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To Pay or Not to Pay: Income Tax in Switzerland
At a Glance:
- Even if you do not have a long-term residency permit for Switzerland (type C), chances are that you will still be considered a resident for tax purposes.
- Income tax in Switzerland is levied by three different authorities — the federal government, the canton, and the local municipality.
- Income tax is paid in one of two ways: in the form of withholding tax, which is mostly the responsibility of your employer, or by filling out a tax return.
The following article provides an overview of income tax in Switzerland to help expats better understand the Swiss tax system. However, please bear in mind that this guide does not offer any professional legal or financial advice. If you require a more in-depth or specific view on Swiss taxes, you should talk to a professional tax consultant. Instead, this guide goes back to basics, covering only the most common tax that you are most likely going to pay while living in Switzerland — income tax.
You will also notice that wealth tax is mentioned a few times in this article. Wealth tax is levied on a fiscal resident’s assets, including on property in Switzerland, bank deposits, and luxury goods, among other things.
Unlike income tax, wealth tax is not charged by the federal government — instead, it is levied solely by the cantons and municipalities. Just like in the case of income tax, the tax rates also vary from canton to canton, as does the personal allowance exempt from taxation. For example, in the canton of Aargau, only residents owning taxable assets worth more than 100,000 CHF need to pay wealth tax.
Fiscal Residency: Who Has to Pay?
A foreign national is considered a resident for tax purposes (fiscal resident) if any of the following conditions are met:
- They have a type C Swiss settlement permit (Niederlassungsbewilligung).
- They are residing in Switzerland and are gainfully employed — either self-employed or as an employee — for 30 consecutive days or more.
- They are residing in Switzerland for a period of 90 consecutive days or more and are not undertaking any form of gainful employment.
If any of the above situations apply to you, you are classed as a resident taxpayer and will be required to pay income and wealth taxes on your income and assets.
If you do not fit into any of the categories listed above, you may be regarded as a non-resident tax payer. Even if you do not live in Switzerland on a full-time basis, you still need to pay tax on your income from Swiss sources. This situation applies to cross-border commuters, for example. In this case, income tax will only be levied on earnings from a Swiss source and all other worldwide income is exempt.
For the purpose of this article, we will simply assume that you are considered a fiscal resident in Switzerland.
Income Tax: Parting with Your Pay
Unlike taxes such as VAT, income tax is a form of direct tax. This means that all income tax is paid directly to the government. All fiscal residents of Switzerland are liable to pay tax on their worldwide income. There are just a few exceptions to this rule: income from business abroad, income from real estate located abroad, or any income subject to a tax treaty is not subject to income tax in Switzerland.
Everyone who is classed as a fiscal resident in Switzerland must pay income tax on their taxable income. The term taxable income refers to a person’s gross earnings, minus any tax deductions that they may be entitled to. Tax deductions heavily depend on individual situations and, therefore, they vary significantly from person to person.
The income tax system in Switzerland can seem fairly overwhelming at first, but when you break it down, it becomes a lot easier to wrap your head around. The system has three separate levels of authority: the federal level, the cantonal level, and the municipal level (i.e. the city or town where you live).
What Counts as Income?
As a fiscal resident of Switzerland, you will be required to pay income tax on all of the following:
- income from employment (including any kind of perks, bonuses, or payment in kind, such as meal vouchers)
- income from self-employment
- income from interest, dividends, royalties, etc., plus any earnings from movable property (e.g. from renting out your car)
- income from immovable property (e.g. from letting an apartment)
- income from retirement provisions and pensions
- other forms of income (e.g. child support, alimony, unemployment benefits, etc.)
It is worth noting that Switzerland does not charge any income tax on capital gains (e.g. profit from trading in stocks and bonds). Instead, the tax office levies a wealth tax on the worth of such assets (e.g. the stock you own).
Federal Income Tax
The federal level is the top authority, so to speak — they set certain limits and guidelines which every canton and municipality must follow. However, in most cases, it is the cantons who have the most say on levying income tax across Switzerland.
The federal tax law applies to all residents in all cantons in Switzerland. The federal tax that you are liable to pay is calculated in two separate steps. You will have to pay a lump sum based on a certain amount of your earnings, plus a set tax rate on the additional income.
This process is much easier to understand by following an example. In our example case, the individual is a single resident with a taxable income of 69,000 CHF per year. Their income will be divided into part A (65,000 CHF in this case), plus an additional part B of 4,000 CHF. For the first part, they are liable to pay a lump sum of 873.26 CHF in federal taxes.
The second part of their income will be taxed at a rate of 2.97% — i.e. 4,000 CHF multiplied by 0.0297, giving you 118.80 CHF. These two figures then add up to a sum of 992.05 CHF — i.e. the total amount they owe in federal taxes.
This may sound a bit confusing, but luckily enough the Swiss government has put together a handy table to help you look up all those figures, based on your taxable gross income.
As of 2016, the maximum federal tax rate stands at 13.2% for earnings up to a certain amount — currently, 755,200 CHF for a single taxpayer without children. If you have a very high gross income, the maximum tax rate on all income above this threshold will, however, be reduced to 11.5%.
Cantonal Income Tax
However, federal tax is not the maximum amount of income tax that a resident in Switzerland will be required to pay. Both the canton and the municipality where they are currently living will also levy tax on their income.
To get an idea of how the cantonal income tax is calculated, you need to know two important terms. The first one is called einfache Staatsteuer. This refers to the basic cantonal income tax, which is calculated in a similar way to federal income tax. However, every canton sets their own table and their own tax rates, meaning that both the lump sum payment and the tax rates on the additional income vary considerably among the 26 cantons.
The second term is the “tax multiplier” — or Steuerfuss in German. The total income tax that a fiscal resident will pay on a cantonal level is calculated by multiplying the Staatsteuer by the local Steuerfuss (the cantonal tax multiplier).
The tax multiplier can be adjusted on an annual basis. For example, if a cantonal government has had unexpected expenses and needs to balance the budget, they could raise their tax multiplier from 1.0 to 1.15 — and they will automatically get 115% in cantonal income tax the following year. Conversely, if the canton is financially stable or even affluent, they could agree to lower the Steuerfuss to 0.95, so the residents will have to pay less income tax in the future.
Municipal Income Tax
The individual municipalities also have the right to levy income tax. On the municipal level, there is also a Steuerfuss or tax multiplier. Therefore, what a person pays in income tax on a municipal level is usually calculated by multiplying the cantonal Staatsteuer by the Gemeindesteuerfuss (municipal tax multiplier).
As the tax multipliers vary considerably among the 26 cantons and all their different municipalities, it’s theoretically possible to minimize your income tax just by choosing the right place to live!
How to Pay: It’s All on Your Residential Status
Your residential status will also impact the way in which you pay income tax in Switzerland. Foreign nationals who are living and working in Switzerland and have a type C settlement permit will have to fill out a tax return on a yearly basis. However, those who do not have this kind of residency permit will have their tax payments automatically deducted from their salary (withholding tax).
Withholding Tax: Leave it to the Employer
Withholding tax or tax at source (Quellensteuer) is the most straightforward way to pay taxes in Switzerland. It is a pay as you earn (PAYE) system in which income tax will be automatically deducted from your monthly salary by your employer. This means that when you are given your monthly pay slip, the income tax that you owe will have already been deducted.
Income tax rates differ from canton to canton, and are calculated based on your gross salary, your family situation, and your eligibility for specific tax deductions.
It is important to note that you also have certain responsibilities when it comes to income and wealth tax, even if your salary is being taxed directly. If you are receiving income from a source other than gainful employment in Switzerland or acquire valuable assets, you must let the Swiss Federal Tax Administration know. If this is the case, you might have to complete a Swiss tax return instead. For more information on this topic, we’d recommend talking to a tax professional.
If you think you have paid too much in withholding tax, you may be entitled to a reimbursement. In order to find out whether you are eligible to receive this, you must fill out an application form and hand it in to your local tax authority.
The Tax Return
Expats who fall into any of the following categories will have to file a Swiss tax return, though:
- You own property in Switzerland.
- Your or your spouse’s annual income is over 120,000 CHF a year (over 500,000 CHF in Geneva).
- The worth of your assets exceeds a certain amount (maximum limit depends on your canton and family situation).
- You have a C settlement permit or Swiss citizenship.
- You are married to a person who holds a C settlement permit or is a Swiss national. In this case the tax return should be filed jointly.
The tax year in Switzerland coincides with the calendar year, ending on 31 December, so it is easy to keep track of. Across most cantons in Switzerland the tax return must be filled out within a maximum of three months after the tax year ends. However, the cantonal tax administrations are responsible for tax returns, so it is best to check with them to be on the safe side.
If you are supposed to fill out a tax return but choose not to, you will most likely be subjected to default taxation based on an estimate by the tax authorities. In general, default taxation is a lot higher than what you actually owe. In order to avoid paying extra, it is best to fill out the tax return within the set time frame.
It is also important to note that tax returns are generally filed on a household basis. For example, married couples and couples in a domestic partnership who are living together must complete a joint tax return which both spouses must sign.
What You Need to Fill Out a Swiss Tax Return
All cantonal tax authorities in Switzerland now offer residents the option to fill out their tax return by using a special software, or online. When you submit a tax return, it is important that you only include the relevant documents. However, it is recommended that you collect all documents that could be important in terms of tax (e.g. proof of salary) and hold on to them, as you could be asked to produce them at a later date.
Expats Only: The Exceptions
As a foreign worker in Switzerland, you could be entitled to some extra deductions. Due to some confusion surrounding the guidelines in the Expat Ordinance — a guide outlining tax reductions available for expats and foreign workers — the ordinance was rewritten in 2016. These tax reductions are only applicable to expats defined as executive employees, or employees with specialist skills, who will be staying in Switzerland for less than five years.
The deductions can be applied to:
- reasonably priced accommodation in Switzerland (if you can prove that you still have access to permanent accommodation outside of Switzerland);
- moving costs and travel expenses to and from Switzerland for the expat and their family;
- tuition fees for the expat’s child or children to attend private school (if public school is not an option, e.g. if the language barrier is an issue).
These deductions are not always possible, however, and vary between different cantons and companies. It might be best to assume that you will not be eligible for these deductions when planning your budget for Switzerland.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.