Taxes in Switzerland: The basics you need to know

Yuhman 8 min read
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7 snappy facts about taxes in Switzerland
 
1. One in two pay no direct federal tax: Almost 50% of taxpayers earn too little to pay it.
2. Millionaires bear the lion’s share: The top 1% of income earners pay almost 40% of total direct federal taxes.
3. Capital gains? Tax-free! In Switzerland there is no capital gains tax for private individuals – unless you are trading like a professional.
4. Forgotten your tax return? A costly mistake! Delays can cost you up to 1’000 CHF or more – in serious cases even several thousand.
5. Pay tax on an app? Of course! In cantons such as Zug or Zurich, you can settle your tax bill using TWINT or a credit card.
6. Pillar 3a as a smart way to save tax: If you pay into a Pillar 3a account, the maximum amount for the respective year can be deducted from taxes – it’s worthwhile.
7. Relocating as a tax strategy: Those wanting to pay less move to Zug, Schwyz or Nidwalden – where you are left with more of your income.

Fiscal fun? Making the best of those beloved taxes

Do you know anyone who jumps for joy every time a letter from the tax office flutters through their letterbox? Well we don’t! For 99% of the Swiss, fun is not a word that tends to be associated with tax. At the same time, though, this should not be a reason to stick your head in the sand and start panic googling for a tax advisor. The Swiss tax system is known for its complexity and decentralised structure. It is based on a federalist approach, whereby the federal state, cantons and municipalities each levy their own taxes. Let’s demystify it together, so that you can get through the tax year unscathed.
If you do not declare your taxes correctly, you may be liable to back payments, fines or even imprisonment.

1. Taxes always bring friends

There are lots of different taxes in Switzerland, but don’t worry, we are just going to concentrate here on the most important ones.

Income tax

Both the federal state and the cantons and municipalities levy income taxes, with tax rates varying by place of residence and income. Generally speaking, the higher your salary, the higher the tax rate rises – and thus also the tax liability. This is called «progressive taxation».
 
In Switzerland, by the way, everything counts: Your worldwide income is taxed, even the imputed rental value of your holiday villa in Italy (if you have one). And don’t forget that dividends from shares or interest on your savings account are also included.
 
And then there’s withholding tax, which packs a punch at 35% and applies to earnings from dividends or interest income from bonds. You can reclaim this by declaring the income in your tax return – this serves to avoid tax evasion. Important to know: Interest below 200 CHF is exempt from withholding tax.

Wealth tax

Wealth tax is levied on your net assets – so everything that you own minus your debts. But don’t worry, here the federal state doesn’t get involved; this tax is only due at a municipal and cantonal level (reporting date of 31 December). And because in Switzerland federalism is taken very seriously, the tax rates differ from canton to canton.

Important to know

This applies to your global assets, whether that is a holiday home in Spain or a bank account in the USA. Some cantons, such as Zurich, grant tax allowances – 77’000 CHF for single people, 154’000 CHF for married couples. Sounds fair, right? But be careful: Even if in the cantons there are tax allowances for assets, whereby no tax is due on these, you must always declare the total amount of assets in your tax return (except for household goods and utensils – your toaster is safe).
 
For securities and cryptocurrencies, the reporting date of 31 December also applies. Do you have an account statement from your bank? Great, then you can just use this. Those without a tax statement from the bank need to ensure that they record purchase and sales data correctly, so that dividend payments are also reported correctly.

Capital gains tax

In Switzerland private investors can heave a sigh of relief: capital gains remain tax-free! Professional traders, on the other hand, must pay tax on gains from securities transactions. You can learn more about this here.

2. Now let’s get down to the nitty-gritty: Tax returns and tax assessment

There are things in life that return every year: the Easter bunny, Father Christmas, your birthday… but also your tax return.

Here’s what you should know

In your tax return you report your income, your assets and any deductions. The submission deadline varies from canton to canton, but is generally by the end of March of the following year. Up until the original submission date, you can request a deadline extension – depending on the canton, this can be up to as late as September or November. But be careful: If you wait too long, time will run out and a fee will be charged!

Withholding tax liability

If you have a B residence permit or a similar permit, you are liable to withholding tax at source. If your gross income exceeds the threshold of 120’000 CHF or you have assets (depending on the canton) of approx. 100’000 CHF, you must submit a tax return. This is known as «subsequent ordinary assessment» and must be submitted at the latest by 31 March of the subsequent year.

3. Save on tax? Yes, you can!

The Swiss tax system offers different tax allowances and relief from which taxpayers can benefit:
  • expenses such as travel costs for commuting, subsistence costs etc.
  • costs of further education
  • deduction of debt interest
  • contributions to a tied pension provision (Pillar 3a)
  • voluntary purchases of additional pension benefits
  • donations to charitable organisations.

4. International aspects

Switzerland enjoys double taxation agreements with numerous other countries to make your life easier. Double taxation of income and assets is thus avoided, making Switzerland attractive both to businesses and investors and to private individuals. Important: Always declare worldwide assets and income – although tax is only payable on what is incurred in Switzerland.
 
Whether through an oversight or deliberately: If you do not declare your taxes correctly, you may be liable to back payments, fines or even imprisonment. Don’t worry, you don’t need to picture a life behind bars like in Orange Is the New Black just yet. You can correct errors from the past by means of penalty-exempt voluntary disclosure, on the condition that you are honest, assist with the tax assessment and pay the extra tax due.

5. Tax proceedings and criminal law relating to tax offences in Switzerland

Sometimes things get serious: Tax proceedings are initiated in Switzerland if you do not meet certain obligations. Here are the hard facts:

When duty calls – and you don’t respond:

Proceedings can be brought if you:
  • do not submit your tax return or the requested attachments,
  • disregard disclosure, certification or reporting obligations,
  • do not meet your obligations as an heir or third party in an inventory procedure.
The logical consequence is then logically a fine – and that can get very expensive, very quickly.

Tax evasion is not a trivial offence

Whatever the reason for it, anyone who prevents an assessment from being carried out in full or at all may be subject to supplementary taxes and a fine (between 0.3 and 3 times the tax that has been evaded).

Tax fraud – this is where it gets really tricky

Anyone using documents that are counterfeit, falsified or factually incorrect such as accounting records, balance sheets, income statements or salary statements and other third-party confirmations for the purpose of deception, will face imprisonment for up to 3 years or a financial penalty.

The solution is called voluntary disclosure

Have you made mistakes? Your second chance is known as «penalty-exempt voluntary disclosure». If you are reporting tax evasion for the first time, you will not be penalised as long as:
  • the tax authority knew nothing about it
  • you actively assist in determining the supplementary tax due
  • you actually pay the supplementary tax.
For any subsequent voluntary disclosure there is a reduced fine (1/5 of the tax evaded).

How does it work?

Simply add a note in the tax return («undeclared in error» or «penalty-exempt voluntary disclosure») or alternatively send a separate letter to the tax authorities.
Taxes? Everything runs smoothly with Yuh!
Granted, the Swiss tax system has its pitfalls – with federalist structures, cantonal variations and a lot of details. Sounds like a real headache? Well, leave your aspirin in the cupboard for now, as it also offers great potential: With a smart approach and appropriate use of deductions, you can optimise your tax position.
 
And yes, tax evasion is an absolute no-go. However, if something does go wrong occasionally, you can straighten everything out through penalty-exempt voluntary disclosure – and avoid costly consequences.
 
💡 Yuh’s tip:
 
Your tax documents are already waiting for you – in your Yuh app, of course, where they’ve been since the end of January! From account statements to interest notices through to dividend statements, it’s easy to find everything you need in the «Documents» section. And the best thing? With these documents, available free of charge, completing your tax return is a piece of cake.
 
For a dash of extra convenience, there is also the eTax statement: for 25 CHF, this can be requested directly in the app, and is also available from the end of January. While not a must, it’s perfect for all those who like things to be super straightforward.
 
Yuh allows you to have everything under control so that your tax return doesn’t turn into a tragedy in three acts. In fact, it may end up being so easy that it makes you smile.