A complete guide to taxes in Switzerland and the Swiss tax system, including income tax rates, income tax calculations and how to claim Swiss tax refunds.
If you are a foreigner living and working in Switzerland, you will typically be liable to pay Swiss taxes. However, when filing your Swiss tax return, you may also be able to claim certain tax expenses and deduction.
The Swiss tax system is quite complex due to the federalist structure of Switzerland. There are 26 cantons and around 2,250 municipalities that levy their own income taxes, wealth taxes, inheritances taxes, property gains taxes and other taxes.
ExpatTax, a company that provides financial and tax advice in Switzerland, explains the circumstances which dictate who needs to pay Swiss taxes, and at which tax rate.
ExpatTax is an innovative fiduciary company located in Solothurn, Switzerland, committed to providing expatriates in Switzerland professional and friendly financial services at affordable rates. Their small team of qualified consultants provides quality and personal tax services to individuals and corporation, geared specifically to expatriate needs. Other services include audit, accounting and business consultancy.
Who needs to pay Swiss taxes?
Resident individuals or temporary residents in Switzerland are subject to unlimited Swiss tax liability. The same applies to Swiss resident legal entities. This means that Swiss taxes apply to worldwide income and assets.
Limited tax liability applies to non-residents and companies having economic relations to Switzerland. In these cases, the Swiss tax is levied only on specific items of income that originate in Switzerland.
Residence is defined as the place where a person stays with the intention of settling permanently and which therefore provides the centre of his/her personal and business interests. A person will also be considered resident for tax purposes if they remain in the country for a prolonged period, typically more than 90 days (30 days if working), even if they are not engaged in gainful activity.
Companies are considered resident when either their registered office or their actual administration is in Switzerland.
Automatic exchange of information
Cross-border tax evasion should be prevented with the help of the new global standard for the automatic exchange of information (AEOI).
To date, more than 100 countries including Switzerland have committed to this system. Domestic bank client confidentiality in Switzerland is not affected by the AEOI.
Which Swiss taxes are applicable?
Switzerland places taxes on income and wealth (direct taxes), as well as on goods and services (indirect taxes, through VAT in Switzerland). In addition, most cantons levy inheritance and gift taxes in Switzerland (although spouses and direct descendants are typically exempt), which is a tax on gains derived from the sale of immovable property, and certain other taxes and dues.
On an international scale, taxes in Switzerland are fairly moderate. Note, however, there are considerable differences between the various cantons and municipalities.
Types of tax in Switzerland
To understand the Swiss tax system, it is important to understand there are different tax levels. Swiss taxes are levied by the Swiss confederation, the 26 cantons and the approx. 2,300 municipalities.
The delimitation of Swiss taxation powers is governed by the federal and cantonal constitutions. However, the cantons exercise all the rights of a sovereign state. They are authorised to levy any type of tax as long as the Federal Constitution does not reserve a certain right for the confederation.
There are only a few types of Swiss taxes for which the confederation claims exclusive taxation authority, including:
- Swiss VAT
- Stamp duties
- Withholding tax
- Custom duties
- Special consumption taxes
Consequently, the cantons are given a wide latitude in the creation of their own tax legislation. Municipalities are only empowered to levy taxes that are authorised by the constitution of their respective canton.
In addition, the parishes of the three national churches (Roman Catholic, Protestant or Christian Catholic) levy a church tax on their members in almost all cantons, and usually also on the legal entities liable for tax in the canton.
Thus the levels of Swiss tax authorities are:
- Federal level – governed by the Federal Constitution
- Cantonal level – governed by the canton
- Municipal level – governed by the commune, i.e. the city/town you live in
- Church – members of one of the three national churches (Roman and Christian Catholic, as well as Protestant) are taxed in almost all cantons.
The following table depicts the income and wealth taxes levied at each level, including Switzerland’s church tax:
Swiss corporate taxes
Any company with a registered office or administration in Switzerland are liable for unlimited Swiss tax, while foreign companies abroad are liable for limited taxation if they hold real estate or a permanent establishment in Switzerland.
An international comparison shows that Switzerland is a very attractive location for corporate tax payers. Read a detailed guide on Swiss corporate taxes.
Swiss income taxes and wealth tax
Swiss residents as well as temporary residents performing gainful activities in Switzerland are subject to unlimited (worldwide) tax liability, with tax treaty provisions prevailing. Limited tax liability applies to non-resident individuals having specific economic links with Switzerland. In such cases, taxes are not levied on an international basis but only on specific items of income having their source in Switzerland (e.g. property, permanent establishments, etc.)
It is important to note that Swiss tax laws are based on the principle that income and wealth of a family represents an economic unit and is taxed together. Hence, only one tax return is submitted per household, where income and wealth of both spouses are added together and are combined filed. Children under that age of 18 that earn an income have to declare their income in their parent’s tax return.
High income earners tax assessment
Foreign employees residing in Switzerland whose gross salary exceeds CHF 120,000 per year (CHF 500,000 in Canton Geneva) are obliged to file a tax return for their worldwide income and assets. The tax withheld from salary is credited interest-free against the assessed tax.
Assets tax assessment
Foreign employees residing in Switzerland whose gross salary does not exceed CHF 120,000 per year (CHF 500,000 in Canton Geneva) but who have additional sources of income or additional assets (e.g. income from securities or real estate property) are also obliged to file a tax return. However, in most cantons this is only for the additional income or assets.
Foreign employees: Withheld income tax
Foreign employees (without a C permit) have the fiscal amount deducted directly from their salary each month by their Swiss employer. The rates are lower than the rates of the assessed income taxes because they apply to the gross income.
All typical deductions and allowances are standardised and directly included in the tariffs. The tariffs are generally progressive (i.e. the more you earn, the higher the tax rate) and take into account whether you are married or single, living with children or subject to church tax.
The tax withheld at source does cover taxes of all tax levels – see the levels of taxation table.
Correction of withholding tax
If you are a foreign employee with tax deducted from your salary and if you are not required to file a tax return, you could eventually reduce your tax burden by submitting a claim for the correction of withholding tax. This may lead to a partial tax refund.
The correction claim can be submitted for the following items:
- Cost of international weekly residence
- Debt interest (consumer loans and credit cards)
- Further education and retraining costs
- Health and accident costs
- Costs associated with disability
- Support payments
- Alimony payments
- Contributions in recognised forms to own pension provisioning (3a pillar)
- Purchases of contribution years in a pension fund (2nd pillar)
- Childcare costs
Such claims can be submitted in most cantons. Usually, the cantons provide a special form that needs to be completed and additional deductions must properly be documented. Some cantons require completion of a full tax return in order to have these deductions taken into account.
If a correction of withholding tax is applied for, the application has to be submitted by 31 March of the following year. In most cantons, this is a fixed deadline, which cannot be extended.
Filing a Swiss tax return as an expat
Swiss citizens, foreigners with a permanent residence permit C, or foreigners married to a Swiss citizen, don’t have their taxes deducted from the salary, and instead need to file a tax return each year.
Some cantons have incorporated additional criteria in their tax laws that require an ordinary tax assessment of foreign residents in Switzerland, e.g. if real estate is owned in Switzerland. An annual tax return is also due if you are working as a self-employed person or as an employee of a foreign employer.
In Switzerland, the tax year corresponds to the calendar year. Thus the tax year-end is 31 December. In most cantons, a tax return has to be filed on the 31 March, which is three months after the end of the tax period. The majority of cantons allow one deadline extension free of charge. A further deadline extension might be possible against a fee.
If the taxpayer fails to file his/her tax return on time, he/she may be subject to default taxation. In such a case, the tax authorities will assess the taxpayer on the basis of a reasonable estimate. This tax base would usually be substantially higher than the actual tax base and is likely to be more expensive for the taxpayer. No appeal is available if action is not taken within 20 or 30 days (depending on the canton) of the issue of this final assessment. Penalties for non-filing may also be issued.
Filing US taxes from Switzerland
Despite the fact that every US citizen and green card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Switzerland, contact Taxes for Expats and see our Guide to taxes for American expats.
Calculating your Swiss taxable income and wealth
Taxable income includes:
- Income from gainful employment and self-employment
- Compensatory income (such as annuities and pensions)
- Secondary income (such as seniority allowances and tips)
- Income from bank accounts/securities and real estate property
- Other income (eg. prizes on lotteries and pools over CHF 1,000).
Expenses relating to the earning of income (e.g. professional expenses) are deductible from gross income. In addition, several general deductions (e.g. deductions for double income earners, for insurance premiums, for social security and pension plan contributions, for interest on private debt up to a certain amount, etc.) and social deductions (e.g. deduction for married couples, for single parent families, for children, for needy persons, etc.) are granted.
In general, total property is subject to wealth tax. Total property comprises all of the taxpayer’s assets and rights that have a cash value. These assets and rights are usually assessed at market value.
Taxable property includes in particular real estate, capital assets, redeemable life and annuity insurances and business assets. The tax base for the wealth tax is net wealth, that is, gross wealth reduced by the sum of the taxpayer’s documented debt, as well as personal allowances and social deductions which vary from canton to canton.
How much Swiss tax do I have to pay?
The extent of your Swiss tax burden varies from canton to canton and from municipality to municipality. Therefore, the taxes that an expat has to pay depend on where they live or intend to live. The tax scales are generally progressive. There is a reduced tax scale for married couples living together and single parent families. Below you can see some examples of Swiss tax tables to get an idea of liable taxes depending on your situation.
Swiss taxes for married couple with two children
The table below shows the income tax burden of a married couple with two children for the principal town of each canton. On a gross annual (joint) income of CHF 200,000 for example, the lowest tax due is in Zug with 7% and the highest in Liestal with 23.5%.
Source: Federal Tax Administration
Swiss taxes for a single person
The table below shows the income tax burden of a single person in the principal town of each canton. For a gross annual income of CHF 150,000 for example, the lowest tax is due in Sarnen with 12.2% and the highest in Liestal with 25.6%.
Source: Federal Tax Administration
Swiss wealth tax
The table below shows the wealth tax due in the principal town of each canton. For example, the annual tax for a net wealth of CHF 500,000 in the canton of Zürich is 1.06%, or CHF 528, to be precise.
Source: Federal Tax Administration
Swiss tax refunds for expats
Expatriates may assert certain additional tax deductions according to the Expatriate Ordinance by the Federal Department of Finances. The definition of an expat is however very tight.
Qualifying as an expatriate requires temporary secondment of senior staff as well as specialists with particular professional qualifications from a foreign employer to Switzerland. Specialists or executives with a timely limited local contract do only qualify as an expatriate if their employment is a transfer within the group and the foreign employer guarantees a re-employment after the stay in Switzerland.
Examples of specific deductions are costs for housing in Switzerland, moving, travelling and school of minor children.
This special treatment ends as soon as the temporary assignment is changed into a timely unlimited contract or after 5 years of staying in Switzerland, whichever is earlier. In some cantons, lump-sum expatriate deduction, known as OEXPA deduction, are granted instead of the itemised deductions. This is usually equivalent to about CHF 1,500 per month.
Expenditure-based taxation (lump-sum taxation) for expats not employed in Switzerland
For expats that are not pursuing an occupation, or more simply, who do not work or hold a job in Switzerland, an attractive taxation option could be expenditure-based taxation. Expenditure-based taxation, also referred to as lump-sum taxation, is a simplified assessment procedure for foreign nationals who are living in Switzerland but do not generate a taxable income.
The federal and most cantonal tax legislations provide an option to request to be taxed based on estimated living expenses rather than on actual income and net wealth. This lump-sum taxation is a special way of assessing income and wealth. However, regular tax rates are applied in calculating the tax amount.
In order to improve tax equity and acceptance by the population, a minimum assessment basis of CHF 400,000 taxable income is now applicable for the federal taxes and the cantons must also at their discretion set at least the same minimum amount for the assessment basis.
In the case of spouses who wish to be taxed on an expenditure basis, both parties must fulfil all of the prerequisites for expenditure-based taxation.
The basic prerequisite for lump-sum taxation is that the person concerned does not pursue an occupation in Switzerland. This type of taxation is available to those who make Switzerland their tax home for the first time or return after having been outside the country for at least 10 years. Foreigners enjoy this right indefinitely, while it is limited to the first year of residence for repatriating Swiss citizens, who are returning from abroad.
The right to expenditure-based taxation expires as soon as the person gains the Swiss citizenship (i.e. Naturalisation) or takes up gainful employment in Switzerland. Less than 0.1% of taxpayers in Switzerland are taxed on a lump-sum basis.
Miscellaneous taxes in Switzerland
In addition to individual and corporate income tax and tax on wealth or equity, you may be interested to know of the other taxes in Switzerland. The most important of these is the value-added tax (VAT), which is by far the lowest rate anywhere in Europe.
Swiss VAT or value-added tax
The value added tax (VAT; Mehrwertsteuer / Taxe sur la valeur ajoutée / Tassa sul valore aggiunto) is one of the Confederation’s principal sources of funding. It is a general consumption tax levied at a rate of 7.7% on most commercial exchanges of goods and services. Certain exchanges, including those of foodstuff, drugs, books and newspapers, are subject to a reduced VAT of 2.5%.
Yet other exchanges, including those of medical, educational and cultural services, are tax-exempt, as are goods delivered and services provided abroad. A special rate of 3.7% applies to the hotel and lodging industry.
Although Switzerland is not an EU member state, its value-added tax system was structured in accordance with the sixth EU VAT directive as a non-cumulative, multi-stage tax that provides for deduction of input tax. It is designed as a tax owed by the supplier of goods or services and the tax is usually passed on to the customer as part of the price.
Liable for VAT purposes in Switzerland is basically any person or company that performs commercial activities within Switzerland and if the annual turnover exceeds the threshold of CHF 100,000 (CHF 150,000 for charities).
This also applies for companies domiciled abroad having operational activities within Switzerland. Up to now only taxable turnover in Switzerland was included in this threshold. Regulations brought in in 2018 mean companies who supply goods or services in Switzerland or are domiciled there will be exempt from the requirement to register for Swiss VAT only if their worldwide turnover amounts to less than CHF 100,000. If their worldwide turnover is higher than this threshold, then the foreign company needs to register for Swiss VAT and any Swiss turnover is subject to Swiss VAT.
Foreign companies that do only provide mere ‘services’ in Switzerland are still exempt from the registration requirement. The Swiss VAT law does however define ‘services’ in a very narrow range. Not qualified as a service, but as a supply of goods is any type work that is performed in relation to a specific good, even if the good is not altered by the work, but only installed, tested, calibrated, regulated, checked for its function, made available for use or exploitation, or has been treated in another way.
Federal withholding tax
Federal withholding tax (Verrechnungssteuer / impôt anticipé / Imposta preventiva) is levied at a rate of 35% on certain forms of income, most notably dividend payments, interest on bank loans and bonds, liquidation proceeds, lottery prizes above CHF 1,000 and payments by life insurances and private pension funds. The debtor of such payments is liable for the payment of the tax; they must pay the creditor only the net amount. A rate of 15% applies for pensions, and 8% on other insurance benefits.
With respect to creditors resident in Switzerland, the withholding tax is only a means of securing the payment of the income or profit tax, from which the creditor may then deduct the amount already withheld or request its refund. The same applies to foreign creditors to the extent that a tax treaty provides for it. Other foreign creditors are not eligible for a refund; with respect to them, the withholding tax is a genuine tax.
Stamp duties are a group of federal taxes levied on certain commercial transactions. The name is an anachronism and dates back to the time when such taxes were administered with physical stamps. Stamp duties include:
- Issue tax (Emissionssteuer / Tassa di emissione) – levied on the issue of certain securities such as shares and bonds. Exceptions are made, inter alia, for securities issued in the course of a commercial reorganisation, and the first CHF 1.0M of funds raised are in effect exempt from taxation. The tax amounts to 1% of the funds raised and is payable by the issuer. The trade in shell companies (Mantelhandel) is also subject to the issue tax.
- Transfer tax (Umsatzsteuer / Imposta sulla cifra d’affari) – levied on the trade in certain securities by certain qualified traders (Effektenhändler; mostly stockbrokers and large holding companies). The tax amounts to 0.15 or 0.3% depending on whether Swiss or foreign securities are traded. Finally, an insurance premiums tax of 2.5 or 5% is levied on certain insurance premiums.
Border duties and miscellaneous federal taxes
The Confederation is constitutionally empowered to levy tariffs, which were its principal sources of funding up until World War I, but are now more important as an instrument of trade policy. Additional federal taxes of lesser economic importance include taxes on the import or manufacture of spirits, beer, tobacco, automobiles and mineral oil, as well as on gambling establishments. Citizens exempt from military service are required to pay a tax in compensation until the age of 30.
Other cantonal taxes: Capital gains tax, inheritance and gift tax, profits tax
In addition to individual and corporate income tax and tax on wealth or equity, the cantons are free to introduce others.
Several cantons levy an inheritance tax (Erbschaftssteuer / Imposta di successione) and a gift tax (Schenkungssteuer / Imposta di donazione), although there is a trend towards abolishing those. In all cantons, the transfer of wealth by inheritance to the spouse is tax-free. In most cantons, the same applies for direct offspring and sometimes even for direct ancestors.
Moreover, the cantons are required by federal law to levy a tax on the profit from the sale of real estate (Grundstückgewinnsteuer / impôt sur les gains immobiliers / Imposta sugli utili immobiliari). Except for real estate, there is generally no capital gains tax on private capital such as stocks and bonds.
Most cantons also levy a tax on the value of the property sold (Handänderungssteuer / impôt sur les mutations / Tassa di mutazione in order to discourage speculation with real estate. Furthermore, taxes are frequently levied on the ownership of dogs and motor vehicles, on the sale of tickets to public entertainments, and on overnight stays in certain tourist destinations.
Please note: The information contained within this article is for general guidance only and professional advice will be needed regarding your direct circumstances.