Paying 2017-2018 income tax in Switzerland? Read this
Working your way through a foreign tax system can be a bit like navigating a particularly tricky maze. And if you’re an expat living in Switzerland you’ll know that what tax you pay depends on not only what you earn, but also your personal circumstances, including precisely where in Switzerland you live.
Tax is a complex legal area - and it’s important that you understand your own situation. This overview of the Swiss income tax system is a great starting point, but Switzerland’s federal structure makes it especially important that you get the right detail for the canton and commune in which you live. That’s because what you pay will be made up of tax levied on a national, regional - cantonal - and local - commune - level.
If you think you might need to pay tax on some or all of your income in Switzerland, getting professional advice - to make sure you pay the right amount - is advisable.
What income is taxable in Switzerland?
Exactly what income is taxable in Switzerland might depend on where in the country you live. It’s important to check the local guidelines for your canton. You can assume that most regular employment income, including bonus payments and so on, will be taxable. It’s also likely that other income such as rental income and any interest from savings and investment gains, could come into scope.
To take a more specific example, in the canton of Geneva, you’ll be taxed on all employment income and benefits, and profit from real estate rentals. Income from savings and investments is also taxed, but not at the same rate as employment income, and the rate can vary depending on the type of investment. There are also other details which are worth noting - for example, in Geneva you’re not taxed on winnings from lotteries and so on, up to CHF1,000 - but above that level these payments become taxable. On the other hand, employment income from a few sources - notably if you’re carrying out military service or work as a volunteer in the fire service and receive a stipend - isn’t taxed.
It’s safe to say that the system is relatively complicated, so if you’re unfamiliar with Swiss income tax, taking professional advice is essential.
(Source, 11 December 2017)
Who has to pay income tax in Switzerland?
Most people living or working in Switzerland will have to pay tax there. However, to know exactly how much tax you might owe, you need to know your tax status. In basic terms, you’ll be classified as either:
- A resident taxpayer
- A non-resident taxpayer
Resident income tax
In Switzerland, the tax year is the same as the calendar year - 1 January through to 31 December. In the most basic terms, if you live in Switzerland for at least 180 days over 12 months or stay in the same place in Switzerland for 90 consecutive days a year, you’re a resident taxpayer, and have to pay tax on any income you make anywhere in the world, to Swiss authorities.
(Source, 12 December 2017)
Non-resident income tax
If you live in Switzerland for under 180 days in the relevant tax year and didn’t spend 3 full months living in one place, then you might be considered non-resident for tax purposes. In that case, you only pay tax on income earned in Switzerland to the Swiss tax authorities.
It’s not uncommon for people to live across the Swiss border in one of the neighbouring countries like France or Germany, and commute on a daily basis to work in Switzerland. In this case, you’ll have to be especially sure of your tax status, as it could be a little more complex than usual. The country in which you live might consider you tax resident and demand tax on your ‘world wide earnings’ - however, as you’re earning the majority of your income in Switzerland, the Swiss authorities will want you to pay tax on that income to them, too.
The good news is that, thanks to double taxation agreements, you shouldn’t be asked to pay tax on the same earnings twice. More on this later.
In what instances do Swiss residents working abroad need to pay income tax?
This could be complicated, especially if you’re a cross-border commuter. Professional advice might be needed to pick apart your liabilities.
Most likely, if you live in Switzerland for more than 180 days in any given year, then you’re likely to be judged to be a tax resident there. In this case, you’ll have to pay tax on your worldwide income to Switzerland. However, the country you’re working in could want you to pay taxes there too. Once again, in this case, you’ll need to rely on double taxation treaties to make sure you don’t end up paying too much.
If you’re out of Switzerland for more than 180 days during the calendar/tax year, then you’re likely to be classed as a non-resident taxpayer. That means that you’ll only pay tax in Switzerland on income that you earn there.
What are the income tax rates in Switzerland in 2017-2018?
Usually, in Switzerland, you’ll declare your taxes as a family, so along with a spouse or partner if you have one, and children aged under the age of 18 if they’re also earning. There are then different tax rates, limits and exemptions applied based on your personal situation.
The tax you ultimately pay depends also on where you live. There are quite large variations depending on the canton. Pretty consistently, though, taxes levied in Zug are the lowest in Switzerland, while Neuchâtel is the most expensive place to pay tax in Switzerland. It’s probably no surprise that Zug, in the Zurich region, is home to many international businesses, and has a large expat population.
Some income isn't subject to income tax, but falls under what's called a federal withholding tax - verrechnungssteuer / impôt anticipé / imposta preventiva - usually this is set at 35% and applied to income from things like investments and interest, and lottery wins over CHF1,000. It’s withheld at source in most cases.
The easiest way to see what taxes you’ll be subject to is to use the online tax calculator provided by the Swiss authorities. Here you can enter your earnings, and details of your personal circumstances, including where you live and whether you’re declaring as a single person or on behalf of a family unit, to provide an estimate.
( Source 1, Source 2, Source 3, 11 December 2017)
What are the tax exemptions in Switzerland?
Your income tax is calculated based on the family unit. That means it’s normal to pay tax as a family, and your tax burden is then decided based on your personal circumstances, including how many dependant children there are, and whether there are any special needs or circumstances to be taken into account.
After doing that, you might also be eligible for other tax breaks, exemptions, deductions and credits depending on your personal situation. To be eligible for any of these allowances you have to include them on your tax declaration.
If you’re an expatriate in Switzerland and aren't working, you might be able to opt for ‘lump-sum taxation’, which means you pay a fixed amount rather than a percentage based on your wealth. This is an attractive option for very high wealth individuals and is one of the reasons that Switzerland has a reputation for being a tax haven.
Deductible items
You can remove from your taxable income the costs of some things, including professional expenses, interest paid on private debt, payments made to a divorced spouse, and some social and pension contributions. There are caps and limits in place for these items. Make sure you understand the detail when you complete your tax return.
( Source, December 2017)
What sort of double taxation agreements are there with Switzerland?
It’s possible for someone to be liable to pay tax in 2 countries. In the case of Switzerland this is possible in particular if you’re a cross-border commuter.
To make sure that you don’t need to pay double tax, many countries have what's known as double taxation agreements. These let you off-set tax paid in one country with that due in another, to ensure that you only pay tax once on your earnings.
Check the most recent details if you need to know whether you’re impacted by a double taxation treaty, as these agreements can change over time, and not all agreements apply to all types of income. At present, Switzerland has double taxation agreements with countries including the following:
| Switzerland double taxation agreements | |
|---|---|
| Armenia | Latvia |
| Austria | Lithuania |
| Azerbaijan | Luxembourg |
| Argentina | Macedonia |
| Albania | Moldova |
| Algeria | Malaysia |
| Australia | Mexico |
| Belarus | Netherlands |
| Belgium | New Zealand |
| Bulgaria | Norway |
| Canada | Philippines |
| China | Pakistan |
| Chile | Poland |
| Czech Republic | Portugal |
| Egypt | România |
| Ecuador | Russia |
| Estonia | Saudi Arabia |
| Finland | South Korea |
| France | Singapore |
| Germany | Slovenia |
| Georgia | Slovakia |
| Greece | South Africa |
| Hungary | Serbia |
| Ivory Coast | Spain |
| Iran | Sri Lanka |
| Israel | Taiwan |
| Indonesia | Tajikistan |
| Ireland | Trinidad and Tobago |
| Iceland | Tunisia |
| India | Thailand |
| Italy | Ukraine |
| Japan | Uruguay |
| Jamaica | UK |
| Kuwait | USA |
| Kazakhstan | Venezuela |
| Kyrgyzstan | Vietnam |
(Source, 11 December 2017)
How do I pay income tax in Switzerland?
In most cases you’ll submit your tax return and pay your taxes electronically in Switzerland, using the cantonal tax portal. The details can vary by region, so do check the registration requirements and process wherever you live.
Paying income taxes online
Using the online system to submit your tax return and then pay your bill, is usually quicker and easier than paper forms. If you’re an expatriate, paying taxes electronically in Switzerland, you might need to do so using a bank account held in a different country or currency. Don’t forget, then that there may be charges that will be added to the transfer you make to pay your taxes.
When you’re doing your sums, it’s important to think about not just the upfront charges, but also the exchange rate used when converting your cash from a different currency to Swiss francs to pay your tax bill. That’s because banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. To make sure they make a profit, they mark up the rate by 4-5% and keep the difference. This is especially likely with exchange services which claim to offer fee-free conversion. It’s a common pitfall, and it means that you pay more than you need to.
You might be able to get a better price for your transfer if you use Wise. It’s often a better value because Wise works differently to banks. You can still get your money transferred quickly and safely. But in this case, you can trust you’ll always get the real exchange rate, and the fee is charged upfront, so you know how high the cost will be.
There’s no magic involved. This is possible, simply because Wise doesn’t use the pricey SWIFT system for making bank transfers. International transfers processed by Wise are therefore cheaper to process than traditional options, and the savings are passed on to the customer.
Depending on where you are in Switzerland, you might be able to pay your taxes directly using a Wise transfer. Otherwise, if you don’t already have your own bank account in Switzerland, you could transfer the payment to a friend or family member who does, to bring down the costs.
If you often have to move your money between different currencies, you could get even more benefit from opening a new Wise borderless multi-currency account. This account lets you hold your money in any one of dozens of different currencies all in the same account. There’s no ongoing fee for holding the account, and you can check your balance easily across all currencies. It’s possible to switch your money between currencies whenever you need to, using the real exchange rate every time. There’s only a small transparent fee for changing your cash, which means it could be cheaper than using a bank.
Taxes are often complicated - and nowhere more so than Switzerland with the impact of regional and local taxes to deal with, too. It’s especially tricky if you’re a cross-border commuter, or if you juggle life between different countries. But it’s still your job to work out what you have to pay - and to which authorities. Getting it wrong can be an expensive mistake.
Wherever you’re paying your taxes, you don’t want to be stung by unfair fees added when you change your currency. Wise might be able to help you save money on cross-border transactions. See if you can get a better deal from Wiseif you find yourself needing to pay your taxes abroad.
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