Foreigners moving to Switzerland are — at least initially —subject to the wage tax system, i.e. a tax at source deduction on their employment income. This system has significant advantages but also some pitfalls.
In many situations, the situation is rectified by the requirement to also file a tax declaration, including actual income and deductions.
Let the experts handle it for you
Per Melberg is a Managing Partner of Exactio Ltd.
The Exactio team is here to support you with professional tax and social security advisory services.
Individuals not filing a Swiss tax Declaration
If the annual employment income is below CHF 120k (Geneva CHF 500k) or if one is resident abroad (e.g. working in Switzerland as a weekly commuter), filing a tax declaration is not required (or even not possible). Often, the tax at source deducted is accepted as final burden in such a situation. This is not per se wrong, as standard deductions are incorporated in the tax tariff (e.g. insurance deduction, professional costs deduction etc.), why only in exceptional circumstances an additional tax benefit can be claimed.
Such exceptional situations are, however, not as rare as many may think.
Tax deductions that need to be requested
As mentioned, the standard deductions are incorporated in the tax at source tariff, there is no need to e.g. claim a tax refund because of the employee contributions to the OASDI system. On the other hand, there are costs that only specific individuals occur why they cannot be considered in the tariff. The most important ones are:
- Alimony payments
- Pillar 3a contributions or buy-backs to pillar 2
- Childcare costs, maybe even actual child deductions
- Costs for weekly commuting (double housing, transport
- Debt interest deductions
- Others (e.g. donations, education etc.)
If you e.g. contribute to the pillar 3a (say CHF 6'000 which can easily give you a tax benefit of CHF 1'000), you will only get the tax benefit when letting the competent authorities know. Otherwise, there is no tax impact, even worse, you will likely occur a partial double taxation as this money is subject to tax (again) at withdrawal. If there are such costs and they cannot be claimed via a tax declaration, it is important to make use of the alternative procedure all cantons foresee, the so-called "tax at source rectification" procedure.
The tax at source rectification
The aim of this procedure is to provide a simple way, how a taxation reflecting the actual financial power can be achieved. Most cantons provide on their homepage an overview what costs can be claimed and what documentation is required. As an example, the Zurich tax administration provides a form which is built up as follows:
- Personal data
- A summary of income
- List of specific deductions
All deductions that may be claimed are listed, including the information what amount is already considered in the tariff, what the requirements are in order to get the deduction and what supporting documents need to be provided.
If someone paying taxes in Zurich e.g. occurred costs for childcare ("Kinderkrippe" or similar), such costs may be claimed via the tax at source rectification procedure. There is no amount for such costs incorporated in the tariff. The tax administration requires the following documents: proof of payment, copy of birth certificate indicating names of parents, breakdown of costs.
If you identify costs that may be deducted, the request has to be filed before 31 March of the year following the tax year (e.g. 31 March 2019 for the 2018 tax year). This deadline cannot be extended (very few exceptions in specific cantons).
To claim the benefits, simply send the completed request to the tax administration enclosing the required documents. Herein, the authorities will assess the request. It may be that additional information is required, but in this event, the authorities would send a corresponding request. At some point (the process may take up to two years), the authorities will issue an assessment and make a payment to you, if your request was justified. If not, your tax burden usually just remains at the previous level.
- If you need professional help, the respective costs may increase the actual tax benefit, in particular if the costs that are being claimed are not significant. The requests are only available in the official languages of the cantons, which sometimes makes it difficult for foreigners preparing the request without help.
- Starting 2016, there is a new regime in Switzerland, cutting on the costs that may be deducted for commuting. If you own a company car, there is the risk that an additional benefit is assumed under this regime, leading to an even increased taxable income (!).
- There are additional rules which may restrict the deductibility of some of the aforementioned items: childcare costs, as outlined above, can be claimed but in many cantons only if both parents work.
If not filing a tax declaration you may miss tax benefits. This is a pity, as there is a relatively simple way to ask the authorities to verify, if you are entitled to additional tax deductions.
You should not miss this opportunity, as F.J. Raymond already said: "Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund."