Working in Switzerland?
Economic Sectors and Taxes in Switzerland
The Swiss Economy
Switzerland has produced several large companies known across the world, for example Nestlé, Adecco, UBS, Zurich Financial Services, Credit Suisse, and Swatch. However, small to medium-sized enterprises (e.g. traditional manufacturers) play a significant role in shaping the Swiss economy.
Unsurprisingly for a country with a sophisticated manufacturing industry but little natural resources, foreign trade generates a major share of the GDP. The EU is predictably Switzerland’s major trading partner, followed by the US and China. The most important trade goods, both for export and import, are chemicals, machinery and electronics, precision tools, watches, jewelry, agricultural products, vehicles, textiles, leather, rubber, and plastic.
Of the three main sectors, the tertiary sector is the most important for the Swiss economy. It includes banking, insurance and tourism, employing more than 75 percent of Switzerland’s work force. Over a fifth of the working population makes up the secondary sector, i.e. industry, trade, and crafts. The machine, metal, watch, and textile industries play a significant role here, as do the chemical and pharmaceutical industries. This sector relies heavily on imports and exports.
The primary sector, agriculture, employs only about three percent of the workforce. Although many foreigners associate Switzerland with peaceful Alpine meadows, happy cows, and home-made cheese, the life of Swiss farmers isn’t all that romantic. The Swiss agricultural industry relies heavily on government subsidies.
Paying Taxes: Special Regulations for Expats
Switzerland is a low-tax economy. Taxes are due on at three levels: those paid to the Swiss Federation; those paid to the canton of residence, the amount of which varies depending on the canton you live in; and those paid on municipal level, which is also linked to your canton of residence.
Individual income tax is based on an annual declaration of income and assets, but most foreigners without a permanent resident status are taxed at source. In this case, the tax is directly deducted from the employee’s income, accounting for income tax at federal, cantonal, and communal level (plus church tax if applicable).
Expats can profit from certain tax reductions in form of a monthly flat rate to account for the higher cost of living associated with an expat lifestyle. The calculation is made on the basis of average relocation and travel costs, the maintenance of a second domicile, and tuition fees for children. If the actual costs are proven to be higher, additional allowances may be granted. Of course, only expats whose employer doesn’t cover these expenses can claim a tax reduction.
Double Taxation Agreements
There are double taxation agreements between Switzerland and a number of countries across the globe. They follow standard OECD guidelines and allow for two basic ways of avoiding double taxation: tax exemption and tax credits. As a general rule, people who spend less than 183 days per year in Switzerland and receive their salary from a non-Swiss employer may continue to pay taxes in their country of residence.
In other instances, taxes paid in one country can be credited against taxes due in the other country. The easiest way to find out whether there is a double taxation agreement between your country and Switzerland is to consult the fiscal authorities in your country of residence. The Federal Authorities of the Swiss Administration also have some information on double taxation agreements available in German, French, and Italian.
For more details on income taxation in Switzerland, please refer to our respective article.
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