Board member and social security charges
Is a member of the board of directors of your company domiciled in the EU?
Did you know that he/she may be subject to Swiss old-age and survivor’s insurance (OASI) with his or her entire worldwide income?
What are the possible problems regarding social security charges if a member exercises his or her activity in a Swiss company?
In a globalized economic world a lot of executives work in different countries. In addition to the tax related consequences also the social security implications need to be considered.
A German citizen, domiciled in Germany and self-employed as member of a supervisory board, becomes member of the board of directors of a Swiss company.
Assessment: As a member of the board of directors (BoD) his or her remuneration for his Swiss activity is subject to Swiss social security charges. Moreover, the member’s income from the activity as member of the supervisory board in Germany is also subject to the Swiss social security regime.
A Spanish citizen, resident in Spain and head of a globally active firm, becomes in addition member of the BoD of a Swiss subsidiary. Her activity as member of the Swiss BoD is unremunerated.
Assessment: In this case there is as well a risk that the respective administrative bodies will collect social security charges not only on income (if any) as a member of the BoD, but also on her income from her activity as head of the global firm.
As a member of the BoD she is generally considered to be employed in Switzerland, irrespective of the question whether or not she actively exercises her functions. Further, it is irrelevant whether the remuneration is paid to her directly or transferred to a foreign company, or whether she gets remunerated at all.
Principle of “Single Subordination”
In all of these cases the Agreement on the Free Movement of Persons (“Freizügigkeitsabkommen EU/CH”) is pertinent to determine which social security regime an internationally working person will be subjected to.
The subordination largely depends on whether a substantial part of the gainful occupation is exercised in the state where the person is domiciled. In particular, a person can only be subject to one single social security regime of an EU member state or of Switzerland; i.e. since 1 January 2012 so-called “double subordinations” are no longer possible. The social security charges are collected in accordance with the respective applicable national law.
In order to qualify the gainful occupation as either self-employed or an employed activity, the national law of that country applies where the respective activity is exercised. The application of national laws, however, may lead to diverging qualifications of the same activity exercised in different countries. For instance, a “classic example” is the activity of a member of the BoD which in Switzerland is considered an employed activity, while in most countries of the EU the same activity would be qualified as self-employment.
In most EU countries the social security charges are limited to a maximum amount. In contrast, Switzerland does not know such limitations of the charges. Given that the charges (rates) may amount up to 9.7% for self-employed activity, for e.g. a German member of the supervisory board with a salary of EUR 300’000 per year this difference in qualification may carry some weight.
The following provides an overview of the possible social security subordinations:
Employment in different countries
Employees working for the same employer in different countries have to exercise at least 25% of their occupation in their country of residence, in order to remain subject to the social security regime at their place of residence.
An employee who exercises less than 25% of his occupation in the country of residence will be subjected to the social security regime of the country where the employer is incorporated.
Employees working for more than one employer in different countries continue to be governed by the regulations of the country of residence.
Self-employment in different states
Also self-employed persons who are active in different states have to exercise at least 25% of their activity in their country of residence, in order to remain subject to the social security regime at their place of residence. A self-employed person who does not reach that limit, will be subject to the social security regime of the country where the center of the self-employment lies.
Employment and self-employment in different countries
A person who is employed and self-employed at the same time in different countries will exclusively be subjected to the social security regulations of the country in which the employed work is performed.
Hence, the provisions on the subordination of employed persons prevail, i.e. a double subordination under both regimes of employment and self-employment is not possible.