Taxes for expats: An easy guide to Swiss taxation

I couldn’t help but wonder … are Swiss taxes for expats really the biggest red flag of them all?

There are some questions you should ask your potential new partner right away. Like: Do you have children? Do you rent or own? And: What do you consider ‘too much money for a pair of shoes’? With Swiss taxes it's the exact same: you want to get the important stuff sorted quickly. That's why we dive deep into taxes for expats today. Because yes, you do have to pay taxes!

After all, whether you are moving to Switzerland or making it official with a special someone, you want to know exactly what you're getting into - before you fall head over (expensive) heels for them!

Why Swiss taxes for expats are such a red flag

Moving to Switzerland feels like a dream: snowy mountains, heavenly chocolate and a language that sounds more charming the less you understand it. But for expats, the dream quickly turns into a nightmare, once you become a Swiss tax resident. Relationship status: it’s complicated!

But rest assured: The problem isn’t you - and you are not alone! The Swiss tax system actually is mysterious and hard to understand. If you’d rather discuss your own tax matters right away, book your tax consultation with us. Otherwise: Let’s get to the bottom of this thing called ‘taxes for expats’.

Are you and Switzerland dating yet?

First, we need to clarify when you become a Swiss tax resident as an expat:

• If you move to Switzerland until further notice (even with a B or L permit).

• If you remain in Switzerland for at least 30 consecutive days with gainful employment (self-employment counts as well).

• If you reside in Switzerland for at least 90 consecutive days without gainful employment.

• Potentially also, if you reside elsewhere but receive more than 90 percent of your worldwide income from Swiss sources.

  
  

If none of this applies to you, you’ll still be taxed for income and assets sourced from Switzerland. And if you are unsure, whether or not you are a Swiss tax resident: contact us! Either way, it’s time for our deep dive into the Swiss tax system. We promise it won’t hurt and it might even be fun!

1. What makes the Swiss tax system unique

When meeting someone new, you can’t shy away from red flags. So let’s face the fact, that makes the Swiss tax system special: other than most countries, there isn’t just one tax law that applies to everyone. Depending on where exactly you live in Switzerland, taxes may vary. The reason are these three layers of taxation:

1. The direct federal tax is paid by everyone in Switzerland. It is collected by the federal government and depends on your income.

2. The state/cantonal tax is imposed by the respective canton. Each of the 26 cantons of Switzerland has their own tax laws and rates.

3. The municipal tax depends on the municipality you live in. Their tax rates also vary, but only within the scope of the cantons tax law.

That sounds complicated enough, but it’s not the only Swiss tax specialty. Besides the income tax, Switzerland also collects a wealth tax on taxable assets such as stocks, cryptos and real estate. However, there are no taxes on capital gains. And, unlike many other countries, almost everyone has to file and pay their taxes themselves. The good news: As an expat, you might not have to do that.

2. The special tax for expats: withholding tax

If you live and work in Switzerland, but you don’t have a C (resident) permit yet, you most likely pay withholding tax. The name pretty much gives it away: the taxes for expats are withheld by the employer and paid on your behalf. The tax rate depends on the canton as well as other factors, like if you are married or not. We have a full (and fun) explanation of the withholding tax for you here.

Paying the withholding tax is kind of like the honeymoon phase of a new relationship. Everything feels easy and the vibes just flow - much like the part of your paycheck, that never even reaches your bank account. But that feeling might be deceiving. You may have to file a tax report after all, without even knowing it. So let’s get to more serious business.

3. When you do need to fill out a tax return

Sometimes your new partner is already a few steps ahead in your relationship. They might be planning the wedding, while you still haven’t deleted that last dating app from your phone. The Swiss tax system could also be taking your relationship more serious. Even without a permanent resident permit, some expats have to fill out a tax return in Switzerland.

It’s called a ‘subsequent ordinary assessment’ (NOV, short for ‘Nachträgliche ordentliche Veranlagung’ in German). And you might already be committing a tax felony by not submitting it. So let’s talk about the most important facts.

That’s when taxes for expats get serious

• If you earn more than CHF 120,000 gross or own residential property in Switzerland, you will automatically receive a letter from the tax office. Then, the NOV is definitely mandatory.

• You might exceed other thresholds, depending on your canton, that the Swiss tax office doesn’t automatically know about. And they are probably lower than you think. In Zurich for example, the NOV is mandatory if you own taxable assets over CHF 80,000.

• You can also file a subsequent ordinary assessment voluntarily. That could make sense if you want to claim deductions that are not taken into account for withholding tax. But be careful: Once you start filing a tax report in Switzerland, you have to do it every year!

• If you are self-employed, you also have to fill out a tax return yourself, since there is no employer who could handle the withholding tax for you.

• The deadline to report your NOV is the end of March of the following year. The clock is ticking! So you might want to read more about it here.

If you are an expat in Switzerland and your taxes feel too easy (and low), that might be the real red flag. Book your appointment and we’ll look at your tax matters together. After all, you don’t want to deceive a partner you just fell in love with. Even if they really are complicated and hard to understand.

4. Getting the C permit: the end of an expat era?

Once you get a C residents permit, you are fully committing to Switzerland. Whether or not you exceed any thresholds, at this point you definitely need to fill out a tax return. That’s why many of our expat clients contact us, once they have sealed the deal. After all, doing taxes is way more fun if you have someone by your side - just like it is with life in general.

However, in some cases we then quickly realize what many expats miss: that they should have been filing a subsequent ordinary assessment already. That is unfortunate, but not the end of the world (or your relationship with Switzerland). You can still opt for a voluntary disclosure without penalty. A once in a lifetime opportunity, that we would rather help you avoid in the first place!

5. Taxes for expats - across borders

'Taxes before exes’ is probably something we can all agree on - even if you don’t love doing them as much as we do. But unfortunately, we still need to talk about your ex-partner. Sure, you would rather just focus on your love to Switzerland and leave the past behind. But when it comes to taxes, it’s not always that easy!

Whether you moved from another European country, from the US or even farther away: your tax matters will follow. You might still have assets or income from another country, like stocks, property or a pension fund. Thanks to double taxation agreements, you most likely won’t be taxed twice. But you still need to let the Swiss tax office know!

Tax matters can get very complicated, once you have income and assets across borders. It’s like your ex-partner poking their nose in your new relationship. At taxum AG, we are happy to untangle your international tax affairs. What stresses you out, is one of our favorite subjects!

6. Leaving Switzerland and Swiss taxes behind

Talking about ex-partners: At some point you might also want to move on from Switzerland. But like in any loving relationship, you can’t just up and leave. You have to submit a deregistration notice at your municipality and complete an exit tax return. Then, your tax liability in Switzerland ends on the day you officially deregister.

As always in life, ending things can get even more complicated. For example, you might have pension funds in Switzerland, that you can’t withdraw easily. Accessing them too early might lead to additional taxes. But don’t worry: Once you have taxum AG as your tax advisor, your tax matters will feel like the easiest part about leaving Switzerland. And you probably won’t want to go anyways!

Feeling overwhelmed? Let’s talk taxes for expats!

Falling in love with Switzerland is not just sunshine and rainbows. But haven’t we all fancied someone mysterious at least once in our lives? Swiss taxation is much like meeting your own Mr. Big. You don’t really know what you’re signing up for, but you still know it’s worth the effort. And we at taxum AG can assure you that it is! Book your first consultation and let our tax boutique be the BFF who guides you through the maze of Swiss taxes for expats. That way you can focus your attention back on that pair of shoes you have been eyeing - although unfortunately, they are not tax deductible!

And just like that … taxes for expats are no longer a subject you avoid in your liaison with Switzerland!