Church-Grison Frontiers: Tax Guide and Practice

Context

In brief

• New cross-border agreement effective from 1 January 2024
• Exemption €7,500 (old cross-border workers) or €10,000 (new)
• Withholding tax deducted ONLY in Switzerland
• Italian tax credit cancels double taxation

Key facts

• What: New Italy-Switzerland Cross-Border Agreement
• When: Signed 23 December 2020, effective 1 January 2024
• Ratification: Law 83/2023 (Italy, 13 June 2023)
• Regime: Transitional 2024-2033 for old cross-border workers
• Exemption old: €7,500 annually
• Exemption new: €10,000 annually
• Convention: Italy-Switzerland, 9 March 1976

A cross-border worker residing in Chiesa in Valmalenco who works in Graubünden is now in a regulatory scenario transformed by the New Cross-Border Agreement that came into force on 1 January 2024. This pact, signed on 23 December 2020 and ratified by Italy with Law 83 of 13 June 2023, completely redesigns the tax rules on employment income for those who reside in Italy and work in Switzerland.

The structure of exemptions in the New Agreement

The agreement introduces a graduated system of exemptions according to the status of the cross-border worker. Those who were already holders of a G Permit before 17 July 2023 benefit from an annual exemption of €7,500 from Italian taxable income. Those who acquire cross-border status from 2024 onwards enjoy a more generous exemption, equal to €10,000 annually. This differential reflects a desire to encourage new rights while protecting consolidated positions through a ten-year transitional regime (2024-2033). After 2033, exemptions may be subject to changes in subsequent negotiations between the two countries, with notice to the affected cross-border workers.

How the Swiss withholding tax works

The crucial element of cross-border taxation: the withholding tax is deducted exclusively by Switzerland, not by Italy. On the gross salary, the Swiss employer automatically applies mandatory contributions: AVS/AI/IPG equal to 5.3% (employee share), unemployment contributions (AD) and competitiveness (AC) of 1.1%, accident insurance (LAINF) between 0.7 and 1.5%, and payments to the LPP pension fund which vary from 7 to 18% depending on the age bracket (from the 25th year onwards). On this basis, the Swiss federal tax is calculated and withheld, already personalized based on the data communicated at the time of hiring with the cantonal authorities.

Operational details

The Italy-Switzerland Convention and the Tax Credit

The Convention to avoid double taxation between Italy and Switzerland, signed on March 9, 1976, represents the pillar that protects the cross-border worker from being taxed completely twice on the same income. In Italy, the foreign income earned in Switzerland is subject to the personal income tax (IRPEF) with progressive rates: 23% up to €28,000, 33% from €28,001 to €50,000, 43% over €50,000. However, thanks to the Convention, the Italian tax authorities recognize a tax credit equivalent to the taxes already paid in Switzerland. In the model 730 or in the income tax return, the CE section includes the amount of the Swiss withholding tax, and the Revenue Agency deducts it from the overall Italian tax liability.

The Mechanism of the Tax Credit and Its Limits

A relevant aspect: the tax credit operates with the principle of "limited credit." If the tax paid in Switzerland (for a given income) exceeds the Italian tax that would have been due on that same amount, the credit is capped at the Italian amount. The difference in favor of Switzerland is not refunded: the cross-border worker "loses" it in terms of progressivity. Conversely, if the Swiss tax is lower, the credit is full and the cross-border worker adds the Italian completion without further charges. The final result therefore depends on the actual comparison between Swiss rates and Italian IRPEF rates on the same amount.

Practical Advantages of the Exemption from the New Agreement 2024

With the entry into force of the New Agreement, the situation has significantly improved for cross-border workers. The exemption from the Italian taxable income represents a real discount on payments to the Italian tax authorities. An old cross-border worker who earns, for example, €50,000 gross annually in Switzerland, under the old regime would have declared the entire amount in Italy with the corresponding IRPEF taxation. With the exemption of €7,500, he declares only €42,500, reducing the Italian tax burden by about €1,700-€1,800 depending on the actual progressivity. New cross-border workers enjoy an even greater discount (€10,000), which would reduce the taxable amount to the same parameters at €40,000, with significant savings.

The Transitional Regime and What Happens After 2033

The regime provided by the New Agreement for old cross-border workers is transitional and expires at the end of 2033. Until that date, holders of Permit G acquired before July 17, 2023, maintain the exemptions of €7,500 annually without changes. From 2034 onwards, the amount could undergo variations (upward revisions, downward revisions, or reconfirmation) according to the negotiations between Italy and Switzerland. For new cross-border workers acquired from 2024, it is not yet clearly documented what will happen after 2033; it is likely that it will continue with the same exemptions of €10,000, but it will remain subject to bilateral renegotiation.

Swiss Pension Contributions and Pension Accumulation

The Swiss pension protection system is robust and mandatory for all employees. The first pillar (AVS — Old-Age and Survivors' Insurance) is the basic public system, financed with contributions equal to 5.3% of gross salary (employee's share). The second pillar (LPP — occupational pension fund) is legally required and varies in percentage according to the worker's age, from a minimum of 7% for the youngest (from 25 years) to 18% for the age groups close to retirement. This means that the cross-border worker in Graubünden accumulates Swiss pension rights progressively, with an "individual account" that grows every year in the insurer's database. At the time of retirement, he will be entitled to both the AVS pension and the LPP benefit based on the total contributions made.

Key points

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Practical procedure: how to start as a Church-Grison border crossing Step 1: Obtaining the G Permit The regulatory prerequisite is the G Permit (border crossing permit), which authorises daily commuting between Italy and the Canton of Graubünden. The request is usually initiated by the Swiss employer with the Grison cantonal authorities or the competent body of the canton where you found work. You need a regular employment contract, proof of domicile in Italy (in Chiesa in Valmalenco) and a declaration of intent to commute. Permit G is generally valid for 5 years, renewable with simple presentation of updated documentation. Step 2: Registration with the Federal Tax Administration Once hired, the Swiss employer communicates your personal data, the Italian domicile and the structure of the paycheck to the AFC (Federal Tax Administration), which administers the tax at source at the Swiss federal level. The AFC processes the data and determines the custom source tax rate based on estimated income and the canton where you work. From this moment on, each salary is automatically withheld according to the calculated rate. Step 3: Annual tax return in Italy Each tax year, by the end of May, you must complete the Italian tax return. If you are a resident of Chiesa in Valmalenco, you will use form 730 (if you are a pure employee) You will avoid surprises in the next statement and maximize the application of available exemptions and credits. #

Practical tools to simulate your situation Use the calcolatore di stipendio to simulate the net paycheck in Switzerland and the overall Italian tax burden. Enter the annual gross salary in CHF, select the canton of Graubünden (which determines the federal cantonal rate), specify your age group (for the correct calculation of the LPP), indicate the marital status and the number of children. The tool will show you the estimated monthly net, total tax burden and impact of the New Deal exemption. If you are considering moving to Switzerland in the future instead of staying in the Church, the comparatore Permesso G vs B helps you weigh the pros and cons of the two scenarios (border vs. Swiss resident) in terms of tax, social security and quality of life. When filling out the Italian declaration, consult an online tool for the modello 730 or contact your Caf directly to verify the correct application of the 1976 Convention tax credit and the exemption provided by the New Frontier Agreement.