PAYROLL
I employ a director who works abroad – do I have to withhold social security and taxes on his fees?

The answer is yes and no, or at least partially!

J’EMPLOIE UN DIRECTEUR QUI RÉSIDE À L’ÉTRANGER

Although the relationship between the director and the company is mainly qualified as a mandate and not as an employment contract, his fees are considered as coming from the salaried activity from a tax point of view. Thus, the fees are subject to withholding tax to be paid by the Swiss employer if the director is not a Swiss resident.

However, if his usual place of work is not in Switzerland either, the remuneration may only be subject to withholding tax to the extent that it covers his position as an administrative or supervisory body, e.g. signing the financial statements, preparing the general meeting or other inalienable rights of the board of directors. A clear and reliable division between the fees of a supreme body and the salary received as an employee, even if it is a managerial employee, is also necessary.

Depending on the residence status of the director, his place of work and his nationality, but also on his affiliation to compensation funds abroad and the rate of work carried out for the Swiss company, it may be necessary to collect and pay social security contributions from his salary or fees.

It is the Swiss employer’s duty to find out the situation of the employees and to determine whether withholding tax or social security contributions are necessary. Thus, it is recommended to analyse the situation clearly in order to avoid fines, interest on arrears and unforeseen charges.