On 1st January 2016, the law changed in Switzerland related to granting of the Expatriate Allowances given to contractors. Reference to revised OEXPA Law: https://www.admin.ch/opc/fr/classified-compilation/20001419/index.html
Since that date, two things changed. The first was that the Expatriate Allowance of CHF 1,500 per month is available now only to those seconded within a group to a Swiss group company (Art. 1, OEXPA Law)
“In the case of direct federal taxes, employees in management positions and specialists with special professional qualifications seconded temporarily to Switzerland by their foreign employers (expatriates) may deduct professional expenses in addition to the professional fees provided for in the Ordinance of February 10, 1993 on business expenses 2. These special professional expenses are qualified as other professional expenses within the meaning of art. 26, para. 1, let. c, LIFD.”
Therefore, the expenses (expat allowance of CHF 1,500 per month or certain actual expenses) can be claimed only by the expatriate employees who were employed abroad by their foreign employer prior to their arrival to Switzerland and who were seconded by that foreign employer to Switzerland and will return to be employed by that very foreign employer. The foreigners who come to work in Switzerland and who are employed by a Swiss payroll company which has a labour leasing licence (legal requirement) are not permitted by law to use expenses allowance as stipulated in the OEXPA Law. Instead, they must follow the standard withholding tax regime and claim only certain expenses at the end of the year in the tax return. Otherwise, these expenses would represent a taxable income.
Secondly, there was a very significant tightening up of the expenses that could be claimed (Art. 3, OEXPA Law).
“Non-deductible business expenses include, in particular:
- the costs of maintaining a permanent residence abroad;
- expenditure on housing development in Switzerland and related costs;
- additional expenditure related to the higher price level or tax burden in Switzerland;
- expenses for legal and tax advice.”
Therefore, it is now not possible for a labour-leasing company to accept expense vouchers from contractors and settle them while deducting these expenses from the remuneration paid to the contractor. This action is breaching the law relating to OEXPA and represents a fraud in both taxation and social security contributions. The written confirmation of the authorities is obtained to confirm the mentioned. Here are letters and their translations we have received from the Zurich and Vaud tax authorities.
The answer from Vaud Tax Office about applying an expatriate allowance or expenses for the contractors who are temporarily working in Switzerland and are employed by a labour leasing company. From: (hidden for privacy purposes) Date: 2017-09-01 … comme nous vous l’avons communiqué lors de notre entretien, les nouvelles dispositions de l’OExpa conditionne la validation du statut d’expatrié aux seuls collaborateurs détachés par leur employeur avec domicile à l’étranger. Dans cette mesure, les dispositions de l’Oexpa ne sont pas applicables dans le domaine de la location de personnel. Etat de Vaud – Département des finances et des relations extérieures Administration cantonale des impôts Route de Berne 46, CH-1014 Lausanne
“… as we have said in our meeting with you, the new provisions of the OEXPA is given only to those who have a confirmed expatriate status – only those employees seconded by their employer which must be based abroad. To this extent, the provisions of the OEXPA are not applicable in the field of labour-leasing.”
The answer from Zurich Tax Office about the question about the practice of a Zurich based company which promises deduction of expenses to foreign contractors who are not expatriates seconded by foreign companies.