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CONVINUS Global Mobility Insights NEWSLETTER Frühling / Spring 2023

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Global Mobility Insights - Frühling / Spring 2023 Managing Directors working internationally: Navigating Tax and Social Security Challenges in Germany and Switzerland Author: Norma Reynov, CONVINUS (Switzerland) The issues of taxes and social insurance are complex for managing directors working across borders between Germany and Switzerland. Numerous - initially contradictory - regulations do not make it any easier. And there is hardly one case like the other. In our consulting practice, we are therefore often confronted with very specific questions concerning the tax liability and social security status of internationally active managing directors. In the following article, we will explain the particularities of managing directors who live in Switzerland and work in Germany (or vice versa). Special tax aspects for managing directors living and working internationally in Germany and Switzerland The assessment of the tax liability of internationally working managing directors can constitute a considerable challenge. From Switzerland's perspective, the complexity of determining the tax liability arises in particular in cross-border situations with Germany. In contrast, the tax regulations for the deployment of managing directors from or in other countries are much easier to assess. In most cross-border situations between Switzerland and Germany, the so-called 183-day rule is circumvented by the regulations for executive employees and is consequently not applicable for managing directors. Senior executives In relation between Germany and Switzerland, managing directors (i.e., senior executives) are in general only taxed in the company's country of domicile. This means that senior executives of Swiss companies who live in Germany are taxed on their employment income for their activities in Switzerland even if they occasionally work in their country of residence, Germany, or third countries. 34

Global Mobility Insights - Frühling / Spring 2023 This special rule of the double taxation agreement (DTA) between Germany and Switzerland is particularly attractive for managing directors with German residence, as they can avoid the high German taxes and benefit from the lower Swiss taxes despite occasionally working in Germany and other countries. This is particularly true for managing directors and other senior executives, as their income is often higher than that of other employees and thus also incurs higher taxes. In the double taxation agreement (DTA) between Germany and Switzerland, the term executive employee is strictly defined. According to Article 15 (4) of the DTA, only board members, managing directors, directors and authorised signatories are considered executive employees. It is also mandatory that the person is entered in the commercial register with power of attorney. In addition, the procuration may not be contractually restricted. The German tax authorities regularly check whether there is an employment contract with the Swiss company showing that the person is performing a managerial activity. Examples: A) A manager who is registered in the Commercial Register is not automatically considered a senior executive/manager for the purposes of the DBA, as he or she does not meet the exact wording ("board members, managing directors, directors and authorised signatories"). B) A "marketing director" is considered an executive employee according to the wording of the DBA. However, if he is not registered in the Commercial Register, he has no right to make use of the taxation as an executive employee at the registered office of the company due to the special regulations. Residence in Germany & Managing Director for a Swiss Company If you are resident in Germany and work as a managing director for a Swiss company, all working days are generally subject to taxation in Switzerland, unless you are a genuine cross-border commuter. Initially, it does not matter whether the workdays are performed in Switzerland, Germany or third countries. Managing directors residing in Germany who meet the 35

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