Taxable Income and Expenses

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.

Taxable income

Deductions from taxable income

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:

Social security on tax

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.