Pitfalls with mobile employees and global employee participation program

Case 1: Tax residency and methods to avoid double taxation

1. facts of the case

Hubert Blum, aged 61, has always lived with his wife, who is not gainfully employed, in his detached house (residential property) near Stuttgart. The couple have adult children who no longer live in the same household. Both spouses have only German citizenship.

On 01.01.2018, Mr. Blum took up 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 when he started work. During the week, Mr. Blum usually stays in Lucerne; at weekends, he returns to the family residence in Germany once or twice a month at most. Hubert Blum has held a "C" residence permit in Switzerland since 01.01.2023. He was subsequently released from the withholding tax obligation by the Lucerne tax office and transferred to the ordinary assessment procedure. In spring 2024, he submitted a corresponding 2023 tax return to the Lucerne tax office.

Hubert Blum is very wealthy and, among other things, holds an interest in a German Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft (hereinafter "Co. KG"), which operates a business in Germany together with local staff. During the 2023 assessment procedure, the Lucerne tax administration is requesting an income tax exemption for the profit of the Co. KG as part of the international tax separation (in Germany, however, no taxes have been levied on the operating profit to date).

On 01.04.2024, Mr. Blum closed his pillar 3a account, whereupon the Lucerne tax administration sent him the corresponding assessment orders including tax invoices for the lump-sum withdrawal.

Questions

• Determine the type of tax affiliation and the scope of tax liability in Switzerland in accordance with Swiss domestic law.
• Which principles and standards are used to determine tax residency under international law or the applicable double taxation agreement (DTA)?
• What practical risks arise in connection with the release from the withholding tax obligation as a result of obtaining a C permanent residence permit - and is there a need for action in this context?
• Is it permissible for the tax authorities to require proof of actual taxation in Germany for the income tax exemption?

‍

Case 2: International employee participation programs

1. facts of the case

Alpha AG, a Zurich-based technology start-up, was founded a year ago and has just completed its first round of financing. It wants to retain its key employees working in Switzerland and abroad in the long term. The active employees in question are based in Switzerland, Germany, the UK and the USA.

Foreign employees are employed via an employer of record (EOR) in the respective countries. Direct employment by the Swiss company, Alpha AG, is deliberately avoided. The aim of Alpha AG's main shareholders is to sell the company to a third party at a later date (exit).

The planned employee participation program provides for a vesting period of four years, with a one-year cliff period. At the end of the cliff period, a monthly pro rata vesting takes place. If an employee leaves the company (termination of employment), all non-vested shares are forfeited, while shares that have already vested can be exercised within a defined period. Both employee shares and employee options are taken into consideration.

Questions

1. What are the typical framework conditions for employee participation programs in Swiss technology companies?
2. What is an Employer of Record (EOR) and what are the advantages and disadvantages of this form of employment?
3. What are the tax implications for employee shares in the present constellation?
4. What are the tax implications of employee stock options in the present constellation?

‍

Case 3: Virtual participations

1. facts of the case

Beta SA, a growing start-up based in Zug, would like to retain its employees in the company in the long term. As the owners of Beta SA do not want additional shareholders or the associated administrative effort, a virtual participation program is being introduced. This enables employees to participate virtually in the success of the company and to benefit financially in the event of a future sale (exit) or dividend payments.

Questions

1. What are the main features of virtual investments compared to traditional forms of investment such as shares or options?
2. What are the advantages and disadvantages of virtual shareholdings for companies and employees?
3. What are the tax implications for virtual participations in Switzerland, in particular a) on acquisition; c) during the vesting period, d) in the event of a cash payment on exit?
4. What are the tax implications of virtual participation programs for employees abroad?

‍

Case 4: Digital nomads / secondments / remote work

1. facts of the case

Consultant AG regularly sends employees abroad due to the international nature of its business activities. In addition, the company has noticed that more and more employees are expressing a desire to work remotely or abroad. Specifically, Consultant AG intends to approve the following foreign assignments and will submit them to you in advance for assessment and comment:

1. Employee David, single, trustee and tax expert in International Tax, is moving to Vienna at the beginning of November 2025 for three years to study at the University of Vienna. Depending on the situation, an extension or subsequent studies are possible. It is planned that David will continue to work for Consultant AG (from his home office in Vienna) on a 50% part-time basis during this time. His apartment in Switzerland will be terminated and there will no longer be any connection to Switzerland after his departure.
2. Erika, single, internal service employee, is planning a six-week stay in Belgium at her parents' house in the fall of 2025. Erika would like to work remotely for Consultant AG for three weeks and take the remaining three weeks as paid vacation.
3. For a client project in Saudi Arabia, Consultant AG is sending employee Markus (married) to Saudi Arabia as of 01.07.2025 for a limited period of two years. His wife and underage children will remain in their home in Switzerland. They will also return to Switzerland on a regular basis.

Questions

• In which country is the earned income subject to income tax (employee level)?
• What direct tax risks do these foreign activities entail for Consultant AG (employer level)?