The Swiss wealth tax is levied solely on a cantonal level. In most cantons, the tax burden on assets exceeding CHF 200'000 is between 0.2% and 1% percent.
Generally speaking, the following assets are considered as taxable:
The proven debts can be deducted from the gross wealth. This results in the net wealth. Various cantons apply social deductions which take into account factors of the taxpayer such as marital status or number of children. It should be noted that social deductions and tax allowances differ among cantons.
Wealth taxes are levied annually for the corresponding tax year. Taxable assets are calculated on the basis of the situation at the end of the relevant tax year and most are valued at market value. Worldwide assets must be declared, not solely those in Switzerland. Debts can be deducted, which reduces taxable assets. Since wealth tax is only levied on a cantonal level, tax rates, progressions and social deductions vary between cantons.
Swiss income tax is levied on the individuals worldwide income such as (self-) employment, pension and retirement income, immovable as well as movable assets, lottery winnings and, under some instances, also capital gains.
In this article we want to provide an outline of the sources of income and expenses that have an impact on income taxes.
To determine the taxable income, mandatory social security and pension contributions as well as other job income-related deduction are deducted from the taxable income. Further deductions can be made for:
Since security contributions are usually paid in the country where the work is performed, foreigners working in Switzerland are obliged to contribute to the social security system (AHV/IV/EO, AVS/AI/APG, AVS, AI, IPG) which builds the first out of the three pillars in the Swiss social security system. It includes age, survivor as well as invalidity pensions. The contributions of total 10.25 % is covered half be the employer and half by the employee. Where the situation of double income is not given, the non-working spouse is covered with same insurance benefits as the working spouse. The only requirement is, that the working spouse total annual contribution amounts put to CHF 964.00.
For the risk of unemployment contributions to the Unemployment Insurance (ALV, AC, AD) are split as well between the employer and the employee. Furthermore, an additional solidarity tax contribution has been introduced on incomes exceeding CHF 148'200. This is also is covered half by employer and half by the employee.
The compulsory occupational accident insurance is covered by the employer. The non-occupational accident insurance can be deducted fully from the monthly wage of the employee. However, health insurance is not covered by the employer. Therefore individuals moving to Switzerland are obliged by law to obtain medical insurance with a Swiss health insurer. Under certain conditions, foreign health insurance coverage can provide release of the mentioned obligation.
The occupational/company pension scheme (BVG, LPP) is referred to as Pillar 2. The occupational pension scheme is mandatory for workers in Switzerland who are subject to AHV/IV, AVS/AI, are older than 17, and have annual wages exceeding CHF 21,330. The level of contributions depends on the age of the individual and level of the persons insured salary. Contributions are calculated as a percentage of the annual wage. Employers must contribute at least half of the total obligatory contribution for their employees.
Since the 2nd pillar also provides benefits for cases death and disability, an additional amount to cover these risks will be due. In case of additional contributions to the Pillar 2, tax deductions are possible. The potential tax benefits of such payments are highly related to timing as well status of residency and should therefore be planned carefully.
Pillar 3: The third pillar is a voluntary personal pension. Employees may as well contribute to an individual voluntary retirement account (so called Pillar 3a). For employees already contributing to Pillar 2, contributions to Pillar 3a up to CHF 6'826 (2019) are deductible from your taxable income.
Pension funds are restricted until the individual reached retirement age. However, there are a few exceptions to this rule.
The term “expat” is regularly used for both, locally employed and dispatched employed persons of foreign nationality. However, it is important to understand that there is a difference. "Expatriates" or "Expats" are managers and specialists with special professional qualifications who are temporarily sent to Switzerland (usually to a subsidiary or sister company) by their foreign employer. In Swiss professional terminology, they are also called "assignees". They must be distinguished from those employed by a company domiciled in Switzerland. These are referred to as "locally hired".
Expats, respectively assignees, incur additional professional costs as a result of this temporary stay in Switzerland.
Since the revision of the corresponding legal provision regarding expat deductions (ExpatV), the conditions have become more stringent. Both executives and specialists are now subject to temporary assignments, i.e. a foreign employer can only send persons (within the same group) to Switzerland as expatriates for a maximum of 5 years for the purpose of employment. Specialists must therefore be able to prove that they have been sent to Switzerland temporarily (and within the same corporate group).
In practice, there may also be exceptional cases in which expatriates with a (temporary) local employment contract can also benefit from the additional deductions. However, the following obligations to provide evidence then apply:
If the employee qualifies as an expatriate, he is entitled to additional deductions. These include:
If, on the other hand, these additional costs are covered by the employer or if it is intended to claim lump-sum deductions for each group of persons, it is advisable for the employer to make a prior ruling with the relevant cantonal tax authorities.
Persons who retain their family residence abroad and stay in Switzerland solely for the purpose of working are considered international weekly residents. Their residence is primarily due to their employment in Switzerland or the respective canton. International weekly residents have to meet the following requirements cumulatively:
International weekly residents are entitled to supplementary deductions in addition to the usual deductions for source taxed persons. The most important of these are the allocation of days worked abroad, the effective travel costs for the regular return home and the costs for accommodation in Switzerland, though there remain different cantonal practices. Specifically the first option can lead to major refunds, especially if an international weekly resident worked mainly from outside of Switzerland.
In order to make use of these additional deductions or to have a chance at a tax refund, in most cantons an application for a new assessment of withholding taxes must be submitted. This process is described in more detail in our article Tax Optimization for B-Permit Residents. In particular, it should be noted that the tax authorities are increasingly generous with the first submission deadline, as taxpayers often only become aware of their status after the deadline has expired. It should also be stated that some specific documents (such as work calendars) need to be submitted that are quite difficult to obtain without professional support. We have a handful of templates especially for international weekly residents, which are designed according to the requirements of the respective cantons.
Taxpayers with a B and C permit must complete tax returns (see placeholder). This does not only include income and assets from/within Switzerland, but worldwide. As a result, properties abroad must also be declared. This is also applicable if the property is already taxed abroad. After all, we are only talking about the declaration obligation - not the actual taxation.
The obligation to declare the foreign property naturally raises the question of whether or not the value or (potential) income of this property is taxable in Switzerland or if it is taxable, despite the asset being already subject to tax abroad.
This question cannot be answered with 'yes' or ' no'. First of all, it depends on whether there is a double taxation treaty between the two concerned states. This is usually the case, which makes it impossible for Switzerland to tax the property additionally here. However, the double taxation agreements stipulate that Switzerland may use the income and tax value of the foreign property to calculate the applicable tax rate. This means that although the property does not directly increase taxable income or wealth, a higher tax rate is applied as a result. To put it simply: the property abroad is not taxed directly, but increases the tax rate, which leads to a higher tax liability.
A simplified example to illustrate this:
A family with a taxable income of CHF 200,000 and assets worth CHF 400,000 pays tax at the rate for this amount: i.e. CHF 200,000 income at the tax rate for CHF 200,000 and CHF 400,000 assets at the tax rate for CHF 400,000.
If the same family had a property abroad with rental income of CHF 50,000 and a tax value of CHF 300,000, this would only have to be taken into account for the rate determination as described above. The family would then have an unchanged taxable income of CHF 200,000, but this would then be taxed at a higher tax rate, i.e. the one applicable for an income of CHF 250,000.
The same happens at the level of assets. The taxable assets of CHF 400,000 remain unchanged. However, it is taxed at the rate applicable to CHF 700,000 worth of assets.
How much the family in our example or each taxpayer ultimately has to pay additionally in taxes in Switzerland by owning the foreign property, must be calculated in each specific case. The result varies depending on the canton and the specific circumstances (mortgage, etc.).
The process described above is called “international tax allocation” or “exemption with progression method”. The process’ purpose is to avoid double taxation and requires a precise distribution of net investment income and assets between Switzerland and abroad.
The tax authorities allocate the various costs for a property differently to the respective countries. This involves certain risks and opportunities for the taxpayer.
Any upkeep costs are divided subjectively (with the costs allotted to the property for which they were accrued). But any debts and interest resulting therefrom shall be divided proportionally according to the gross assets of the respective State. In certain situations, this arrangement may have an adverse effect. If the taxpayer has a valuable property abroad, which is not burdened with debts, debts and related interest, which are attributable to Switzerland, are allocated proportionately to the foreign country, which reduces or even eliminates their positive effect on the tax burden.
However, on the plus side, Swiss tax law allows unlimited deductibility of property upkeep costs, including for properties located abroad. As mentioned above, any deductions would reduce only the applicable tax rate, but this still enables a certain optimization of the tax liability in Switzerland. The taxpayers has the possibility to reduce their income tax rate in Switzerland dramatically (e.g. with comprehensive renovations). It is therefore highly recommendable for taxpayers to keep track of any upkeep and renovation costs for properties abroad for the tax return filing.
Residence is defined as the place where a person stays with the intention of settling permanently and which therefore provides the center of his/her personal and business interests. In addition, one is defined as a Swiss resident if remaining in the country for a period over 90 consecutive days (30 consecutive days if pursuing an occupation). Individuals that qualify as residents in this respect are subject to taxation on their worldwide income and wealth. This is called unlimited tax liability.
Expats working in Switzerland on a local contract are typically regarded as residents and are therefore subject to income and wealth tax on their worldwide income. Expats holding B permits will be subject to monthly withholding tax on their salaries and wages paid in Switzerland, as well as bonuses or similar compensations. These withholding taxes may not be the final tax liability for the year and in many cases they will just be a prepayment of the ordinary annual tax liability.
In most cantons those individuals whose employment income exceeds a certain limit (gross salary of CHF 120'000 in general and CHF 500'000 in Geneva), must also file an ordinary tax return, which is assessed by the authorities will determine the final tax liability. Any tax withheld at the source is regarded as a prepayment in these cases. As the withholding tax only takes factors into account such as marital status, family size, and religion, it is always the case that there will be either a surplus or an open tax liability, since the tax return contains a precise portrayal of the financial situation of the tax payer.
If the annual salary is below CHF 120'000, an application for a tax refund can be made (see: Tax Optimization for Expats on B Permits).
Expats holding a C permit will normally pay provisional tax for three rates during the tax year. However, in some cantons the taxes may be due on a monthly basis. Final taxes will be paid once the annual return has been assessed by the tax authorities. Provisional federal tax bills are usually issued by 31st March following the end of the tax year with the final tax bill being issued once the annual return has been assessed.
In certain constellations taxpayers are considered as non-residents where only a limited tax liability applies. In this case, not the worldwide income and assets are taxed, but regularly only parts of the income. Particularly noteworthy here are international weekly commuters who only spend regular time in Switzerland to work but frequently return to their place of residence abroad. It is important to be aware of this special status, as the authorities often do not know or cannot know that it applies and the entire income is taxed at source, even though Switzerland has no primary tax sovereignty.
This point is particularly relevant for expats who are new to Switzerland and have a B permit. First of all, it must be understood that if the income exceeds CHF 120'000, a tax return must be submitted, as described in more detail above.
Next, you must know that even if you do not effectively reach this limit due to the date of arrival, it can still be exceeded, as the income earned so far is extrapolated to a full year. If, for example, you arrive in Switzerland at the beginning of November and achieve a gross income of CHF 20,000 per month, you will be asked to submit a tax return for the year of arrival as soon as the withholding tax department makes a report to the tax office, as an extrapolated annual income of CHF 240,000 was achieved.
Filing a partial year tax return differs from a regular one, as only income and deductions during the period of partial year tax liability will affect the taxable income. However, the applicable tax rate is determined by income and expenses extrapolated to twelve months. Irregular income or non-recurring income is also subject to full taxation, but is not converted for the purposes of determining the tax rate.
Any assets have to be declared with their value as per the end of the relevant period of tax liability.
First of all, we need to narrow down which taxpayers are targeted by this article.
As already stated in our other contributions, foreigners with a C permit are required to complete a tax return, yet not all with a B permit. There is no obligation to file a tax return for an annual gross income of less than CHF 120,000 (as long as none of the other requirements are met).
If one of the conditions is not met, the withholding tax represents the final tax burden if the taxpayer does not take action. Even if no tax return can be submitted, there is still the possibility of submitting an application for a new assessment of the withholding taxes. This is particularly recommended if the taxpayer had expenses that were not taken into account in the withholding tax but would have been deductibles in the tax return.
|The withholding tax deduction on the wage is based on a tariff system. The classification into the applicable tariff categories is based on very few criteria. This inaccuracy is eliminated when a tax return is submitted, as income and assets are precisely determined and a subsequent payment of taxes or a credit is made.|
If you do not submit a tax return, it is important to know that it is in your responsibility to take action if you want to pay less than the withholding taxes that have been calculated. The application for a new assessment of the withholding taxes is intended for this purpose. Similar to the tax return, the financial situation of the taxpayer is determined more precisely, which can lead to a tax refund.
As previously mentioned, costs can be claimed which are not taken into account when determining the applicable withholding tax rate, as they are only applied in individual cases. These include:
At this point, it should be emphasized again that if such costs exist, the taxpayer must take action himself in order to benefit from tax savings. In most cantons a non-extendable deadline, the 31st March of the subsequent year is applicable. As an example, the application for the year 2019 will have to be submitted latest by 31 March 2020, otherwise deductible costs will not be taken into account. However, if you submit your application on time, you can be rewarded with a rather large refund. Assuming that the full contribution to pillar 3a was made and additional interest for credit card debts or alimony was paid, a refund in the four-digit range is quite realistic.
|International weekly commuters must be aware. Irrespective of the level of income, it is absolutely essential to take action, as the potential tax savings are quickly in the five or six-digit range. More information can be found in this article.|
We have already recorded a number of things about withholding tax. But what does the procedure look like when you want to submit an application? The following timeline sets out the most important steps.
In the case of withholding tax without an obligation to submit a tax return, one should not miss the opportunity to save taxes by submitting an application for a new assessment of withholding taxes. It is also important to avoid postponing the issue, as the deadline is often adhered to very strictly.
It is best to check right now whether you had deductible costs for the current tax year.
The principle of family taxation states that the worldwide income and wealth of a married couple sharing the same household as well as potential dependent children must be declared in a joint tax return. The same principle also applies for registered same-sex partnerships. An exception the rule of a joint tax return is, if the married couple has different residences (see: International weekly commuters, tax residence).
The income and wealth of underage children must be declared by the parent in charge of parental custody. In the case of joint custody of unmarried parents, the allocation shall be made to the parent exercising the daily care of the child. If both the parents are occupied with the daily care the allocation must be made equally. In any case, income from self-employment is always taxed independently by the child.
A joint tax assessment is made for the entire calendar year in which the couple got married or the partnership was registered. This means that if the marriage or the registered partnership took place e.g. in December of a year, the joint tax liability starts on a retroactive basis already as per January of the same year. The same applies when moving to another canton, where the tax for the entire year is paid at the place where the taxpayer lives as of 31 December. The canton of departure is left with no tax collection.
The income of individuals is taxed on a federal, cantonal as well as on a communal level. For federal taxes, the income is not split between married couples for the determination of the applicable tax rate. There are two different models by respective cantons. One follows the same model as for federal taxes, the other one the concept of splitting income. The latter leads to a reduction of the tax burden.
Due to the principle of tax progression, the cumulated income of these couples is taxed at a higher rate as their individual income. This results in a disadvantage for jointly-taxed double-income earners. This effect becomes more noticeable as the incomes rise.
In order to reduce this effect, married couples benefit from a lower tax rate for the same income and further deductions can be made as compared to unmarried couples.