Social Security and Taxation in Switzerland
It may come as a bit of shock for expats in Switzerland when they realize that their generous earnings are not entirely their own — their salary is subject to taxation and social security contributions. For employees the process is pretty straightforward: in the majority of cases your taxes and social security contributions will be automatically deducted from your salary. For self-employed expats, it can get a bit more complicated. The percentage of your earnings that will go towards tax and social security varies significantly, depending on your employment status, your gross income, and your canton. However, if you should find yourself unable to work or ready to retire, all the hassle will be worth it, as you’ll have a financial security blanket.
For Retirement and Those Unexpected Situations…
Having your hours significantly reduced or finding yourself out of work completely is never easy, especially in a foreign country. Whether you fall sick, lose your job, or are expecting a baby, the Swiss social security system ensures that you’ll never be at a complete loss. All residents of Switzerland are required to contribute towards a basic social security pension. Moreover, depending on your employment status and personal preference, you may be contributing towards up to three individual funds. Social security in Switzerland is based on a three pillar system — the first pillar is compulsory for all residents living in Switzerland; the second is mandatory for all employees, and whether or not you contribute towards a third private fund is completely up to you!
Income Tax: Simplifying the System
Much like the various social security schemes in Switzerland, the income tax system can seem rather complicated a first glance. If you are an employee in Switzerland and your only income is your salary from your employer, the income tax system will be rather straightforward. In most cases, your employer will simply deduct a certain percentage of your gross salary and pass it on to the tax office. However, self-employed expats, high-earners, and expats who have income from another source — e.g. property in Switzerland — will have to file a tax return. If you own any assets of high worth, it is recommended to hire a professional tax advisor to help you with your tax return. There are also certain tax deductions in Switzerland which are only available for executive foreign employees or for foreign employees with specialist skills who are in Switzerland for a maximum of five years — but any deductions are worth the research!