Taxes are an integral part of modern economies that enable governments to function, public infrastructure to be built, and key institutions to provide basic services such as education, medical care, and security. All of these benefits make taxes a civil obligation that everyone needs to fulfill at the best of their abilities.
In Switzerland, income tax is seen as a responsibility and a morally obliging contribution upon Swiss citizens of all classes. Accordingly Swiss government takes income tax very seriously, and citizens are legally required to declare all of their taxable income.
The Income Tax System in Switzerland
The income tax system in Switzerland can be hard to get your head around, as the amount you pay depends on where you live in the country. The Swiss tax system follows a federalist structure, where the government levies a direct income tax. The individual cantons and 2,250 municipalities levy an additional tax on income and capital.
Switzerland’s income tax laws are based on the principle that a family’s income represents an economic unit. So, only one tax return is necessary for each family, and the income and wealth of both partners are combined and filed together. If any children under the age of 18 earn an income, they must declare it in their parents’ tax return.
Self-employed workers in Switzerland have to submit a tax return every year, but employees are usually taxed through a pay-as-you-earn (PAYE) system arranged by their employer.
What is income tax?
Income tax is a type of tax that the government enforces on a person’s or business’s registered income. This type of tax is usually collected annually, so at the end of a fiscal year, people are obliged to declare their annual income, after which they are taxed at either a fixed or progressive rate.
Who pays income tax in Switzerland?
You have to pay income tax if you are a Swiss resident or a person staying in Switzerland for more than 90 days or 30 days if you’re working. Swiss residents are taxed on their worldwide income and assets except for income sourced from a business activity carried abroad.
Who is exempt from income tax in Switzerland?
Tax regulations may vary between the different cantons; however, anyone living in Switzerland for no more than 183 days a year can be exempt from income tax.
Old-age pension, occupational pension, as well as invalidity insurance benefits must be declared as income, and usually, they are fully liable to tax. However, any supplementary pension benefits are non-taxable.
Taxable Income in Switzerland
Taxable income is the sum total of the wealth that is taxed for a taxable entity. However, not all of the income of a person is taxed. Accordingly, several expenses are deducted from income tax. Some of these deductions include employment expenses, business expenses, and family expenses (such as day-care expenses and spouse and child alimony).
Taxes on income/salary in Switzerland
All Swiss residents who possess a valid work contract are subject to income tax, whether the employer is Swiss or foreign or if the employment income is equity-based. On the other hand, non-residents are usually excluded from income tax, but they are subject to withholding tax on their salaries.
Taxes on employment benefits in Switzerland
Employment benefits are subject to income tax for Swiss residents while also being subject to withholding tax for foreign workers. However, some employment benefits may be subject to deduction from income or withholding tax.
Healthcare expenses that aren’t covered by health insurance may be deducted from your taxable income. Such costs can involve prescription glasses, treatment by licensed homeopaths, dental care, and health insurance deductibles.
Real estate taxes in Switzerland
Real estate is subject to taxation in different ways based on its use. So, when you buy or sell a property, you will have to pay property transfer tax or property gains tax, but if you live in your own home, you will pay imputed rental value or property tax and a wealth tax.
How to File Your Income Tax in Switzerland?
After every fiscal year, your cantonal tax administration will ask you to declare your income and fill out your tax return. There are some documents you need to file your income tax. These documents include:
- Certificate(s) of remuneration (if you are an employee) or certificate of expenses (if you are self-employed)
- Statements of pensions (if you’re retired)
- Account statements from the bank or post office
- Investment-related statements
When declaring your income for the tax return, you are allowed several deductions based on your expenses and general deduction laws. Some documents needed for these deductions include:
- Contribution certificates for pillar 2 and 3 pension schemes
- Costs of health insurance and medical bills
- Expenses related to your job
- Receipts for charitable contributions
- Documents relating to property taxes, mortgage interest, maintenance and repair bills, operating and administrative costs, etc.
Who needs to file a tax return in Switzerland?
All Swiss residents that are not subject to withholding tax are subject to income tax and need to file a tax return. Non-resident workers whose income exceeds their cantonal threshold for income tax also have to file for a tax return. All other categories of workers, resident or not, are subject to monthly withholding wage tax but do not have to file for a tax return.
Income tax forms in Switzerland
You can fill out your tax return physically and deliver it to your local cantonal administrative office or do it online. Check out the cantonal tax administration website if you need help filling out the income tax forms.
Income tax rates in Switzerland
Switzerland’s current taxation rate at a federal level for personal income stands at 40%. The cantonal and municipal tax rates are different, but most use progressive rates for income taxation.
Income tax deadlines in Switzerland
In Switzerland, the fiscal year is correspondent to the calendar year. Most cantons, including Zurich and Geneva, have 31 March as the deadline for a tax return, but deadlines may vary from canton to canton. So make sure to check the deadline in your canton and respect it; otherwise, you will have to pay an interest rate for late payment of income tax.
Tax Refunds in Switzerland
In Switzerland, many deductions and allowances are available for personal income tax. These allowances are given based on the person’s circumstances. For example, married people, parents with dependent children, etc., are subject to significant allowances on Swiss direct federal tax. Other major refunded expenses include medical bills and different expenses that we previously mentioned. Similarly to income tax, certain conditions should be met for refunds to be available to people who are subject to withholding tax.
Income Tax in Switzerland for Foreigners
The Swiss legal tax system recognizes foreign workers who stay in Switzerland for more than 30 days on business/work purposes as Swiss residents, so they need to pay their taxes. Foreigners are subject to taxation on their assets located in Switzerland in addition to their Swiss-sourced income. If the Swiss authorities do not consider you a Swiss resident, you only need to pay tax on your income.
To help expats avoid double taxation, Switzerland has double tax treaties with many countries, including Australia, Iceland, Hong Kong, the United Kingdom, and the United States.
Conclusion
Filing your income tax may be something that most people find annoying, confusing, and stressful. However, one should keep in mind that paying income tax is a moral and legal obligation that enables the Swiss government to maintain the prosperity of all of its citizens. So, make sure you’re up to speed on Switzerland’s latest income tax rules and file your taxes on time.
