Taxes for expats in Switzerland

After speaking about expat taxes in numerous countries, including  ThailandSouth Korea and Japan,  GermanySingaporeFrance and the Philippines, this article will speak about Switzerland.

Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for firms and on capital gains taxes.

Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.

If you are looking for portable expat tailored investment solutions, which is what we specialise in, you can contact me on this form or via WhatsApp on the screen.

Often it is far more tax-efficient to invest overseas, in a portable structure, as an expat, as opposed to sending money home.

Introduction

Switzerland was formed in 1291 as a union of three states and became an independent country in 1815.

The constitution, passed in 1848, does not allow the sending of troops to participate in foreign wars. The country remained neutral in conflicts around the world, including both world wars.

Switzerland did not become a member of the United Nations until 2002 and is not a member of the European Union.

Switzerland is a small mountainous country located in central Europe. This landlocked country the size of New Jersey sits between France and Italy. It also shares borders with Austria, Germany and Liechtenstein.

Most of the population lives on the plateau, which lies between the high Alps in the south and the Jura mountains in the north.

The mountainous area in the south is sparsely populated. Switzerland is one of the richest countries in the world. The Swiss are known for their watches and clocks.

Switzerland does not have a single official language. People speak one of several languages, including Swiss German, French, and Italian.

Switzerland is a very great place to live, to work and to study, it a very popular country among many expats and there are thousands of people who prefer to move to Switzerland due to a lot of personal or financial reasons. 

Switzerland is particularly safe for expats, as well as being politically and economically stable, but high prices and unfriendly locals pose problems. 

Data from the Swiss Federal Statistical Office showed that there are currently over 2.1 million foreigners living in the country, up 2.5% from 2016. This accounts for almost a quarter of the country’s permanent population. With so many foreign emigrants working in the country, the question arises: “Where do they live?”

While it largely depends on where the job is located, expats do not lack choice when moving to Switzerland as the country offers a wide range of areas, each with their own unique offerings.

Switzerland has anything from city life to quieter countryside surrounded by nature. Unsurprisingly, Switzerland’s largest cities and economic centers are hot spots for expats.

Although the canton of Zurich is slightly more expensive than other areas, it is perhaps the most popular destination for expats as it is home to the country’s economic center in the city of Zurich. Indeed, the city was ranked # 2 on Mercer’s 2017 Quality of Life Index and is rich in culture, history and vibrant architecture that attracts expatriates. 

On a more leisurely level, the city offers a variety of options to cater to expats’ idle and leisure needs, with plenty of bars and restaurants in the Old Town, which is also popular with tourists.

It also offers excellent transport links to the surrounding areas of Canton and the major cities of Switzerland, as well as other cities such as Amsterdam and Munich.

In addition to the city, the canton has a number of towns and villages, many of which offer larger housing options at a more affordable price compared to the center of Zurich.

Now you probably have an idea of the expat statistics of Switzerland, a lot of people move to Zurich and other cities to work or study, and which is not surprising, they pay taxes.

Yes, today we’re going to discuss all the types of taxes that every resident, expat living in Switzerland have to pay. 

Paying taxes may seem a not necessary thing, but everyone should know and realize that the taxes he/she pays is the main source of their country’s government and before coming to the main topic, let’s see some reasons why should every resident pay taxes:

Helps build a nation

The cost of maintaining an entire country, especially one as powerful and populous as Switzerland, is enormous.

It is through the taxes you pay that the government can carry out civil operations. In other words, without taxes, the government could not run the country.

Income tax is one of the largest sources of income for each government. If people start to think that income tax is a burden and will not pay it, it will directly affect the growth of the nation, and will also lead to social collapse.

Social security programs

From employment programs, home loan subsidies, cooking gas incentives and pension schemes, each government has launched several programs to help all different walks of life.

These schemes benefit millions of Swiss residents and by paying your income tax, you play your part in the success of these schemes, as well as giving the government the opportunity to work on more social security schemes and programs.

Improving health care and education

A significant part of the collected taxes goes to improving health care in the country.

There are government hospitals that offer medical services for free or at minimal cost. Over the years, the quality of services provided by public hospitals has improved rapidly, and this has only happened due to the payment of taxes by taxpayers.

Similarly, there are public schools with negligible fees. Moreover, thousands of crores are spent annually on defense and infrastructure development. All of this ultimately helps make the country more powerful and prosperous.

You can contribute to the development of your country by paying income taxes. Instead of believing that income tax is a burden, try to understand the importance of income tax, and you will see the different roles that your money plays in the development of the country.

By this you can be a responsible citizen and always pay your income tax on time, because it is through tax payments that our country can keep up with other developed countries and grow further.

More about taxes

If you are a foreigner living and working in Switzerland, you are generally required to pay Swiss taxes. However, when filing your Swiss tax return, you can also claim certain tax charges and deductions.

The Swiss tax system is quite complex due to Switzerland’s federalist structure. There are 26 cantons and about 2,250 municipalities that levy their own taxes on income, wealth, inheritance and property gains.

Now we will try to explain the tax system and tax rates in the country. With all the details this article will be a complete guide to taxes in Switzerland and the Swiss tax system, including income tax rates, income tax calculations and how to claim Swiss tax refunds. 

Who needs to pay Swiss taxes?

Individuals, resident or temporary residents of Switzerland are subject to unlimited Swiss tax obligations. The same applies to legal entities resident in Switzerland. This means that Swiss taxes apply to income and assets around the world.

Limited tax liability applies to non-residents and companies in economic relations with Switzerland. In these cases, Swiss tax is levied only on certain items of income originating in Switzerland.

Place of residence – a place where a person stays with the intention of settling on a permanent basis; thus, it is the center of their personal and business interests.

A person is a resident for tax purposes if he stays in the country for a long period; usually it is 90 days (30 days if they work) even if they don’t work. Companies are considered resident if their registered office or actual administration is in Switzerland.

What Swiss taxes apply?

Switzerland imposes taxes on income and wealth (direct taxes) and on goods and services (indirect taxes).

In addition, most cantons levy inheritance and gift taxes in Switzerland (although spouses and direct descendants are usually tax exempt); this is a tax on income from the sale of real estate, as well as some other taxes and duties.

Internationally, taxes in Switzerland are fairly moderate. Note, however, that there are significant differences between the various cantons and municipalities.

Types of taxes in Switzerland

To understand the Swiss tax system, it is important to understand that there are different tax levels. Swiss taxes are levied by the Swiss Confederation, 26 cantons as well as municipalities.

The federal and cantonal constitutions regulate the delineation of Swiss tax authority. However, the cantons enjoy all the rights of a sovereign state. They can levy any kind of tax, as long as the Federal Constitution does not leave the national government the right to do so.

There are only a few types of Swiss taxes for which the confederation requires exclusive tax powers, including:

  • Swiss VAT
  • Stamp duties
  • Income tax
  • Customs duties
  • Special consumption taxes

Consequently, the cantons have wide freedom to enact their own tax legislation. Municipalities can only collect taxes with the permission of the constitution of the respective canton.

In addition, the parishes of the three national churches (Christian Catholic, Protestant and Roman Catholic) collect church tax from their members in almost all cantons. This also applies to legal entities that are taxable in the canton.

Thus, the levels of the Swiss tax authorities are:

  • Federal level: governed by the Federal Constitution.
  • Cantonal level: ruled by the canton
  • Municipal level: run by the commune
  • Church: Members of the three national churches are taxed in almost all cantons.

Swiss income tax and property tax

Swiss residents, as well as temporary residents carrying out income-generating activities in Switzerland, are subject to unlimited (worldwide) tax liability, with preferential provisions in a tax treaty.

Limited tax liability applies to non-resident individuals with special economic ties to Switzerland. In such cases, taxes are not levied on an international basis, but only on certain items of income that are sourced from Switzerland (e.g. property, permanent establishment).

It is important to note that Swiss tax law is based on the principle that family income and wealth are an economic unit and are taxed together. Therefore, only one tax return is required for each household; the income and wealth of both spouses go together. Children under 18 who are earning income must report their income on their parent’s tax return. 

High Income Tax Assessment

Foreign employees residing in Switzerland, whose gross salary exceeds 120,000 Swiss francs per year (500,000 Swiss francs in the Republic and the canton of Geneva), are required to file a tax return on their income and assets worldwide. Withholding tax on wages is credited to the accrued tax account without interest.

Assets tax assessment

Foreign employees residing in Switzerland, whose gross salary does not exceed 120,000 Swiss francs per year (500,000 Swiss francs in the Republic and the Canton of Geneva), but who have additional sources of income or additional assets (for example, income from securities, real estate) are also required to file a tax return. However, in most cantons, this is only due to additional income or property.

Foreign Employees: Withholding Income Tax

Foreign employees (without a Category C permit) withhold a monthly tax amount directly from their salary by their Swiss employer. The rates are lower than the accrued income tax rates as they apply to gross profit.

All standard deductions and surcharges are standardized and directly included in the tariffs. Rates are usually progressive; the more you earn, the higher the tax rate. They take into account whether you are married or single, living with children, or subject to church tax.

Withholding tax adjustment

If you are a foreign employee who has tax deducted from your salary, and if you are not required to file a tax return, you can ultimately reduce your tax burden by filing a withholding tax correction application. This may result in partial tax refunds.

You can apply for correction on the following points:

  • International weekly accommodation cost
  • Debt interest (consumer loans and credit cards)
  • Costs of further education and retraining
  • Health expenses and accidents
  • Disability-related costs
  • Support payments
  • Payment of alimony
  • Contributions in recognized forms to own retirement benefits (third pillar)
  • Buying retirement years in a pension fund (second tier)
  • Childcare costs
  • Donations

Most cantons accept such claims. Usually, the cantons provide a special form to be completed and additional deductions must be properly documented. Some cantons require a full tax return for these deductions to be taken into account.

When applying for a withholding tax adjustment, the application must be submitted by March 31 of the following year. In most cantons, this is a fixed term that cannot be extended.

Swiss corporate taxes

Any company with a registered office in Switzerland is liable for unlimited Swiss tax, while foreign companies abroad are liable for limited taxation if they own real estate or have a permanent establishment in Switzerland.

An international comparison shows that Switzerland is a very attractive destination for corporate taxpayers. Read a comprehensive guide to Swiss corporate taxes.

Swiss VAT or value added tax

Value Added Tax is one of Switzerland’s main funding sources. This is a consumption tax that is levied at a rate of 7.7% on most commercial exchanges of goods and services. Some items, including food, medicine, books and newspapers, are subject to a 2.5% VAT.

Medical, educational and cultural services are tax-free. Goods and services delivered abroad are also tax-free. There is a special rate of 3.7% for hotels.

Although Switzerland is not a member of the EU, its value added tax system is in line with EU rules as it is non-cumulative, multi-phased and deductible for incoming tax.

Generally any natural or legal person who does business in Switzerland is responsible for paying VAT in Switzerland and if the annual turnover exceeds the threshold of 100,000 Swiss francs (150,000 Swiss francs for charities).

This also applies to foreign companies operating in Switzerland. Only the taxable turnover in Switzerland is on this threshold.

Companies that supply goods or services in Switzerland or reside there are exempt from registration for Swiss VAT only if their global turnover does not exceed 100,000 Swiss francs. If their global turnover is higher, the company must register as a Swiss VAT payer.

Foreign companies that provide services only in Switzerland are still exempt from registration.

The Swiss VAT law does define services in a very narrow range. It does not qualify as a service, but as the delivery of goods – this is any type of work that is performed in relation to a specific product, even if the product is not changed by work, but only installed, tested, calibrated, adjusted, checked for its conformity. a function available for use or exploitation, or otherwise processed.

Submitting a Swiss tax return as an expat

Swiss citizens, foreigners with permanent residence C or foreigners who are married to a Swiss citizen do not withhold taxes from their wages. Instead, they must file a tax return annually.

Some cantons contain additional criteria in their tax legislation that require a regular tax assessment of foreign residents in Switzerland (for example, ownership of real estate). An annual tax return is also required if you work freelance or for a foreign company.

In Switzerland, the tax year corresponds to the calendar year. Thus, the tax year ends on December 31st. In most cantons, the deadline for filing a tax return is March 31; that is, three months after the end of the tax period. Most cantons allow one free extension. Further extension of the term may be possible at an additional cost.

If a taxpayer does not file his / her tax return on time, he / she may be subject to taxation by default. In such a case, the tax authorities assess the taxpayer based on a reasonable estimate. 

This tax base will usually be substantially higher than the actual tax base and is likely to be more expensive for the taxpayer. If you do not take action within 20 or 30 days (depending on the canton), you cannot appeal. Fines for failure to submit may also apply.

Filing US taxes from Switzerland

Even though every US citizen and green card holder must file a tax return with the IRS, many expats still don’t.

Many are unaware of these obligations, believing that, as immigrants, they do not need to file tax returns in the United States.

You do! For more information and assistance with filing US tax returns from Switzerland, contact the according figures to file US tax returns from abroad.

Calculating taxable income and wealth in Switzerland

Taxable income includes:

  • Income from paid work and self-employment
  • Compensatory income (e.g. annuities, pensions)
  • Secondary income (for example, seniority allowances, tips)
  • Income from bank accounts / securities and real estate
  • Other income (for example, prizes from lotteries and pools over CHF 1,000).

Expenses related to earning income (e.g. professional expenses) are deducted from gross income. In addition, several general deductions (for example, deductions for people with double income, for insurance premiums, social security contributions and retirement plans, for interest on private debt up to a certain amount) and social contributions (for example, deductions for married couples, single-parent families , for children, for low-income) are provided.

Generally, all property is subject to property tax. Common property includes all assets and rights of the taxpayer that have a monetary value. These assets and rights are usually measured at market value.

Taxable property includes, but is not limited to, real estate, property, plant and equipment, redeemable life and annuity insurance, and commercial assets. The tax base for a wealth tax is net wealth, that is, gross wealth reduced by the amount of the taxpayer’s documented debt, as well as personal allowances and social security contributions, which vary from canton to canton.

Swiss tax refunds for expats

Expatriates may claim certain additional tax credits under the Expatriate Ordinance of the Federal Department of Finance. However, the definition of an expat is very rigid.

To obtain foreign qualifications, a temporary secondment of senior personnel, as well as specialists with certain professional qualifications, from a foreign employer to Switzerland is required. 

Professionals or managers with a timely limited local contract qualify as expatriates only if their employment is an intra-group transfer and the foreign employer guarantees re-employment after staying in Switzerland.

Examples of specific deductions include living expenses in Switzerland, relocation, travel and education of minor children.

This special regime ends as soon as the temporary assignment becomes a timely permanent contract or after five years in Switzerland, whichever comes first. In some cantons, a one-time expatriate deduction, known as the OEXPA deduction, is provided in lieu of the itemized deductions. This is usually around CHF 1,500 per month.

We tried to place all the necessary information about Swiss taxes in this small guide, so every resident or expat of Switzerland could imagine the financial situation of the country he/she lives and works. Paying taxes is a very important part of every employee, employer and businessmen, and we all should know how much we have to pay daily, monthly or annually. 

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