Taxes FAQ

Are neighbourhood association membership fees tax-deductible?

Membership fees for political associations are tax-deductible. Any other association fees cannot be deducted for tax purposes.

 

My partner and I have a joint account. Whose tax return does this have to be included on?

If each of you is required to complete a separate tax return, you both need to declare half of the income from that account.

 

We own a holiday home in Ticino, but only use it for six months in the year. Do we have to enter the full imputed rental value on the tax return – or is it sufficient to declare half of this amount?

Provided the property is at your disposal, you have to declare the imputed rental value for the entire year, regardless of how much you effectively use it.

 

Two years ago, we gave our daughter an interest-free loan of CHF 30,000. She still owes us CHF 18,000. Are we required to state this amount on the tax return?

Yes, loans have to be declared whether they bear interest or not. The loan must be declared as a receivable in the securities statement and is subject to wealth tax. However, the fact that no interest is received makes the loan exempt from income tax. On the other hand, your daughter can declare the loan as a debt in the debt statement.

 

I am a member of the WWF. Can I deduct my membership fee – or is it only donations that are deductible?

As regards to deductible donations and non-deductible membership fees, the determining factor is whether the payment is voluntary or not. A membership fee is usually stipulated in the bylaws of the respective NGO. Consequently, the NGO is entitled to receive a membership fee. This means that membership fees do not qualify as a donation. In other words, they are non-deductible.

 

I own a condominium in the Zurich Oberland that I have rented out. My wife and I live in Schaffhausen. What deductions can I make?

Maintenance costs, insurance premiums (fire, natural perils, water damage, glass and liability insurance) and third-party management costs can be deducted from the rental income. Maintenance costs are considered equivalent to investments in energy saving and environmental protection.

The taxpayer may claim a flat-rate deduction for privately held properties instead of the actual costs and premiums. As a rule, the choice between a flat-rate deduction and the actual costs can be made each year. In the majority of cantons, the flat-rate deduction is equal to 10 % of the rental income or rental value if the building is no more than ten years old at the beginning of the tax period, or 20 % of the rental income or rental value if the building is older than ten years by that date.

A distinction is made between maintenance costs and value-adding investments, which cannot be deducted on the tax return as maintenance costs. Expenditures which permanently improve the condition of the property are considered to be value-adding.

 

We live in a condominium. Can I still deduct the costs of a new washing machine and tumble dryer on my tax return?

It depends. As long as these are purchases that maintain the value of the property, they are deductible. Purchases are considered to maintain value if they replace an existing installation with a new installation of equal value. However, if an installation of higher value is purchased, this is likely to represent a part increase in value at minimum. The tax authority will therefore probably make a pro rata downward adjustment of the purchase costs. This is relatively unlikely in the case of washing machines and tumble dryers. It happens more frequently with kitchen appliances – for instance, if a standard oven is replaced by a combi steamer. Since a steamer first needs to be installed, the tax authority will normally adjust down the cost of the new appliance.

 

I had major dental treatment last year. Can I deduct this from my taxes?

Provided these costs are not covered by insurance, the bill – together with all other medical expenses (health insurance deductibles and excess, optician's fees, etc.) – can be claimed under sickness and accident costs. However, a deductible of 5 % of the taxable net income is applied.

 

Can we deduct fees for our daughter's private tuition and high school preparation course from our taxable income?

Unfortunately, not. The costs of initial schooling up to the upper secondary level are not deductible. Upper secondary level qualifications include the baccalaureate, specialized matriculation, federal certificate of vocational education and training, federal diploma of vocational education and training, and specialized school diploma.

Only the costs of professional training and continuing development (incl. retraining) are deductible, up to an amount of CHF 12,000. Professional training and continuing development refers to all training activities pursued by the taxpayer to further their professional advancement. It is therefore conditional on being able and willing to apply the knowhow so acquired to earning a living.

Tax evasion carries a fine of 100 % of the tax evaded. Depending on whether you acted negligently or intentionally, the penalty can be reduced or even increased by up to three times. Tax fraud is punishable by a fine or up to three years' imprisonment.

 

I have taken out a new pillar 3 pension plan. Do I need to declare this on the tax return?

It depends on whether you took out a pillar 3a or 3b pension plan.

Pillar 3a contributions can be deducted on your tax return up to the maximum annual amount stipulated. On the other hand, the assets accumulated do not have to be declared – they are exempt from wealth tax. Any income from the assets you have saved is also tax-free during the term of the plan.

In the case of pillar 3b insurance plans, it depends on what type of investment you have opted for (surrenderable insurance, pure risk insurance, or mixed policies). Different tax liability rules apply here. For example, contributions to surrenderable endowment insurance plans are not tax-deductible, and the surrender value is taxed as an asset during the plan term. On the other hand, the entire assets including all income are tax-free when paid out. Every year, the Swiss Federal Tax Administration publishes a list of the different insurance products as a help when completing the tax return.

 

We live in Wil and our daughters (13 and 15) attend the cantonal high school in St. Gallen. Can we deduct the cost of their general travel passes and learning materials on the tax return?

These expenses count as education and training costs and are not deductible. However, the general child deduction can be claimed for each child who is still a minor. The amount of this deduction varies from canton to canton. At the direct federal tax level, it is CHF 6,500 per year and child.

Various cantons do though allow a special deduction for education and training costs at the cantonal and municipal tax level. In the canton of St. Gallen, for instance, a further CHF 13,000 on top of the regular child deduction is deductible for each child still in school or in vocational training, provided the taxpayer personally bears these costs and they amount to at least CHF 3,000 per year. Deductible self-paid training costs include, for example, term fees and expenses for books and lecture notes.

 

Do I have to declare my minor children's savings accounts on my tax return?

Yes, these accounts also have to be declared. For tax purposes, the accounts are treated as the parents' assets until the child has reached full legal age.

 

Can I deduct the cost of the parking space in front of my photocopy shop?

Yes and no. This is included in the deduction for travel between home and work under professional expenses.

 

I own several expensive watches and items of jewelry that I wear every day. Do I need to declare these valuables on the tax return?

In principle, household contents do not have to be declared. However, the Federal Tax Administration no longer counts items of expensive jewelry as part of the household contents, which means they have to be declared as assets. Besides expensive jewelry, this also applies, for example, to gold coins and valuable pictures. Since wealth tax is levied at cantonal level, rates may differ depending on the canton.

These mistakes can lead to prosecution

We advise you to fill out your tax return very carefully, because even small mistakes or discrepancies can lead to prosecution. Negligence is also punishable.

These are the most common mistakes or cheats:

1. Not disclosing income/secondary earnings
2. Not reporting home help
3. Using workrooms as guest rooms
4. Rounding up kilometers traveled to and from work
5. Not declaring winnings from gambling

Note: Winnings from Swiss casinos (not online) are tax-free, but they must still be declared on the tax return.

 

Our son has been attending a private school since last fall. Are the supervised lunches payable on top of the regular school fees tax-deductible – like the lunchtime care provided at public schools?

With regard to third-party supervision costs, no distinction is made between institutions under public law and private institutions. Only genuine third-party supervision costs are deductible. In other words, the cost of food and other support for your child count as living costs and so cannot be deducted. Childcare facilities usually also bill for such living costs, in particular meals, which is why the majority of cantons only permit a deduction of 75 % of the costs reported. If your child not only takes their lunch at school, but is supervised in addition, at least a part of the costs can be deducted.

 

As a pensioner, how much can I earn tax-free?

Essentially, earned income is still taxable after reaching retirement age. Tax law does not provide for an exempt amount such as allowed under the AHV (OASI) system (CHF 1,400 per month or CHF 16,800 per year).

 

In 2020, I was named as co-beneficiary of a will, but the inheritance has not yet been paid out and the amount is still not definite. How and when do I have to pay tax on this inheritance?

For as long as the inheritance has not been divided and paid out, you are part of a community of heirs. At the end of 2020, the community of heirs is required to draw up a statement of assets as of 31 December 2020 as well as income earned in 2020 since the deceased's death. You have to declare your percentage share in the inheritance. Some cantons require the community of heirs to file a separate tax return.

 

We supported our daughter (29) financially over a period of three years while she was on a second degree course. Is this amount tax-deductible?

Education and training costs are normally claimed under the child deduction. However, you are only entitled to claim a child deduction for a child who is still in initial training and has not yet reached age 25.

 

I'm employed as a full-time journalist and won CHF 10,000 (incl. VAT) in a journalism competition. What is the procedure for paying tax on the prize money?

Neither the cantonal tax laws nor the Federal Act on Direct Federal Taxation contain express provisions on the tax treatment of prizes. In principle, all recurring and one-time income is subject to income tax unless explicitly exempted from taxation.

It can reasonably be assumed that you won the prize for a specific article and thus provided a service to the competition committee. Consequently, you are required to pay tax on the prize as income.

 

As of what account balance am I required to report a foreign bank account? Is there a limit?

Tax liability applies to the overall potential to earn. This means that global income and assets have to be declared on the tax return. Accordingly, there are no exempt amounts. Even a bank account with a zero balance needs to be declared for the sake of full disclosure. Especially in light of the Automatic Exchange of Information (AEOI), which requires that foreign bank accounts and life insurance policies are reported to the Swiss Federal Tax Administration, it is highly advisable to declare all accounts to the tax authority.

 

Who is actually required to file a tax return?

Essentially, all natural persons who have reached age 18 and have their permanent or temporary residence or own a property in Switzerland are required to file a tax return. This also applies to anyone who is still in education or training (school/apprenticeship/studies) and only receives a small income or none at all.

Foreign employees whose permanent or temporary tax domicile is Switzerland but who do not hold a type C residence permit are taxed at source on income from employment and on substitute income. Provided their annual income does not exceed CHF 120,000 gross, they are not required to file a tax return. Once they go above this income threshold, they are also required to file a tax return (subsequent ordinary tax assessment).

 

How long do I have to file the tax return?

That depends on the canton. As a rule, the tax return has to be filed by 31 March of the following year. This deadline can be extended to the end of November or even December in most cantons.

 

What happens if I miss the deadline for filing?

You will receive a reminder, and you may be required to pay a late filing penalty. Here too, practice varies considerably from canton to canton.

 

How can I get an extension on the deadline for filing the tax return?

By submitting a deadline extension request. Here as well, practice varies considerably among the individual cantons. The majority of cantons favour online deadline extensions via the website of the respective tax authority or by means of a QR code printed on the tax return form. Information about the different options can be found in the insert included with the tax return forms or on the tax authority's website.

 

What happens if I don't file my tax return?

If, despite the reminder, you don't file a tax return, the tax authority will automatically assess you at their own discretion. They will also impose a fine on you for failure to meet procedural obligations.

If the tax amount stipulated is not paid, enforcement proceedings for the collection of tax liabilities will be initiated. In this connection, it must be borne in mind that the tax assessment carries the force of a definitive title to set aside an objection under debt collection legislation.

 

How long do I need to keep bank records, tax documents, etc.?

In principle, you should keep bank records and general tax documents for ten years. But there is no legal obligation to do so. In any event, it is advisable to keep records and documents until you receive the definitive tax assessment or estimate. We recommend you keep property documents for at least 20 years. In particular in the event of a sale, you will need to be able to furnish proof of all investment costs.

 

What do I do if I am unable to sign my tax return myself – for instance, due to illness or because I'm away on a long trip? Do I need to assign power of attorney?

Unfortunately, power of attorney is not enough here. Tax law requires the taxpayer to sign personally. Having a contractually appointed representative (proxy) sign is not permissible. An exception is made in cases where it is impossible for the taxpayer to sign personally because they have lost the use of their hands due to illness or accident.

If the taxpayer is not of age or is under full or advisory guardianship, then the legal representative as the holder of parental responsibility, full guardian, or advisory guardian – provided the certificate of appointment to the advisory guardianship encompasses the right to represent the person under guardianship in administrative, financial, and legal matters or to assume full responsibility for the management of that person's assets – is required to sign the tax return in person on the taxpayer's behalf.

In the case of married partners to be assessed jointly, both spouses are required to sign the tax return in person.

If the personal signature is missing on the tax return, the obligation to file a tax return will not be deemed to have been formally met. If the taxpayer fails to sign the tax return in person, they will be requested to provide the missing signature within a reasonable period. If the person required to sign does not sign despite being reminded to do so, they can be fined for a violation of procedural obligations.

 

What can I deduct from taxes through my home office?

The basic rule is that the rental portion of a workroom can only be deducted from taxes if the employee has to do a substantial part of the work at home and the employer does not provide a workplace. In practice, 40% of a full-time workload, i.e. two full days, is considered a substantial part.
For such a deduction to be claimed, the workroom must be used essentially for the exercise of the profession. So if you work in the living room or bedroom, no deduction can be claimed. Since the conditions are strict, it is to be expected that a bed sofa in the study would not be allowed either, although there are other voices on this matter.

Infrastructure costs

If the above-mentioned conditions of home office are met, infrastructure costs can also be deducted from taxes. However, this is only possible if they are not reimbursed by the employer. In many cantons these two cost items are already covered by the flat rate for other professional expenses.
In the cantons LU, GL, AR, SG and VS, the actual costs can also be deducted, but these costs must then be proven.

What has to be taken into account:

Although many employees work from home due to corona conditions and can make the above-mentioned deductions. However, it should be noted that other deductions cannot be made: This applies in particular to flat-rate professional expenses (e.g. public transport and lunch).

It should also be mentioned that the Zurich cantonal tax office has declared in a communication dated 9 September 2020 that these professional expenses can be deducted independently of the Corona crisis, but that no home office costs can be deducted for them. This is apparently also the practice in other cantons (e.g. Fribourg, Lucerne, Solothurn, Basel-Landschaft).

 

How do I calculate the rent for the study?

There are various formulas for this: Rental value + service charges divided by number of rooms + 2
Net imputed rental value plus 10 percent service charges / number of rooms plus 1
Rental costs or rental value + additional costs/number of rooms + 2. Find out from your cantonal tax office which formula applies.

 

What is the tax year-end?

In Switzerland, the tax year corresponds to the calendar year, thus the tax year-end is 31 December.

 

What are the compliance requirements for tax returns in Switzerland?

Residents

Residents in Switzerland are subject to unlimited tax liability (that is, they are subject to tax on their worldwide income). In the absence of a tax treaty, foreign-sourced income is taxed gross of any foreign income taxes or withholding taxes imposed on such income by the source country/jurisdiction.

Residents have to file their tax returns by either the 15 or 31 March of every calendar year depending upon their canton of residence. Extensions for filing are often granted up to the end of June, September, or in some cases, November, following the end of the tax year; these extensions are based on the canton of residence. The return is submitted to the cantonal tax authority as they administer the tax assessment for both cantonal and federal tax.

If the taxpayer fails to file their tax return on time, they may be subject to default taxation. In such a case, the tax authorities will assess the taxpayer on the basis of a reasonable estimate. This tax basis would usually be substantially higher than the actual tax basis and is likely to be more expensive for the taxpayer. No appeal is available if action is not taken within 20 or 30 days (depending on the canton) of the issue of this final assessment. Late filing penalties may also be issued, and these can be based on an individual’s level of income rather than being a flat rate per year.

Many cantons impose a wage withholding tax on resident foreign nationals (Quellensteuer/impôt à la source). This tax includes all ordinary taxes (Swiss federal, cantonal and communal taxes, and church taxes). The employer generally levies the wage withholding tax on a monthly basis. In certain cantons, wage withholding tax is required only if the salary received is below certain amounts. For higher brackets, the tax is levied through the ordinary assessment procedure. In most cantons the wage withholding tax is imposed on all resident foreigners, irrespective of their range of salary, but subject to the type of work permit they hold and the place from which they are being paid.

In most cantons those individuals whose employment income exceeds a certain limit (gross salary of CHF120,000 (gross salary CHF500,000 in Geneva)) must also file an ordinary tax return, and any tax withheld at source is credited to the overall tax liability.

In certain circumstances, it is possible to obtain an exemption from withholding taxes provided certain conditions are met. However, the tax authorities are becoming stricter regarding such applications, and advice should be sought before proceeding with any such exemptions. In addition, it is possible to obtain an exemption from withholding tax if the employer files a declaration of guarantee with the tax authorities.

If a taxpayer fails to pay taxes due within the prescribed deadline, late payment interest is added to the liability (the rates depend on the canton concerned).

Non-residents

Non-residents are subject to Swiss (federal and cantonal) income taxes with respect to certain Swiss-sourced income only. They are subject to a withholding tax levied on wages and salaries in the event that employment costs are recharged or borne by the Swiss entity or if the conditions to establish a Swiss economic employer are met (depending on canton).

Quasi-Residents

“Quasi-residents” are non-residents, who earn the majority of their worldwide income (at least 90 percent) from Swiss sources. According to a recent Supreme Court decision, they are entitled to the same tax deductions as tax residents, thereby entitling them to file a Swiss tax return. This new legislation will come into force as per January 2021.

For the purposes of taxation, how is an individual defined as a resident of Switzerland?

Residence is defined as the place where a person stays with the intention of settling permanently and which therefore provides the centre of their personal and business interests.

Is there, a minimum number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

A person will also be considered resident for federal tax purposes if they remain in the country/jurisdiction for a protracted period, typically more than 90 days (30 days if working), even if they are not engaged in gainful activity.

 

What if the assignee enters the country/jurisdiction before their assignment begins?

Assignees may come to Switzerland before their assignment begins for an exploratory tour, but they are forbidden to work before they obtain a valid working visa. This is typically obtained once they begin their assignments.

 

Are there any tax compliance requirements when leaving Switzerland?

Before leaving Switzerland, a taxpayer must secure clearance from the tax authorities. This clearance is given when evidence is shown that all taxes due up to the date of departure have been fully paid (e.g. withholding taxes have been deducted) or provisionally paid.

Alternatively, the taxpayer can appoint a Swiss agent to deal with outstanding tax issues after departure. In some cantons the authorities may insist on the departure tax return being filed before the clearance to leave is granted.

 

What if the assignee comes back for a trip after residency has terminated?

International assignees may always return to Switzerland provided they have a valid tourist visa, do not work in Switzerland, and do not stay longer than is permitted by this visa (usually 3 months). Short business trips by the assignee to the host country/jurisdiction after assignment end, with no recharge to the host entity, should not trigger any income tax liability. Business trips for a duration of more than 30 consecutive days could trigger a tax liability based on national tax laws.

 

Do the immigration authorities in Switzerland provide information to the local taxation authorities regarding when a person enters or leaves Switzerland?

Generally, no. However, it is a requirement that individuals register with the local authorities within 14 days (Zürich) of arrival for the work permit to be valid.

A person will be considered resident for tax purposes if they remain in the country/jurisdiction for a protracted period, such as 90 days (30 days if working), even if they are not engaged in gainful activity.

 

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?

Assignees may be required to file returns for the departure year and pay tax on income earned in the final period of the assignment. In other cases, a return may not be required although the individual may still be subject to Swiss withholding taxes (source tax final) in respect of any Swiss sourced income received post departure for trailing liabilities (such as annual bonuses or equity vestings). Returns should usually be filed within 30 days of the departure date from Switzerland and limited filing extensions are available. However, some cantons may insist on the departure return being filed prior to the individual leaving Switzerland.

 

Are there a minimum number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the minimum number of days?

For practical reasons, some cantons do not review a case if the assignment does not exceed a consecutive 90-day period in a calendar year. If the employee is present in Switzerland for a longer period than 90 days, they become subject to taxation beginning from day one.

However, this is not statutory law, and each case has to be reviewed on a case by case basis. Cantonal practices may vary.

 

What categories are subject to income tax in general situations?

In general, all amounts paid to, or on behalf of, an employee are considered taxable income in their hands. The treatment of various elements of a typical expatriate compensation package is discussed below.

• School tuition reimbursements are generally taxable. However, in most cantons, contributions paid to schools attended by an expatriate’s non-German/French native tongue children are allowed as a deduction in the tax return process for the respective employee if they meet the criteria for the expatriate concessions (see the Expatriate Concessions section).
• The private element of home leave cost reimbursement is taxable.
• Cost-of-living allowances are taxable.
• Expatriation premiums are taxable.
• In general, the value of free housing or reimbursement of rent for private accommodation is considered additional remuneration and, as such, fully subject to income tax. However, in exceptional cases, if the apartment or house is also used for representative purposes and, in addition, one room is used exclusively as an office, a portion of the rent may be treated as business expenses not to be included in the taxable remuneration. The costs might also be treated as tax-free or allowed as a deduction if the expatriate meets the expatriate criteria and if some other conditions are met (reference is made to the Expatriate Concession section).
• Moving expenses paid by the employer for the purposes of starting a new job in Switzerland may be considered taxable remuneration to the employee. The tax authorities might make an exemption when the moving expenses are incurred or charged to the former employer abroad. A lump-sum relocation allowance is fully taxable.
• Incentive compensation is typically sourced on a pro rata basis based on the vesting period.
• Taxation rules in regard to deferred compensation vary depending on the canton and nature of the deferral.

 

Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Switzerland?

Yes, non-resident members of the Board of Directors of a group company which is situated in Switzerland are generally considered liable for source taxation on remunerations paid irrespective of where the work is performed.

 

Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Switzerland (i.e., as a general management fee where the duties rendered as a board member is included)?

No.

 

In the case that a tax liability is triggered, how will the taxable income be determined?

The federal tax amounts to 5 percent of the gross income (source tax). Cantonal tax rates differ depending on the cantonal legislation where the company is situated.

 

Are there any areas of income that are exempt from taxation in Switzerland? If so, please provide a general definition of these areas.

Certain benefits-in-kind

Certain benefits-in-kind, such as a company car (if only used for business purposes) and discounted meals in a company-owned restaurant are not taxable.

Pension and social security contributions

Pension and social security contributions paid by the employer on behalf of the employee are not taxable. Additional voluntary personal contributions made by an individual are tax deductible (subject to certain limits).

Certain loans

If loans are granted interest-free or at below-market rates by the employer to the employee, the value of the interest reduction is not included in taxable income. In certain cases, the cantonal tax authorities may insist that the loan be available to all employees.

 

Are there any concessions made for expatriates in Switzerland?

Tax concessions apply to expatriates, defined as executive employees or employees with specialist skills, seconded by their employer to Switzerland for a temporary assignment, for a maximum period of 5 years. In some cantons, the deductions may only be granted if the company has obtained a written ruling for such deductions with the Swiss Tax Authorities and advice must be taken before assuming that a payment is a tax-free payment. The deductions are as follows.

• Reasonable costs for accommodation in Switzerland. It is necessary for the expatriate to show that they maintain a permanent abode (house or apartment) outside Switzerland during the period of their stay in Switzerland. It should be noted that to qualify for the deduction, the overseas residence must be permanently available for the expatriate’s use.
• Moving costs to Switzerland and back to the home country/jurisdiction.
• Travel expenses to and from Switzerland for the taxpayer and their family at the beginning and at the end of the employment in Switzerland, respectively.
• Tuition fees (only tuition fees, not all schooling expenses) for the taxpayer’s children for a foreign-language private school, to the extent that the public schools do not offer adequate schooling.

In some cantons, a flat rate expatriate deduction has to be taken instead of the above itemized deductions. This is usually equivalent to around CHF1,500 per month. Swiss tax practice over the last years is towards a more restrictive approach to these concessions.

 

Is salary earned from working abroad taxed in Switzerland? If so, how?

In general, there is no exemption from taxation for salary earned in respect of foreign business travel.

However, for Swiss residents who spend a substantial amount of their professional time on business abroad, a pro rata portion of income may be exempt if the individual renders services for a company in a treaty country/jurisdiction, the cost of compensation is borne by a non-Swiss company and the salary for working abroad is subject to income tax in the other country/jurisdiction. In such cases, the exempt salary is only taken into consideration in order to determine the applicable tax rate (an exemption with progression).

Proof of the overseas taxation can be requested by the Swiss authorities before granting the exemption.

 

Are investment income and capital gains taxed in Switzerland? If so, how?

Dividends and interest from domestic and foreign sources are included in taxable income for the purposes of federal, cantonal, and municipal taxes. Swiss-sourced investment income, such as bank and bond interest, dividends, and investment fund distributions, is generally subject to a 35 percent withholding tax, which is creditable in full against Swiss (federal, cantonal, and municipal) tax on income and wealth due from a Swiss resident.

For federal tax and for tax in certain cantons, a limited exemption for interest income is granted, sometimes in combination with other allowances, such as insurance premiums payable.

Swiss-sourced rental income is taxable in Switzerland. Many foreign nationals living in Switzerland own real estate in their home country/jurisdiction. During the period of Swiss residence, this real estate may be rented and may produce rental income. This income is not taxable in Switzerland. It is, however, taken into consideration in order to determine the applicable tax rate (an exemption with progression).

According to Swiss tax law, a resident taxpayer owning a house or an apartment and living in this house or apartment will generally be taxed on the deemed rental value of this property, which will be added to the individual’s taxable income. Certain expenses such as maintenance costs and mortgage interest expense are allowable as deductions to offset this imputed income charge. The rental value of immovable property located abroad is taken into account in determining the rate of tax. If the property is rented out, then the actual net rents are taken into account.

For federal tax purposes, capital gains realized upon the disposal of personal movable property (such as shares or other securities) are generally not included in taxable income unless the taxpayer is deemed to be a professional trader. All cantons treat gains in the same way.

Gains from immovable property (that is real estate located in Switzerland) are not subject to direct federal tax except where a taxpayer is engaged in a trade or a business and thus required to keep accounting records. On the other hand, all cantons subject such private capital gains to tax, in most cases, a special tax. If the person disposing of immovable property has owned it for a long time, there is usually a reduced rate of tax available to them depending on the length of the period of ownership. However, where ownership has been for a short period of time, the tax may be increased by way of a speculation surcharge.

Disposals of shares in a real estate company can also give rise to property gains tax. No capital loss carryover is permitted if the taxpayer is not engaged in a trade or a business and thus required to keep accounting records.

Dividends and interest from domestic and foreign sources are included in taxable income for the purposes of federal, cantonal, and municipal taxes.

Swiss-sourced investment income, such as bank and bond interest, dividends, and investment fund distributions, is generally subject to a 35 percent withholding tax, which is creditable in full against Swiss (federal, cantonal, and municipal) tax on income and wealth due from a Swiss resident.

 

Is there any Relief for Foreign Taxes in Switzerland? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

A broad network of income tax treaties exists, some of which also cover income as well as wealth taxes.

Switzerland generally applies the exemption method for qualified foreign-sourced income and not a tax credit method. However, when dividends, interest, and royalties are derived from a country/jurisdiction with which Switzerland has concluded a tax treaty, a tax credit is available to the extent of the agreed foreign right of taxation.

A separate treaty claims to apply for the refund of foreign withholding taxes is normally required and there are strict time limits for filing such claims.

Dividends derived from non-treaty countries/jurisdictions must be reported gross before the deduction of foreign withholding tax.

In accordance with internal Swiss law and treaty regulations, foreign-sourced income is excluded from taxable income when derived from a permanent establishment located in a foreign country/jurisdiction (as defined by treaty law or, in the absence of a treaty, by Swiss internal law). Also excluded is income from real estate located abroad. In addition, certain types of income (such as directors’ fees, special pensions, partnership profits, and so on) may be exempt in Switzerland, if a treaty so provides. However, the exempt income is normally taken into account in determining the effective rate of Swiss tax (an exemption with progression).

All other foreign-sourced income is basically taxable in Switzerland. In the absence of a tax treaty, foreign-sourced income is taxed gross of any foreign income taxes or withholding taxes imposed on such income by the source country/jurisdiction.