Personal income & wealth tax in Switzerland
First, let’s consider the different levels of income and wealth tax. While the federal taxrate is the same for everyone, there are huge differences between cantonal and community tax rates. An individual is subject to federal, cantonal and communal taxation, whether they are resident in Switzerland or here on a permanent or temporary basis. The most important individual taxes are levied on income and private wealth. The federal as well as cantonal/communal income taxes are levied and collected by the cantonal tax authorities. Tax on your personal wealth is only levied by cantons and municipalities. For individuals, the tax year corresponds to the calendar year.
An exception is when you are resident in Switzerland for tax purposes but do not yet have a residence permit C. In this case tax at source is deducted directly by your employer from your salary. Once your income exceeds CHF 120’000 then tax at source is still deducted but a tax form must also be submitted and any difference will be paid back to you or owed by you. The tax at source rate differs from canton to canton.
Swiss residents are subject to tax on their worldwide income; however, revenues derived from income abroad – for example from foreign real estate – are generally only taken into account to determine the applicable tax rate. There are many deductions that can be subtracted from your net salary; however, they vary from canton to canton. Income deriving from gifts or inheritance are typical examples. Deductions include employment costs, such as lunches and travel costs, additional contributions to pension plans, health insurance, dependent children or family, and double income families. Certain interest payments on loans and mortgages are also deductible.
Individuals are taxed at their place of residence and individual tax rates are typically progressive. The income of married couples is combined, but taxed at a preferential rate compared to non-married couples with a similar income. Income tax rates also vary enormously between cantons and municipalities.
Wealth tax is levied on the value of an individual’s assets, minus the value of any debts. Swiss wealth tax is levied at cantonal and local levels on your personal assets. Wealth tax rates are progressive.
Regardless of whether you complete the tax form yourself or hand it over to a professional, you cannot delegate the preparation of the paperwork. We recommend the following steps.
Keep a tax folder for each tax year and file the applicable documents as they arrive in the post.
Ensure you prepare documents and receipts such as: your salary sheet, your year- end bank account statements showing interest and the year-end balance, investment statements, medical expenses and insurance premiums, charitable contributions, property details and mortgage statements, receipts for additional payments into the pension fund and the pillar 3a.
If there are documents that you cannot find and may have to request, file for an extension.
Carefully read the instructions sent with the tax form because rules do change; however, using an electronic software programme saves time and automatically calculates many of the deductions.
Brien Donnellon is the owner of KEY INVESTMENT, a financial services company providing unbiased financial advice and solutions for Swiss-based expats, HR departments, foreign investors and small companies throughout Switzerland. For further information: firstname.lastname@example.org or www.keyinvestment.ch or call +41 (0)81 322 11 22.