Tax Residence in Switzerland Part 2
Paying Taxes as a B Permit Holder
Employees without a C permit generally pay withholding tax in Switzerland if they are not married to a Swiss national or own a Swiss real estate. The withholding tax is deducted directly from their salary and varies depending on the canton. The withholding tax rates generally include lump-sum deductions for professional expenses and insurance premiums as well as deductions for married couples and children.
In case your gross income exceeds CHF 10’000 per month or CHF 120’000 per year, then a complete tax return needs to be filed and thus pay tax in the same way as Swiss nationals. Taxes already paid at source for the tax year in question are taken into account and credited to the final tax burden based on tax return. If the annual gross income is less than CHF 10’000 / CHF 120,000, a tax return generally only has to be completed if the other taxable assets (investments, bank accounts, real estate worldwide, etc.) and/or income exceeds a certain level. This level varies between the cantons.
Paying Taxes as a C Permit Holder
Like all Swiss citizens, foreign nationals with a permanent residence permit (Cat. C) must declare their income and assets each year in a tax return and pay income and wealth tax on them.
Main Residence Abroad and Still Liable for Tax in Switzerland
The following cases are the most common:
- Property in Switzerland: If you own a property in Switzerland, you are subject to limited tax liability on the basis of economic affiliation. The taxable value of the property and its income (rental income and/or imputed rental value) less debts, debt interest and property maintenance costs are subject to income and wealth tax. Depending on the canton, property taxes and visitor’s taxes may also be levied.
In this case, you are obliged to submit a tax return. In principle, you must also declare your other worldwide assets and income in order to determine the applicable tax rate.
- Gainful employment in Switzerland: If you are only liable to pay tax in Switzerland due to your gainful employment, you are – as a basic rule – subject to Swiss withholding tax for the days you work in Switzerland.
Special rules apply though in regard of cross-border commuters to France, Austria, Liechtenstein and Italy. The special rules for short-term assignments from a foreign employer to Switzerland (so-called 183-day rule; “Monteur-Klausel”) must also be observed.
In such cases, employers are primarily responsible for correctly accounting for withholding tax and social security contributions. As an employee, you are certainly well advised to provide your employer with the best possible support by always informing them of your situation with regard to your family’s place of residence, changes in your family status (e.g. marriage, divorce, birth of children, etc.), dual citizenship, remote working activities, board memberships at domestic and foreign companies, self-employed (secondary) gainful employment, etc. All these factors can result in a change of tax residence and/or a change in the applicable social security law.
If you are employed by a Swiss company in Switzerland but have your centre of life and therefore your main tax domicile abroad, you may be able to benefit from the status of a so-called quasi-resident. If your income from Swiss sources generally accounts for more than 90% of your worldwide income, you can apply to complete an ordinary tax return. This usually makes sense if you make further deductions such as purchases into the pension fund and/or contributions to pillar 3a.
- The following points could trigger a (limited) tax liability in Switzerland as well:
- Owners, partners or beneficiaries of businesses in Switzerland.
- Maintaining permanent establishments in Switzerland.
- Broker or trade in real estate properties located in Switzerland.
- Dividends and interests from Swiss shares and bonds as well as Swiss bank accounts.
- Inheritance from a person who died in Switzerland or if the inherited object is real estate, a business or a permanent establishment in Switzerland.
- Receiving a gift from a resident in Switzerland or if the gifted property is real estate, a business or a permanent establishment in Switzerland.
- Artists resident abroad, such as stage, film, radio or television artists, musicians and performers, as well as athletes and speakers, are taxed on income from their personal activities carried out in Switzerland.
- Members of the Board of Directors for their fees from legal entities domiciled or effectively managed in Switzerland.
- Creditors or beneficiaries of claims resident abroad that are secured by a mortgage or pledge on real estate in Switzerland are liable for tax on the interest paid to them.
- Receipt of pension funds in the form of a pension or capital from Swiss pension schemes.
- Obtaining income from employee participation plans which are paid retrospectively after having left Switzerland and were acquired during employment in Switzerland.
Either the payer or the recipient is liable to pay tax on the above-mentioned benefits. Depending on the tax and the applicable double taxation agreement, tax may not apply at all or can be fully or partly refunded.
It is recommended to ask for professional advice in such cases to assess the situation based on the circumstances of the single case.
Taxation in the Year of Moving to Switzerland
When moving from abroad, tax liability in Switzerland begins on the date of arrival. This results in a tax liability during the year from the date of arrival to December 31st for both cantonal and communal as well as direct federal tax. To determine the applicable tax rate, regular income will be pro-rated for a full year.
Tax Assets as a Foreigner in Switzerland
In principle, the same tax law applies to foreigners as to residents. If you are taxed at source and your gross income does not reach CHF 120,000 per year or CHF 10,000 per month, you must report your worldwide assets and income at a certain threshold. The applicable thresholds vary by canton.
What Is Withholding Tax?
Withholding taxes are taxes on payments that are deducted by the person making the payment and forwarded to the tax authority. With regard to Switzerland, the main points of interest here are the withholding tax on salaries and the withholding tax on interest and dividends, also referred to as the anticipatory tax (“Verrechnungssteuer”).
How Does Withholding Tax Work?
The tax at source withheld from salaries is deducted from employers on the employee’s salaries and sent to the tax authority. If the employee is obliged to file a Swiss tax return, tax at source can be seen as prepayments to the final tax burden. The final tax assessment based on the tax return could show a balance payable or a refund. Refunds usually occur if the taxpayer qualifies for additional deductions (e.g. pension fund buy-ins, pillar 3a, costs for professional education, etc.). Balances payables often occur if the taxpayer lives in a municipality with a tax rate above the cantonal average, is in a double-earner marriage with high income or have significant other income (e.g. from real estate, non-Swiss income, etc.) and wealth.
How Withholding Tax Is Calculated
The withholding tax withheld from salaries is calculated mainly based on your family situation (married, single, with children or without children, double-earner or single earner household, church affiliation, canton of residence and gross salary. Withholding tax on dividends and interests is generally 35 %. This withholding tax can be claimed in the annual tax return and will be credited to the final tax burden.
How Much Is Withholding Tax?
This depends on the factors above. Since withholding taxes on salaries are based on a monthly system, employers apply the proper tariff to the monthly salary which can result in regular withholding tax deductions or irregular ones, if there is a change in for example gross salary, marital status, children or church affiliation compared from one month to another. Employers show the amount of the withholding tax paid as well as the applied tax rate on the monthly salary payment slips.
At the beginning of every calendar year, employers will hand you out a salary certificate showing your gross and net salary as well as deductions made for the full year. This salary certificate contains most of the information needed for your tax return in regard of your employment.
How to Reclaim Withholding Tax
If the employee is obliged to file a Swiss tax return, tax at source withheld from salary can be seen as prepayments to the final tax burden. The final tax assessment based on the tax return could show a balance payable or a refund.
The Swiss withholding tax withheld from interests and dividends can be claimed in the annual tax return and will be credited to the final tax burden. Depending on the applicable double tax treaty, also foreign taxes withheld from interests and dividends can be fully or partly claimed in your tax return.
Requirement for Tax Declaration
In the following cases you are obliged to file a Swiss tax return and the relevant forms are sent to you automatically at the beginning of the year regarding the past year:
- Swiss tax resident with Swiss nationality, C-permit, owner of a Swiss real estate, married to a Swiss national or C-permit holder
- Non-Swiss tax resident with real estate property in Switzerland
- B-permit holders with gross income of CHF 10’000 per month or CHF 120’000 per year or higher
In the following case, forms are not automatically sent to you and you must ask for them:
- B-permit holders with gross income below of CHF 10’000 per month or CHF 120’000 per year AND have worldwide wealth and income exceeding a certain limit. Limit depends on the canton. To give you an idea: The canton of Zürich applies a limit of CHF 80’000(single) and CHF 160’000 (married) in net wealth or CHF 3’000 other taxable income.
If neither income or wealth thresholds are met, forms are not automatically sent to you and you have the option to ask for them. This only makes sense if you would like to claim additional deductions that are not considered in the tax at source tariffs:
- Effective professional costs (including additional costs for weekly commuters)
- Pension fund buy-ins
- Contributions to Swiss pillar 3a
- Self-paid training and further education costs
- Childcare costs
- Alimony payments
- Debt interest
- Illness and disability-related costs
You have the right to opt for volunteer filing in so-called quasi-residency cases as well.
The application must be submitted by March 31 of the following year. This deadline is not extendable. Be aware, once you opted for a volunteer filing, this remains valid for subsequent years as well. So you should make an informed decision whether this will benefit you tax wise or not.
Once you receive the tax forms, you have a deadline of 30 days for filing. This deadline is extendable. Make sure you do not miss deadlines and if you cannot make it, ask for extension if possible. This avoids reminder fees and/or penalties for failing of filing requirements.