In the second part of our series "Business trips in Switzerland and the EU", we showed you why it is better to simply apply for the A1 certificate than to spend too much time worrying about the supposedly unnecessary administration. In this section, you will learn about the key aspects of income taxes for international business trips.

Many business travelers are familiar with the rules in a simplified form. We will point out when you can travel with peace of mind and which international business trips could cause tax problems. In such cases, a thorough case-by-case examination is often necessary, as there are numerous tax peculiarities depending on the employee's personal and professional background as well as the destination country.

183-day rule

The most important rule for international business trips is the so-called 183-day rule, which is often quoted in everyday business travel only in the shortened version and sometimes with different day specifications (180 days, 182 days, etc.). The exact wording of the 183-day rule is determined by the applicable double taxation agreement.

The legal text is much easier to understand if the main elements of the 183-day rule are already known. In simple terms, this means that the employee is only liable to pay tax in the country of residence and is not liable to pay tax in the country where he is on business trips if all of the following three conditions are met:

  • Less than 183 days per calendar year / tax year / 12-month period in the foreign country of assignment, and
  • No salary payment in the country of assignment, and
  • No on charging of costs to a permanent establishment or fixed base of the employer in the country of assignment

Or even simpler: If the employee does not spend more than 183 days (including periods before and after the trip, vacation, etc.) in the foreign country in question, no salary is paid abroad (not even partial payments) and no costs are passed on to a permanent establishment of the employer abroad, the employee is NOT liable for tax abroad. This is likely to be the case for many business trips.

De facto employer

However, tax liability for international business trips is not quite so simple after all. While in the past it was possible to avoid tax liability abroad by carefully applying the 183-day rule, this is no longer so easy nowadays. Several countries have already introduced the theoretical construct of the de facto employer.

This means that the business traveler is liable to pay tax abroad despite the correct application of all three points of the 183-day rule if there is a so-called de facto or economic employer.

The exact definition of a de facto or economic employer varies by country. However, a de facto employer is generally assumed to be the case if the employee is significantly integrated into the foreign organization or has significant decision-making powers for the foreign company.

Conclusion

This brief excursion into the world of income taxes for international business trips already shows that the tax issues are complex due to the "hidden" sub-items of the 183-day rule (i.e. no cost recharging and no salary payment abroad) and must be regularly examined in more detail.

The construct of the de facto employer, which is being applied by more and more countries, also contains several pitfalls that must be taken into account when determining the tax liability for business trips abroad.

A good knowledge of the general rules of tax liability for work-related trips abroad is, therefore, necessary both for the employees themselves and for HR managers. This tends to create an awareness for special cases in which the tax liability for business trips needs to be clarified in greater detail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.