1. Facts
Hubert Blum, 61, has always lived with his non-working wife in their single-family home (owner-occupied) near Stuttgart. The couple has adult children who no longer live in the same household. Both spouses hold only German citizenship.
As of January 1, 2018, Mr. Blum took a job in the canton of Lucerne (physical place of work exclusively in Lucerne), whereupon he rented a 2.5-room apartment in the city of Lucerne upon starting work. During the week, Mr. Blum generally stays in Lucerne; on weekends, he returns to the family residence in Germany no more than once or twice a month. Since January 1, 2023, Hubert Blum has held a “C” residence permit in Switzerland. Consequently, he was exempted from withholding tax by the Lucerne Tax Office and transferred to the regular assessment procedure. In the spring of 2024, he filed a corresponding 2023 tax return with the Lucerne Tax Office.
Hubert Blum is very wealthy and, among other things, holds a stake in a German limited liability company and limited partnership (hereinafter “Co. KG”), which operates a business in Germany with local staff. During the 2023 assessment procedure, the Lucerne Tax Administration is requesting, as part of the international tax allocation, that the profits of the Co. KG be exempt from income tax (however, no taxes have been levied on the operating profit in Germany to date).
As of April 1, 2024, Mr. Blum closed his Pillar 3a account, whereupon the Lucerne Tax Administration sent him the corresponding assessment notices, including tax bills for the capital withdrawal.
Questions
- Determine the type of tax residency and the extent of tax liability in Switzerland under Swiss domestic law.
- What principles and standards govern the determination of tax residency under international law or under the applicable double taxation treaty (DTA)?
- What practical risks arise in connection with the exemption from withholding tax following the acquisition of a C residence permit—and is there a need for action in this context?
- Is it permissible for the tax authority to require proof of actual taxation in Germany for income tax exemption?
1. Facts
Alpha AG, a Zurich-based technology startup, was founded a year ago and has just completed its first round of financing. It wishes to retain its key employees working in Switzerland and abroad on a long-term basis. The eligible active employees reside in Switzerland, Germany, the United Kingdom, and the United States.
The foreign employees are hired through an Employer of Record (EOR) in their respective countries. Direct employment by the Swiss company, Alpha AG, is deliberately avoided. The goal of Alpha AG’s major shareholders is a future sale of the company to a third party (exit).
The planned employee stock ownership program provides for a four-year vesting period, with a one-year cliff period. After the cliff period expires, vesting occurs on a pro-rata monthly basis. Upon an employee’s departure (termination of employment), all unvested shares forfeit, while already vested shares may be exercised within a defined period. Both employee shares and employee stock options are being considered.
Questions
- What are the typical framework conditions for employee stock ownership programs in Swiss technology companies?
- What is an Employer of Record (EOR), and what are the advantages and disadvantages of this form of employment?
- What are the tax implications of employee stock in this scenario?
- What are the tax implications of employee stock options in this scenario?
1. Facts
Beta SA, a growing startup based in Zug, wants to retain its employees long-term. Since the owners of Beta SA do not want additional shareholders or the associated administrative burden, a virtual equity program is being introduced. This allows employees to virtually participate in the company’s success and benefit financially in the event of a future sale (exit) or dividend payments.
Questions
- What are the key features of virtual equity compared to traditional forms of equity such as shares or options?
- What are the advantages and disadvantages of virtual equity for companies and employees?
- What are the tax implications of virtual equity in Switzerland, specifically a) upon acquisition; c) during the vesting period; d) in the event of a cash payout upon exit?
- What are the tax implications of virtual equity programs for employees abroad?
1. Facts
Due to the international nature of its business activities, Consultant AG regularly sends employees abroad. In addition, the company has noticed that an increasing number of employees are expressing a desire for remote work or workations abroad. Specifically, Consultant AG intends to approve the following assignments abroad and is submitting them to you in advance for review and comment:
- Employee David, single, a trustee and tax expert in the field of international tax, will move to Vienna in early November 2025 for three years to pursue a degree at the University of Vienna. Depending on the situation, an extension or further studies may be possible. The plan is for David to continue working for Consultant AG on a 50% basis during this time (from his home office in Vienna). His apartment in Switzerland will be terminated, and he will have no further ties to Switzerland after moving.
- Erika, single, an internal staff member, is planning a six-week stay in Belgium at her parents’ home in the fall of 2025. Erika would like to work remotely for Consultant AG for three weeks; she plans to take the remaining three weeks as paid vacation.
- For a client project in Saudi Arabia, Consultant AG is sending employee Markus (married) to Saudi Arabia effective July 1, 2025, for a fixed term of two years. His wife and minor children will remain in their home in Switzerland. He will also make regular trips back to Switzerland.
Questions
- In which country is the earned income subject to income tax (employee level)?
- What direct tax risks do these foreign assignments pose for Consultant AG (employer level)?