Taxes in Switzerland: What you should know about the Swiss tax system when moving here
Are you thinking about relocating to Switzerland? If so, it's a good idea to start familiarizing yourself with the Swiss tax system before you move. After all, your tax burden may vary based on your place of residence.
Switzerland as a popular country for relocation
Switzerland is a popular destination for immigrants thanks to its central location and its high quality of life. For highly skilled foreign workers as well as wealthy individuals, moving to Switzerland is appealing not just for tax purposes. Switzerland also meets traditionally high standards for innovation, economic stability, and privacy. Families with school-age children also appreciate Switzerland for its multilingualism, excellent public education system, and many private international schools.
Newcomers should become acquainted with the Swiss tax system before relocating. This article explains how income and assets are taxed, how high inheritance and gift taxes can be, and why carefully choosing your place of residence can optimize your tax burden.
Income and asset taxation
By moving their principal residence to Switzerland, newcomers become fully taxable in Switzerland for their global income and assets. Any foreign real estate is tax exempt. However, foreign real estate is still included in the calculation to determine the tax rate and to designate any tax-deductible debts or debt interest, and therefore must be declared on your annual tax return.
Taxation in Switzerland occurs on three levels: the federal, cantonal, and municipal levels. Taxes are collected on income at federal level and on both income and wealth at cantonal and municipal levels. It is particularly important to note here that tax burdens can vary substantially from one canton to the next. For instance, the maximum tax burden on income ranges from 22% to 46% based on the canton – and from 0.1% to 1.1% on assets. It's therefore possible to optimize taxes through your choice of residence. If you're moving to Switzerland and are flexible about where you live, you should explore the various options.
Taxation of capital gains and dividend income
Capital gains from the sale of private assets, like equities or bonds, are generally tax exempt. This does not include gains from the sale of property at the cantonal level.
At federal and cantonal level dividend income is taxed together with all other income. By contrast, dividends from participations of at least 10% in a business are subject to privileged taxation, which means the maximum income tax rate is around 12–33%.
This partial taxation is not limited to dividends from companies with their registered office or main tax domicile in Switzerland. It is also possible to apply for a reduction of the financial burden from double taxation for dividends from companies registered outside of Switzerland if the person moving to Switzerland holds an ownership interest of at least 10% in the business.
Taxation of salary income
For foreign workers who do not have a type C residence permit, the employer pays the taxes owed directly to the government (tax-at-source principle). However, all other employees in Switzerland declare their salary along with all other income and assets on their annual tax return, meaning no tax is directly deducted from salary payments.
Double taxation agreements (DTAs)
Double taxation is when two countries simultaneously collect taxes on the same income or assets. Such cases can occur when there are pension payments from foreign pension funds, for example. In order to better coordinate or avoid instances of double taxation, Switzerland has so far concluded double taxation agreements with more than 100 countries and is keen to further expand this network.
Taxation of inheritances and gifts
It's important to plan ahead before you move to Switzerland, and this also includes property succession. Cantonal inheritance and gift taxes may be incurred in Switzerland when assets are transferred. The cantons have authority over the collection of inheritance and gift taxes. No inheritance and gift taxes are collected at federal level. These taxes are generally incurred in the canton of residence of the testator or giver.
The amount of inheritance and gift taxes largely depends on the degree of kinship of the parties involved, with spouses and registered partners exempt from inheritance and gift taxes in all cantons. Direct descendants are also exempt from the tax obligation in most cantons. Contributions to unrelated parties may result in taxes ranging from 0% to over 50%, however. It is thus advisable to factor inheritance and gift taxes into your planning when transferring assets to third parties.
Get advice on Swiss tax issues
When relocating to Switzerland, it's important to think about your future tax burden. Before you move, talk with your tax advisor in the country you are leaving to factor in all legislation when structuring your assets. This allows you to minimize foreign tax risks and optimize your future tax burden in Switzerland.