The Expert Guide: The Swiss Tax System

THE SWISS TAX SYSTEM

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Swiss government works on a bottom-up basis. The tax system reflects this setup, with most tax laws governed by municipalities and cantons.

Municipal taxes: these are voted on and levied on a municipal level, which means municipalities can easily adapt local taxes to suit their individual needs. For you as a newcomer, it means that the place you choose to live can make or break your taxes’ piggy bank. In the most extreme cases, simply moving across the road can significantly reduce your tax bill. Municipalities can levy taxes on income, wealth, inheritance, capital gains, property and much more. In Switzerland, private investors do not pay taxes on stock market capital gains, but dividends are taxable income.

Professional investors pay tax on capital gains but can deduct capital losses.

Cantonal taxes: most major tax laws are decided at the cantonal level. Cantonal governments levy taxes on top of municipal taxes and also determine what taxes may be levied by municipalities. So which canton you live in both directly and indirectly determines what you have to pay taxes on and how much you pay. Some cantons allow municipalities to offer flat-rate tax deals in order to ‘onboard’ high-net-worth taxpayers.

Federal taxes: the federal government levies a personal income tax, called direct federal tax. It applies to all of Switzerland’s tax residents.This progressive tax is relatively modest, with an 11.5% rate for the highest tax bracket. The federal government also levies value added tax (standard: 7.7%; hospitality: 3.7%; groceries, medicines, newspapers, books: 2.5%) and customs duties. TV and radio fees – a form of tax for government-sponsored radio and television – are levied countrywide. A 35% withholding tax is applied to interest earnings and refunded based on tax returns.

THE SWISS TAKE Government in Switzerland is seen as administrative and not authoritative. Tax laws are largely voted on by citizens and taxes have traditionally been seen as voluntary donations to the common good rather than the God-given right of kings. This makes sense from a historical perspective, because Switzerland is one of the only European countries which was never fully ruled by aristocratic governments. Tax evasion is a civil offence rather than a criminal offence. Tax offices are not allowed to inquire into taxpayers’ bank accounts unless there is strong evidence of criminal activity.

Delinquent taxpayers can declare their delinquency voluntarily and simply pay up the taxes owed without harsh penalties. Late payers are charged penalty interest but do not face legal action. Perhaps surprisingly, this arrangement seems to work very well.

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PECULIAR TAXES

Church tax: when you become a resident in Switzerland, you will be asked whether you are a member of one of the officially recognised religious denominations. If you declare yourself a member of a Catholic, Protestant, Jewish or other denomination recognised in your canton, you will be required to pay a church tax. If not, you won’t. Even as a Catholic you can choose to opt out but still attend mass. A papal decree states that services cannot be contingent on payment.

Fire brigade tax: this tax is levied in many Swiss cantons. What makes it peculiar is that in some cantons you can avoid paying it by becoming a voluntary firefighter – if you meet the criteria.

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YOUR TAX RETURN The Swiss tax year is based on the calendar year. Your annual income determines income tax liability, and the value of your assets on 31 December determines your taxable wealth for the tax year.You have until 31 March of the following year to submit your tax return (or tax deduction claims if you pay withholding tax, see below).You can often extend that deadline, depending on your canton.

You receive your tax bill after your tax return has been processed. If possible, pay it promptly to avoid paying penalty interest. In many cantons, tax offices send you provisional tax bills based on your estimated income and wealth up to one year ahead of tax season. Some cantons (like Aargau) require you to pay provisional tax bills, while in others (eg Zurich) it is voluntary.

Some cantons pay interest on tax advances which can make paying provisional taxes worthwhile (overpaid taxes are refunded).

Temporary residents do not file tax returns. Instead you pay withholding tax which is deducted directly from wages, but you can claim refunds.

Exceptions to this rule: you earn more than 120,000 francs per year (500,000 in Geneva); you are married to a Swiss citizen or permanent resident; you own property in Switzerland (you must file returns even if you do not live in Switzerland).

Taxation in Switzerland is based on residence, not nationality. Residents must declare their global income and assets. Switzerland has double taxation agreements with more than 100 countries (including the UK and the US) that help you avoid paying tax twice for the same assets.

WEALTH TAX

Switzerland is one of a few countries where wealth taxes are levied.

Cantons and municipalities levy this tax on your personal assets which exceed a threshold (each canton has its own). Swiss wealth taxes are progressive, so wealth is taxed at different rates in tax brackets. All cantons have exemptions, but thresholds vary: wealth taxes in the least favourable cantons (Basel, French-speaking cantons) can be more than five times higher than in the most favourable cantons (Nidwalden, Schwyz). A childless married couple with one million francs of assets could pay anywhere from 1,000 to nearly 7,000 francs per year in wealth tax, depending on where they live.

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WHAT YOU NEED

Annual salary statements, which will be provided from each of your employers Annual account balance statements for each bank account in Switzerland or abroad Statements to confirm your pillar 3a contributions If you claim tax deductions or tax refunds, include copies of relevant invoices and receipts.

BOTTOM TITLE TAX DEDUCTIONS

Whether you pay withholding tax or submit returns, you can claim tax deductions. There are nearly 100 tax deductions on the federal tax level alone, plus hundreds more cantonal tax deductions. Here are current federal figures for the most broadly-applicable deductions.

Alimony and child support: fully deductible (these count as the recipient’s income) Children: 6,500Fr per child Childcare: up to 10,100Fr Commuting: cost of public transportation up to 3,000Fr Donations: deductions vary between cantons, but as a general rule, tax-free donations cannot exceed 20% of your annual income.

Home maintenance: the costs of maintaining the value of real estate can be deducted. In most cantons, homeowners can choose between a flat deduction (even when no renovations are made) and actual costs.

Home office: if you work from home. Deductions vary between cantons.

Insurance premiums: up to 1,700Fr Interest charges: interest paid on debt (not including car leasing) can be deducted in full.

Medical expenses not covered by insurance: if they surpass a certain threshold (typically 5% of your income). Threshold varies between cantons.

Professional education: up to 12,000Fr Voluntary pension fund contributions: fully deductible Voluntary retirement savings: currently up to 6,826Fr (employed) or 34,128Fr (self-employed) for pillar 3a contributions (see ‘Pensions’) Workplace meals: up to 3,200Fr Work-related expenses: cost of special work clothes or equipment, or use of private car for work up to 4,000Fr Money 149