Withholding tax Switzerland: Security tax for foreigners and cross-border commuters

Usually, people living and/or working in Switzerland pay the income and wealth tax. Each person is required to fill in a tax return and based on the submitted documents the owed amount of tax is determined. However, a different system applies for foreign employees without a permanent residence permit and cross-border commuters. These people are subject to the withholding tax Switzerland.

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Self-assessment as standard case

At the beginning of every year, Swiss citizens receive a tax return, which they are obliged to fill out. While it is possible to pay somebody else to fill in the tax return, the responsibility to accurately declare all income and assets lies with the taxpayer in any case. Based on the information submitted, said person is assessed and the amount of tax he or she owes is determined. This system is known as self-assessment, and constitutes normal procedure for direct federal, cantonal and municipal taxes.

Special case of withholding tax Switzerland

A different procedure, however, is used in case of the withholding tax. It is one of the special features of the Swiss tax system. People who are subject to the withholding tax have their tax liability deducted from their wage check. By taxing “at the source”, namely directly with the employer, the state ensures that the tax is actually paid. Through this system the Swiss government wants to prevent foreign employees from returning to their home country after receiving their wages in order to avoid taxation. In the latter case it would be much more difficult for Switzerland to collect the taxes owed. The withholding tax is mainly regulated in the Federal Law on Direct Federal Tax (Art. 83 f. DBG).

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Withholding tax explained

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Withholding tax explained

Who is subject to the Swiss withholding tax?

The withholding tax is mainly levied on foreign employees who are tax residents in Switzerland but do not have a permanent residence permit (Permit C) in this country. Said people are called “foreign employees with a tax residence in Switzerland”. This could be, for example, a German project employee who works in Zurich for eight months and only has a temporary work permit.

Also subject to the withholding tax are persons who do not have a tax residence in Switzerland but receive an income from a Swiss employer. This usually affects cross-border commuters. Foreign construction workers are subject to the withholding tax in the same way as foreigners who hold a board of directors’ mandate in Switzerland.

Furthermore, Swiss nationals who enjoy their retirement abroad and who still receive a severance payment from a previous employment in Switzerland are subject to withholding tax as well.

Employer pays the withholding tax Switzerland

Although the withholding tax is ultimately borne by the employee, the employer is the one who pays it. This is due to the fact, that the employer must deduct the amount of taxes owed by the employee from his or her paycheck.

When hiring someone, the employer is obliged to register the taxable employee with the authorities within eight days of the start of work using the form provided. The registration takes place at the cantonal tax office at the employee's place of residence. If the employee is a cross-border commuter, he/she must be registered at the place of work.

If, for example, a German citizen without a permanent residence permit is residing in Zug and works for a Zurich company, the employer must register the employee with the tax office of the Canton of Zug. If the employee lives in Stuttgart, the withholding tax must be paid to the Zurich tax office.

Accounting of the withholding tax Switzerland

Vital to the employer's obligations in the withholding tax procedure is Art. 88 DBG. Accordingly, the employer is obliged to deduct the withholding tax directly from the employee's gross salary each month and file it with the relevant tax authority. The employer must settle the accounts with the tax authority and allow the office to check if all relevant documents are in order (Art. 88 (1) (c) DBG). In the withholding tax procedure, the employer is the debtor of the taxable performance. Consequently, he is liable for these taxes (Art. 88 para. 3 DBG).

Duty of proof

As in in every other case the employer must provide the employees with a wage statement. For employees who are subject to the withholding tax, the deduction made for tax purposes must be visible on the wage statement (Art. 88 para. 1 lit. b DBG). The wage statement is an official form. If it is knowingly filled out incorrectly, serious consequences await the employer. Failure to deduct the withholding tax is considered tax evasion and punishable by law.

Calculating the Swiss withholding tax

The withholding tax is calculated based on the gross income. As in the case of self-assessment, the withholding tax is also differentiated into separate tariff categories depending on the personal situation of the taxable person. These are:

• Tariff for single earner (A)

• Tariff for married single earners (B)

• Tariff for married double earners (C)

• Tariff for sideline income (D)

Tariffs may vary by canton.

Deductions may be claimed for the withholding tax as is the case with the income and wealth tax. However, it is not possible to list them individually as is the case with self-assessment; rather, lump sums (for professional expenses, insurance premiums, family expenses) are deducted (Art. 86 DBG).

Under certain circumstances, a subsequent tariff correction is possible, for example, if the employee has paid contributions into the retirement fund “Pillar 3a”.

Withholding tax Switzerland - tax return

As a rule, employees who are subject to the withholding tax are not required to fill out a tax return. However, it is possible that the tax administration may request a conventional tax return if the employee has different sources of income or larger assets.

If the income exceeds a certain limit within one year, an ordinary assessment is carried out subsequently. For the federal government and most cantons, this limit is CHF 120,000.

However, if no regular assessment is made, the withholding tax usually represents the definitive tax burden. In case, the taxable person does not agree with the deductions carried out, he or she can file an objection until March 31, of the following year.

The withholding tax

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The withholding tax

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