6 Top Facts About Swiss Taxes for Expat Entrepreneurs

Taxes in Switzerland can be complex and vary significantly by canton, presenting a unique challenge for individuals and businesses alike. 

Imagine being an expat entrepreneur who has just arrived in Switzerland, filled with enthusiasm and ambition, ready to embark on a new business venture. As you start to settle in, you soon realize that the world of Swiss taxes is as captivating as the country’s stunning landscapes. 

Just like navigating the winding mountain roads, understanding Swiss taxes can be a journey filled with complexities and variations. This article will provide an overview of some key issues related to taxes in Switzerland help you to grow your knowledge of Swiss company formation.

Top Facts About Swiss Taxes for Expats

Here are some facts about taxes in Switzerland expat entrepreneurs should know about today:

1. Taxation of foreign income

Income tax purposes require that any irrecoverable foreign taxes on investment income such as interest and dividends from treaty countries be added back into their respective actual Swiss tax rate, crediting off any applicable irrecoverable foreign taxes as credits against and adding them back onto any actual Swiss tax rates applicable to them. This approach is common practice.

Individuals residing in Switzerland (determined by where they return regularly and live with their family), or who possess permanent residency permits are subject to income tax by way of withholding tax deductions from their monthly salaries by their employers.

Property taxes vary across cantons in Switzerland, as well as within each canton itself, and are calculated based on the value of land and buildings.

2. Taxation of dividends

The Swiss tax system consists of federal, cantonal, and communal taxes levied upon individuals’ income and wealth; cantonal and communal rates differ accordingly.

Foreign nationals not gainfully employed in Switzerland may qualify for the lump sum tax system if they meet certain criteria, including living there for at least five years and meeting other specific conditions. This provides an alternative to filing their annual return.

Swiss double taxation agreements with over 100 countries enable non-residents to reclaim withholding taxes from Swiss authorities, while inheritance and gift taxes vary based on canton and municipality.

3. Taxation of interest income

Switzerland levies income taxes at three levels: federal, cantonal, and municipal. As such, income, wealth, and capital gains may vary significantly across regions.

Some cantons impose progressive wealth taxes at progressive rates while others levy a lump sum tax; both methods have de minimis thresholds that determine if amounts below this threshold will not be taxed.

Interest income is subject to a 35% withholding rate, with foreign taxes paid counted towards offsetting double taxation. To calculate taxable amounts accurately, gross rental income minus allowable expenses is used; this includes interest earned on savings accounts or bonds as well as payments by homeowners for the imputed rental value of their properties.

4. Taxation of capital gains

Capital gains taxes exist in most countries and apply to everything with increasing value, such as stocks or real estate. Switzerland does not assess such taxes.

US citizens and Green Card holders who reside in Switzerland are required to file an annual tax return with the IRS, regardless of where they are domiciled. To prevent double taxation, they should consider strategies that reduce their U.S. taxes such as the foreign earned income exclusion or foreign tax credit.

Individuals can decrease their taxable income by deducting unreimbursed medical expenses. Other deductions, known as personal allowances, provide for living costs by accounting for predetermined amounts set by tax authorities. Companies like Rister will help you to adhere to the rules of Swiss taxes.

5. Taxation of dividends paid to non-residents

There are various deductions available to reduce taxable income, such as alimony payments (with usually both minimum and maximum limits), charitable donations, fees for day-care centers or babysitters, etc.

Corporate taxes (Korperschaftssteuern/L’impot sur les societes) are collected at both cantonal and municipal levels, with rates depending on your canton of residence. These levies help fund important public services like education and transportation infrastructure in each community.

Non-residents of Switzerland are subject to Swiss withholding tax, though in certain circumstances it can be reclaimed, including under a double taxation agreement between Switzerland and their country of residence. They also fall within the scope of wealth taxes in cantons that impose them.

6. Taxation of non-Swiss dividends

One area of US expat taxation that can present challenges is foreign-earned income. US expats earning dividends may be subject to a 35% withholding tax; however, depending on cantonal and communal rates as well as double taxation treaties this can often be recovered fully or partially by Swiss residents.

All individuals living in Switzerland are required to file an annual tax return to account for their worldwide income and net wealth, including non-resident ex-pats who qualify as quasi-residents; non-resident ex-pats claiming quasi-resident status also need to file, but only on Switzerland-sourced income.

Taxable income of Swiss residents is determined using deductions which can significantly lower total taxes owed.

Conclusion

Understanding Swiss taxes can be complex. Here’s a quick summary of Swiss taxes for expat entrepreneurs:

• Income & Wealth Taxes vary by region: Federal, cantonal, and municipal taxes create a complex system with different rates depending on where you live.

• Income tax on everything: Expect to pay taxes on income from investments, salaries, and even the imputed rental value of your own home.

• Double taxation treaties on foreign Income: You’ll likely pay tax on worldwide income, but don’t worry about double taxation (thanks to Swiss tax treaties). Switzerland has agreements with over 100 countries to avoid paying taxes twice on the same income.

• Good news for property & capital Gains: Property taxes vary by canton, but there are NO capital gains taxes in Switzerland. Switzerland doesn’t tax capital gains on assets like stocks or real estate.

• Dividends & Interest: Expect a 35% withholding tax on interest income, but you might get it back. Dividends are taxed based on your canton.

• Non-Residents and Expat Perks: Foreign nationals might qualify for a lump-sum tax system instead of filing annual returns.

• File your return: All residents (including expats meeting certain criteria) must file annual tax returns in Switzerland.

US citizens in Switzerland still need to file a US tax return. This is a simplified overview of taxes in Switzerland. You should consult a Swiss tax professional for personalized advice.