Tax Residence in Switzerland
Becoming a tax resident in Switzerland
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.
Taxation of local hired expats on a B permit
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).
Taxation of local hired expats on a C permit
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.
Non-residents (e.g. international weekly commuters)
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.
Partial year tax liability (year of arrival/departure)
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.