Swiss tax rates vary from canton to canton and from community to community within each canton. On top of that there is also Federal tax levied at the same rate wherever you live. Taxes are levied on all forms of income, on assets and gains on sale of property. In addition, if you are a member of a Swiss state religion, there is a small levy for church tax. As tax laws and tax rates vary widely among cantons and among municipalities, the choice of residence can be an important element of tax planning. Switzerland uses a Progressive tax system, meaning the more you earn, the higher your tax rate overall.
Average tax rates can’t be calculated because of the multi-layered tax system. Taxes are calculated based on specific figures for specific cantons and municipalities.
Income earned outside of Switzerland must be declared, but is used to set the rate for the tax on the Swiss income and as long as there is a double tax treaty in place, if the income is already taxed where earned, then it is not taxed again in Switzerland.
Assets owned that are based outside Switzerland are also required to be declared in order to set the tax rate on the Swiss assets.
There is a difference between how you pay tax depending on your permit status. If you have no residence permit or one that is not a C, then the Swiss employer is obliged to deduct tax at source, whereas a C residence permit puts you on the same footing as the Swiss national, and tax is paid 4 times a year on account and settled up once you complete a tax return. A lot of Swiss let someone else complete their tax return. Very few like filing taxes.
A note to residence status for tax purposes: Individuals are considered resident in Switzerland if they take up legal residence in Switzerland or if they intend to stay there for a certain period (usually longer than one month), as well as if they work in Switzerland for a period exceeding 30 days.
Non residents are subject to Swiss tax on Swiss income related to pensions, certain services or property in Switzerland. Often this tax is withheld at source. Reclaiming this tax is outside the scope of my services.
Taxable income and assets
Taxes are not calculated on the basis of your total income, but on the basis of what is known as your ‹taxable income›. This is a lower amount. You can deduct social insurance and pension contributions and various other deductions from your income in your tax return.
Wealth taxes are calculated on what is called your ‹taxable wealth›. Here, too, you can make deductions in the tax return for expenses and mortgages.
If you pay tax at source then the rate is based on an average person not owning property in Switzerland. It is not normally permitted to buy property without a C permit. If an individual earns over CHF120’000 per annum, then he needs to also complete a tax return. Under that amount it is voluntary and only worth doing if there are exceptional deductions available that can reduce the taxable income to below the average.
Legal ways to reduce your taxes
Take advantage of available deductions to reduce your taxable income. Common deductions in Switzerland include:
- Contributions to pillar 3a or topping up your pension (see my blog on pensions).
- Contributions to Social security system to fill gaps
- Work-related expenses (commuting costs, professional development, etc.).
- Charitable donations (to charities registered in Switzerland). Some cantons limit to a specific % of net income.
- Premiums paid on life, accident and health insurance policies- limits apply
- Costs for childcare as well as a tax deduction for each dependent child, including those in their first study or apprenticeship.
- Mortgage and credit card or loan interest payments
- Medical costs paid yourselves exceeding 5% of taxable income, including dentist and optician costs.
- Payments to support relatives who are unable to support themselves. ( not all cases applicable)
- Donations and membership fees for Swiss political parties are deductible ( limits apply)
- Shareholder dividends (from stocks and ETFs, for example) are considered taxable income and a flat deduction can be claimed from any dividends. Capital gains, on the other hand, are not taxed unless the tax office categorizes you as a professional investor. See this Moneyland article for more information
- If you own property then currently while there is a owners rental value ( Eigenmietwert) added to your income, you can also deduct costs incurred in maintaining the property. Clever planning of the spend can spread the benefits over several years. ( Note that Eigenmietwert could be abolished at some point, and then these deductions will no longer be permitted)
- As a last resort to save taxes there is always the option to move to another canton or community. A change of residence to a place with lower taxes can often save thousands of francs, and this can be an attractive option if you know that your income or capital is going to increase significantly. Anyone who moves during the course of a year will be assessed for the entire tax year by the tax office at the new place of residence.
Need help filing your tax return? I am happy to assist you. Please contact me for an initial free consultation.