Border taxes, no stranglehold on low incomes (cross-border guide)

Context

The New Frontier Agreement was signed on 23 December 2020 and entered into force on 1 January 2024. This agreement avoids double taxation in Italy with the tax credit. For residents in the Canton of Ticino, this means they can enjoy greater financial flexibility without having to fear suffering a fiscal stranglehold.

How does the tax credit work?

The tax credit is a tax benefit that allows frontier workers to deduct the tax paid in Italy from their income tax return in Switzerland. For example, if a frontier worker residing in Lugano (CH) paid CHF 10,000 in taxes in Italy for 2023, he can deduct this amount from his income tax return in Switzerland for 2024. This means that his taxable income in Switzerland will be reduced by CHF 10,000, resulting in a large reduction in the taxes payable.

Concrete example

Suppose a frontier worker resident in Bellinzona (CH) has an income of CHF 80,000 and has paid CHF 20,000 in taxes in Italy for 2023. If you apply the tax credit, your taxable income in Switzerland will be reduced to CHF 60,000, resulting in a reduction in taxes payable of CHF 4,000.

Regulations and amounts

The New Frontier Agreement is based on the following regulations:

• Border agreement between Switzerland and Italy, signed on 23 December 2020
• Federal Income Tax Act of 15 December

Operational details

Switzerland has decided to apply the tax at source only for border workers, thus avoiding double taxation in Italy. The old frontier workers will have a transitional regime until 2033.

The decision of the Federal Council provides for the application of the tax at source for border workers from 2024. This means that individuals residing in Italy who work in Switzerland will be subject to Swiss tax, while individuals residing in Switzerland who work in Italy will not.

Border workers with low incomes will be exempt from this tax, as confirmed by the Federal Council. This means that individuals earning less than CHF 10,000 per year will not be subject to the tax.

Here is a concrete example:

• A border worker resident in Italy who works in Switzerland earns 20,000 Swiss francs per year. You will have to pay the Swiss source tax of 10%. - Another border worker residing in Italy who works in Switzerland earns 8,000 Swiss francs per year. You will not be subject to Swiss Source Tax.

Switzerland has decided to apply the tax at source to avoid double taxation in Italy. This means that individuals will not be subject to double taxation for the same income.

Here is a concrete example:

Useful tools to protect your net income

To reduce FX leakage, compare CHF-EUR exchange options and banks for cross-border workers.

Key points

Action

• Check the calculator to learn how to calculate taxes
• Check your situation with the Revenue Agency
• Additional information on the Frontaliere Ticino website

Border rates, no stranglehold on low incomes

If you are a cross-border worker in Ticino, it is important to understand how taxes work and how you can avoid paying too much. The good news is that low incomes aren't subject to a high tax stranglehold.

To calculate your taxes, you can use the calculator available on the Frontaliere Ticino website. This tool will help you understand how taxes apply to your income and how you can optimize your situation.

The legislation regulating border taxes is the Federal Law of 14 December 1990, which establishes the rules for the taxation of the incomes of cross-border workers. This law provides that the incomes of frontier workers are taxed according to their place of residence, rather than their place of work.

For example, if you are a frontier worker living in Bellinzona and working in Lugano, your taxes will be calculated based on your residency situation in Bellinzona. If you have an income of 40,000 Swiss francs, your taxes will be around 3,200 Swiss francs, according to the 2022 taxation tables.

It is important to note that taxes may vary based on your individual situation and place of residence. For this reason, it is important to consult the