term applies to: I) individuals who are fiscally resident in a municipality whose territory is wholly or partially within the 20 km zone from the border with the other contracting state; II) individuals who perform employment activities in the border area of the other state for an employer residing, a permanent establishment, or a fixed base in the other state; iii) individuals who, in principle, return daily to their main residence in the state of residence, establishing that the status does not lapse if the person does not return to their residence for a maximum of 45 days in a calendar year, excluding days of vacation and illness.

Other significant innovations compared to the previous 1974 Agreement include:

  • Introduction of the principle of reciprocity regulating the treatment of Italian workers in the Swiss border Cantons and Swiss workers who work in the Italian border Regions, whereas the previous  Agreement solely regulated Italian workers working in Switzerland;
  • Establishment of a shift from exclusive taxation of income earned in Switzerland in the source state, i.e., the Swiss Confederation, to concurrent taxation between the source state and the state of residence. Specifically, according to Article 3, paragraph 1 of the Agreement, income from employment earned by cross-border workers is taxable in the source state up to a maximum of 80% of what is due based on personal income taxes, including local taxes, while the state of residence of the worker taxes the entire amount, ensuring the elimination of double taxation according to the International Convention between Italy and Switzerland;
  • Article 7 of the new Agreement provides for specific administrative cooperation with the introduction of automatic annual information exchange. The state where the work is performed, in this case Switzerland, will transmit relevant information for the taxation of the cross-border worker to the worker’s state of residence, Italy, by March 20 of the following year;
  • The annual tax exemption threshold in the cross-border worker’s state of residence is increased from € 7.500 to € 10.000. Additionally, family support payments provided to cross-border workers by foreign social security institutions are not subject to income tax (IRPEF) in the state of residence of the cross-border worker, and contributions for early retirement category, borne by cross-border workers for foreign social security institutions, are deductible. These provisions also apply to cross-border employment relationships between Italy and Switzerland.