With tax residence in Switzerland come some rights and obligations. For foreigners working in Switzerland, it is not always very clear how the tax payment works, because there are differences depending on the residence status of the person concerned. In this article, we will show you which requirements must be met in order to have tax residency in Switzerland in the first place. In addition, we clarify important questions that arise for foreigners with tax residence in Switzerland.
« For this reason, Swiss tax law distinguishes between the main tax domicile and the secondary tax domicile. While a person has unlimited tax liability at their main tax domicile, they have only limited tax liability at their secondary tax domicile.»
Requirements for tax residence in Switzerland
In the civil law sense, domicile represents the place where a person has his permanent residence with the intention to remain there. This residence therefore represents the center of the person’s life.
In many cases, the civil law domicile coincides with the tax law domicile. For example, in Switzerland, you are considered to be subject to unlimited tax liability as soon as one of the following two points applies:
- In case of unemployment: The person stays in Switzerland for 90 consecutive days.
- When pursuing a job: The person stays in Switzerland for 30 consecutive days.
In these cases, the place of residence in Switzerland is the defined main tax domicile.
However, there are exceptions. For example, foreigners who work in Switzerland for a few days a week may have their tax residence in Switzerland, but their center of life abroad with their family. This results in tax obligations in two places.
For this reason, Swiss tax law distinguishes between the main tax domicile and the secondary tax domicile. While a person has unlimited tax liability at their main tax domicile, they have only limited tax liability at their secondary tax domicile.
B and C cards decide how to pay the tax
If you want to work in Switzerland as a foreigner, you need either a residence permit (B permit) or a settlement permit (C permit). Depending on which of the two one receives, this has an impact on the way taxes are paid.
So, first, let’s clarify who gets a B card and who gets a C card.
Residence permit (B permit)
A foreign worker in Switzerland is granted a residence permit if the following requirements are met:
- Employment relationship: There is an employment contract that is limited or unlimited to at least one year.
- Self-employed persons: proof of effective self-employment
Settlement permit (C permit)
A foreign worker can obtain a permanent residence permit in Switzerland if the following conditions are met:
- The employed person has lived in Switzerland for more than five years (without interruptions).
Paying taxes as a B permit holder
Anyone who holds a B permit and is gainfully employed pays withholding tax in Switzerland. This means that the employer deducts the monthly tax contributions to be paid from the salary and passes them on directly to the tax authorities.
Thus, the principle of withholding taxation differs from “ordinary” taxation in Switzerland, where taxpayers receive their gross salary and are required to submit a tax return once a year and then pay the taxes to the tax authorities themselves.
Exception: Anyone with an annual salary of more than CHF 120,000 does not only pay withholding tax, but submits a tax return with the tax authorities in retrospect according to the “ordinary” system. The withholding tax payments will only function as prepayments in these cases.
Paying taxes as a C permit holder
If the employed person has a C permit, they pay taxes in the same way as a Swiss citizen: per monthly or quarterly advance tax payments (regulated differently depending on the canton) through provisional tax invoices.
At the end of the year, it is obligatory to file a tax return, which then determines exactly how much tax the employed person actually had to pay. This can result in a plus or a deficit, so that either the overpaid taxes are refunded by the tax authorities, or the taxpayer has to pay additional taxes.
Main residence abroad and still liable for tax in Switzerland
In some cases, a foreigner has his main residence abroad, but is nevertheless subject to limited tax liability in Switzerland. In this case, they have their main tax domicile abroad and their secondary tax domicile in Switzerland. This may be the case if they are commuters who work in Switzerland a few days a week but have their private center of life abroad and return there regularly. In this case, only the income earned in Switzerland must be taxed in Switzerland.
Taxation in the year of moving to Switzerland
Those who move to Switzerland for the first time in order to work there are often issued with a B permit. This requires the preparation of a tax return from an annual income of CHF 120,000.
It is important to note that the tax authorities extrapolate the annual income to the entire tax year, even if the employee only moves to Switzerland and starts work there towards the end of the year.
So in some cases it can happen that factually the annual income is below this limit, but if you extrapolate it to the full tax year, it is above this limit.
An employed person moves to Switzerland in November and starts working there. Their gross monthly salary is CHF 20,000, so their actual annual salary earned in Switzerland in this tax year is CHF 40,000, which is below the CHF 120,000 limit. The tax authorities, on the other hand, extrapolate this salary to the entire tax year. This results in an amount of CHF 240,000, which is above the limit. The employed person therefore has the obligation to prepare a tax return.
However, taxes are only levied on income that has also been earned there since the move to Switzerland. Moreover, the extrapolated annual income is included in the calculation of the tax rate.
Tax assets as a foreigner in Switzerland
For the taxation of assets, as for income, assets located in Switzerland must also be taxed there.
The situation is different with assets abroad, e.g. a house. Although its value does not have to be taxed, it must be declared in the tax return, because the calculation of the wealth tax rate is based on the complete worldwide assets.
If you are not sure which regulations apply to your individual case, it is best to contact the competent authority in your Swiss canton, or arrange a call with us, wherein we can discuss your situation in detail.
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