Taxation in Switzerland A tax guide for foreigners and expats

Switzerland is known for its low taxes compared to other countries in Europe and the rest of the world. But the tax burden that is imposed on you heavily depends on the place of your residence.
Since Switzerland is a federal state, you are taxed on three jurisdictions (federal, cantonal and communal).
 
This means that for a married couple with a taxable income of CHF 100,000, the tax liability can range from CHF 7,530 to CHF 19,750 depending on where in Switzerland that couple lives.

 

 

What does it mean to be a Swiss tax resident?

According to Swiss tax legislation, you are tax resident at the place where you intend to stay permanently, and which determines your center of your personal and professional interests. Additionally, you would also be considered as resident for tax purposes if you remain in Switzerland for a protracted period of more than 90 days, or 30 days if performing a gainful activity.

In practice it can be said that if you hold a Swiss residence permit (L, B or C permit) and/or are registered as a resident with the local authorities, you are considered a tax resident based on domestic legislation.

However, international double tax treaties may overrule domestic legislation.

As a Swiss tax resident, you are subject to tax on your worldwide income and wealth (so-called unlimited tax liability). Whereas all taxable income and wealth must be declared, certain types of income or wealth are exempt from Swiss tax such as income and wealth from real estates located abroad.

If you qualify as a Swiss tax non-resident based on domestic legislation or international tax conventions, you are only subject to Swiss sourced income or wealth (so-called limited tax liability).

 

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.

 

Why do I have a payroll tax withholding deduction?

If you are a foreign individual without C-permit status working for a Swiss employer, you are generally subject to payroll tax withholding also known as "Quellensteuer" in German or "taxation à la source" in French. The payroll tax withholding is levied by the Swiss employer on a monthly basis and includes federal, cantonal and communal income tax. The payroll tax rate also considers your tax status, i.e. single, married or registered partnership, the employment status of your spouse/registered partner, dependent children and registered religious affiliation, and certain lump-sum tax deductions.

The payroll tax withholding may be your final tax liability unless you are entitled to claim additional deductions such as pillar 3a funds contributions, alimony payments etc. In order to benefit from these deductions, you need to request a rectification of the payroll tax withholding which, in most cantons, needs to be submitted no later than end of March of the year following the tax year without the possibility for extension

 

Do I need to file an annual income and wealth tax return?

In other cases, the payroll tax withholding is not your final tax liability and you are required to file an annual income and wealth tax return if one of the following circumstances apply:

  1. Obtaining permanent residence status (C permit) or you are married to a Swiss national or a C permit holder
  2. Annual gross salary of more than CHF 120,000 (CHF 500,000 for Geneva)
  3. Other substantial taxable income or wealth that is not subject to Swiss payroll tax obligation (i.e. investment income, real estate income etc.)

Any payroll taxes withheld throughout the year is credited against your final tax liability once your tax return is assessed by the tax authorities.

The deadline to file the tax return is at the end of March of the year following the tax year (subject to cantonal exceptions) and extensions are generally granted, if requested on time.

The tax return needs to be filed with the cantonal or communal tax authorities of your residence.

 

What do I need to report in my tax return?

In Switzerland the principle of family taxation applies. This means income and wealth of your spouse/registered partner and your dependent children must be declared in one tax return. There is no option for a separate filing status.

You are required to report worldwide income such as employment income, investment income, real estate income etc. Only a few income elements are exempt from income tax such as capital gains on movable assets or casino gambling winnings etc., albeit exceptions may apply.

Next to the income that needs to be reported, you are entitled to claim certain deductions. The deductions are usually divided into income-relating, standard and social deductions. Different limitations may apply based federal and cantonal regulations.

Unlike in many other countries, Switzerland imposes a wealth tax on assets held at the end of each tax period, i.e. calendar year. Therefore, you are required to report any taxable assets such as bank accounts, investments, real estate etc. Some assets are tax exempt like qualifying pension funds, household goods etc. Since only the net assets are taxable you are entitled to deduct any outstanding debts such as mortgages, loans etc. from your taxable assets.

 

Author: Per Melberg

Per Melberg is a Managing Partner at Exactio Ltd., a Swiss based advisory company that is specialized in providing professional tax and social security advisory services to individuals living and working in Switzerland. He has lived in Switzerland for more than 20 years working with international staff all over the world. He is dedicated to use all his experience supporting mobile individuals and their families moving to and from Switzerland.


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