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 taxes on income, wealth, inheritance, and property gains.
ExpatTax, a company that provides financial and tax advice in Switzerland, explains the country’s tax rates.
ExpatTax is an innovative fiduciary company located in Solothurn, Switzerland. It is committed to providing expats in Switzerland with professional and friendly financial services at affordable rates. These 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 the place where a person stays with the intention of settling permanently; it thus provides the center of their personal and business interests. A person is a resident for tax purposes if they remain in the country for a long period; this is typically 90 days (30 days if working), even if they’re not working.
Companies are considered resident when either their registered office or their actual administration is in Switzerland.
Automatic exchange of information
The new global standard for the automatic exchange of information (AEOI) aims to prevent cross-border tax evasion.
To date, more than 100 countries including Switzerland have committed to this system. The AEOI doesn’t affect domestic bank client confidentiality in Switzerland.
Which Swiss taxes are applicable?
Switzerland places taxes on income and wealth (direct taxes), as well as on goods and services (indirect taxes). In addition, most cantons levy inheritance and gift taxes in Switzerland (although spouses and direct descendants are typically exempt); this is a tax on gains 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 as well as the municipalities.
The federal and cantonal constitutions govern the delimitation of Swiss taxation powers. However, the cantons exercise all the rights of a sovereign state. They can levy any type of tax as long as the Federal Constitution does not reserve a right for the national government to do so.
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 have wide latitude in the creation of their own tax legislation. Municipalities may only levy taxes with authorization by the constitution of their respective canton.
In addition, the parishes of the three national churches (Christian Catholic, Protestant, and Roman Catholic) levy a church tax on their members in almost all cantons. This also applies to 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
- Church: members of the three national churches are taxed in almost all cantons
Swiss corporate taxes
Any company with a registered office in Switzerland is 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 taxpayers. 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)
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 necessary per household; the income and wealth of both spouses combine together. 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 the Republic and Canton of 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 the Republic and Canton of Geneva) but who have additional sources of income or additional assets (e.g., income from securities, 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 standardized and directly included in the tariffs. The tariffs are generally progressive; the more you earn, the higher the tax rate. They 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.
You can submit a correction claim 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 recognized forms to own pension provisioning (third pillar)
- Purchases of contribution years in a pension fund (second pillar)
- Childcare costs
Most cantons accept such claims. 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.
When applying for a correction of withholding tax, file the application by 31 March of the following year. In most cantons, this is a fixed deadline that 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. Instead, they must file a tax return each year.
Some cantons have additional criteria in their tax laws that require an ordinary tax assessment of foreign residents in Switzerland (e.g., owning real estate). An annual tax return is also due if you freelance or work for a foreign company.
In Switzerland, the tax year corresponds to the calendar year. Thus the tax year-end is 31 December. In most cantons, the deadline for filing a tax return is 31 March; that’s three months after the tax period ends. 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 you don’t take action within 20 or 30 days (depending on the canton). Penalties for non-filing may also apply.
Filing US taxes from Switzerland
Despite the fact that every US citizen and Green Card holder must file a tax return with the IRS, many expatriates still don’t. Many are unaware of these obligations, thinking that as an expat they do not need to 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 (e.g., annuities, pensions)
- Secondary income (e.g., seniority allowances, tips)
- Income from bank accounts/securities and real estate property
- Other income (e.g., 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) and social deductions (e.g., deduction for married couples, for single parent families, for children, for needy persons) 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:
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:
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 Zurich is 1.06%, or CHF 528, to be precise.
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 very tight, however.
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, traveling and school of minor children.
This special treatment ends as soon as the temporary assignment changes into a timely permanent contract or after five years of staying in Switzerland, whichever is earlier. In some cantons, lump-sum expatriate deduction, known as OEXPA deduction, is granted instead of the itemized 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 apply 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 fulfill 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 Swiss citizenship or takes up gainful employment in Switzerland. Less than 0.1% of taxpayers in Switzerland pay taxes on a lump-sum basis.
Miscellaneous taxes in Switzerland
In addition to individual and corporate income tax and tax on wealth or equity, there are also 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 in German, Taxe sur la valeur ajoutée in French, Tassa sul valore aggiunto in Italian) is one of Switzerland’s main sources of funding. It’s a consumption tax levied at a rate of 7.7% on most commercial exchanges of goods and services. Certain things, including food, drugs, books, and newspapers, are subject to a VAT of 2.5%.
Medical, educational, and cultural services are tax-exempt. Goods delivered and services provided abroad are also exempt. A special rate of 3.7% applies to hotels.
Although Switzerland is not an EU member state, its’ value-added tax system is in accordance with EU rules, as it is non-cumulative, multi-stage, and provides for deduction of input tax.
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 to foreign companies operating in Switzerland. Only taxable turnover in Switzerland is in this threshold. Companies who supply goods or services in Switzerland or are domiciled there are exempt from registering for Swiss VAT only if their worldwide turnover is under CHF 100,000. If their worldwide turnover is higher, then the company must register for Swiss VAT.
Foreign companies that only provide services in Switzerland are still exempt from registering. Swiss VAT law does 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 in German, impôt anticipé in French, Imposta preventiva in Italian) 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 in German, Tassa di emissione in Italian) – 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 reorganization, 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 in German) is also subject to the issue tax.
- Transfer tax (Umsatzsteuer in German, Imposta sulla cifra d’affari in Italian) – levied on the trade in certain securities by certain qualified traders (Effektenhändler in German; mostly stockbrokers and large holding companies). The tax amounts to 0.15% or 0.3% depending on whether they involve Swiss or foreign securities. Finally, an insurance premiums tax of 2.5% or 5% is levied on certain insurance premiums.
Border duties and miscellaneous federal taxes
The Confederation may levy tariffs, which were its principal sources of funding up until World War I. They 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, mineral oil, and gambling establishments. Citizens exempt from military service must 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 in German, Imposta di successione in Italian) and a gift tax (Schenkungssteuer in German, Imposta di donazione in Italian), 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 must levy a tax on the profit from the sale of real estate (Grundstückgewinnsteuer in German, impôt sur les gains immobiliers in French, Imposta sugli utili immobiliari in Italian). 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 in German, impôt sur les mutations in French, Tassa di mutazione in Italian) 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.
Beat Meyer is a Swiss Certified Public Accountant and qualified tax consultant. He is owner and CEO of Bonfina Treuhand GmbH / Expat Tax SwitzerlandLearn more about expat taxes in Switzerland