Swiss federal tax legislation is pretty extensive; however, to complicate matters for the layperson, each of the 26 cantons also has its own tax laws. The situation was somewhat simplified by the tax harmonisation act of 2001, but cantons still set their own taxation levels. Inevitably this causes intense regional competition.
Cantonal and municipal authorities tax both income and wealth, whereas the federal tax administration only taxes income. Taxable income includes: income derived from employment, account interest, dividends, as well as property rental earnings and retirement or disability pension income.
How to save income tax
Paying taxes is part of life, but there is nothing wrong in taking advantage of available tax-saving options. The Swiss pension scheme presents many opportunities for reducing your tax burden. This system is based on three pillars. It is intended to maintain living standards for the insured--and dependents--after retirement. Benefits are also payable in the event of disability or death. In this article we will bypass pillar 1 (state pension) and concentrate on pillar 2 (mandatory corporate pension) and pillar 3, voluntary privately financed pensions.
Payment into pillar 2: Any missing contribution years of occupational pension schemes may be purchased and, in most cases, are deductible from taxable income. Your employer can calculate whether you are entitled to make cash top-ups and if such payments would improve disability and survivors' benefits. In most cases, the pension is based on personal provision capital and investing in it is beneficial for both tax and insurance purposes. If the investment is substantial, then it is perhaps worth spreading the voluntary contribution over a number of years instead of paying in a lump sum.
Other opportunities for voluntary contributions can arise from a significant pay increase or--surprisingly--a divorce. When a couple divorces, any pension savings are split between them; this can lead to a pension deficit you might want to replenish.
It is worth noting that tax is not charged on the accrued interest from a pillar 2 account. Rather, taxes are levied at a preferential tax rate when the money is withdrawn. The downside is your pension fund savings can only be withdrawn under certain circumstances. These include deregistration (when leaving Switzerland permanently), buying a primary residence in Switzerland (not a vacation home), becoming self-employed, retirement or death.
Payment into the pillar 3a: If one of our clients has sufficient income, we recommend they put money aside for retirement on an annual basis. A simple and tax-efficient way to do this is investing in a pillar 3a account or insurance policy. In 2009, anyone earning income and paying into a Swiss pension fund can contribute up to SFr 6,566 into a pillar 3a account.
Insurance companies offer pillar 3a policies. However they are only appropriate to invest in if you are there for the long haul--early redemption charges are substantial. We therefore recommend you open a simple pillar 3a account with your bank. Payments can be deducted from income and substantial tax savings can be made. As with pillar 2 pensions, 3a account funds are only accessible under certain conditions. (Same as pillar 2.)
Donations to charities: Donations to approved Swiss charities can be offset against income tax; however, most cantons won't allow tax deductions on donations exceeding 20 per cent of your salary. Donations should be confirmed by submitting payment receipts.
Moving house: If you are considering moving to a new house in Switzerland, it is worth checking tax rates in your future canton and community. Eastern Switzerland generally has lower taxes than the west, but property or rental costs should also be considered.
If planned correctly, moving to a different area can be an extremely effective way to reduce your taxes. Because annual tax bills are paid to the canton and community where you are registered on December 31--it may be worthwhile postponing your move; however, we recommend you seek advice from your tax advisor first.
Family support: If you financially support a parent or relative living in poverty (usually abroad), the amount given is tax deductible in most cases; however, clear proof of their situation and receipts must be provided.
Home office and professional expenses: If you have a home office, related expenses can also be deducted, as well as exceptional self-financed travel expenses. The authorities usually accept professional association fees and those for professional education.
Finally: tax at source, don't forget ...
If tax is being deducted directly from your salary and you earn less than SFr 120,000 (gross income)--or you don't own Swiss property--you probably do not have to complete a Swiss tax return.
Unfortunately, in such cases, the source taxation tariff does not account for all possible tax deductions; including interest on loans, alimony payments, pillar 3a savings, financial assistance to needy relatives, or excessive medical costs.
To ensure you benefit from such deductibles, it is important to write, submitting receipts, to the cantonal tax-at-source office at the start of the new tax year, requesting the tariff be corrected.
In this article, we have only mentioned the measures we believe could still be implemented in 2009. To ensure you do not miss any deductions in the future, we recommend you ask your tax advisor at the beginning of the year for a list of all available deductions, and maintain a file with all necessary receipts and contracts for your next tax return.
Brien Donnellon is the owner of KEY INVESTMENT, a financial services company providing unbiased financial advice and solutions for Swiss-based expats, HR departments and foreign investors.
The company, formed in 1997, is authorised and regulated by the Swiss Federal Banking Commission.
For further information: bd@keyinvestment.ch www.keyinvestment.ch +41 (0)81 257 13 14
The end of the fiscal year is nigh: Christmas is coming, the geese are getting fat; time to put some money in the taxman's hat ... At least that's the situation here in Switzerland. The fiscal year-end deadline is looming, but it's still not too late to reduce your tax burden.(MONEY)
Swiss federal tax legislation is pretty extensive; however, to complicate matters for the layperson, each of the 26 cantons also has its own tax laws. The situation was somewhat simplified by the tax harmonisation act of 2001, but cantons still set their own taxation levels. Inevitably this causes intense regional competition.
Cantonal and municipal authorities tax both income and wealth, whereas the federal tax administration only taxes income. Taxable income includes: income derived from employment, account interest, dividends, as well as property rental earnings and retirement or disability pension income.
How to save income tax
Paying taxes is part of life, but there is nothing wrong in taking advantage of available tax-saving options. The Swiss pension scheme presents many opportunities for reducing your tax burden. This system is based on three pillars. It is intended to maintain living standards for the insured--and dependents--after retirement. Benefits are also payable in the event of disability or death. In this article we will bypass pillar 1 (state pension) and concentrate on pillar 2 (mandatory corporate pension) and pillar 3, voluntary privately financed pensions.
Payment into pillar 2: Any missing contribution years of occupational pension schemes may be purchased and, in most cases, are deductible from taxable income. Your employer can calculate whether you are entitled to make cash top-ups and if such payments would improve disability and survivors' benefits. In most cases, the pension is based on personal provision capital and investing in it is beneficial for both tax and insurance purposes. If the investment is substantial, then it is perhaps worth spreading the voluntary contribution over a number of years instead of paying in a lump sum.
Other opportunities for voluntary contributions can arise from a significant pay increase or--surprisingly--a divorce. When a couple divorces, any pension savings are split between them; this can lead to a pension deficit you might want to replenish.
It is worth noting that tax is not charged on the accrued interest from a pillar 2 account. Rather, taxes are levied at a preferential tax rate when the money is withdrawn. The downside is your pension fund savings can only be withdrawn under certain circumstances. These include deregistration (when leaving Switzerland permanently), buying a primary residence in Switzerland (not a vacation home), becoming self-employed, retirement or death.
Payment into the pillar 3a: If one of our clients has sufficient income, we recommend they put money aside for retirement on an annual basis. A simple and tax-efficient way to do this is investing in a pillar 3a account or insurance policy. In 2009, anyone earning income and paying into a Swiss pension fund can contribute up to SFr 6,566 into a pillar 3a account.
Insurance companies offer pillar 3a policies. However they are only appropriate to invest in if you are there for the long haul--early redemption charges are substantial. We therefore recommend you open a simple pillar 3a account with your bank. Payments can be deducted from income and substantial tax savings can be made. As with pillar 2 pensions, 3a account funds are only accessible under certain conditions. (Same as pillar 2.)
Donations to charities: Donations to approved Swiss charities can be offset against income tax; however, most cantons won't allow tax deductions on donations exceeding 20 per cent of your salary. Donations should be confirmed by submitting payment receipts.
Moving house: If you are considering moving to a new house in Switzerland, it is worth checking tax rates in your future canton and community. Eastern Switzerland generally has lower taxes than the west, but property or rental costs should also be considered.
If planned correctly, moving to a different area can be an extremely effective way to reduce your taxes. Because annual tax bills are paid to the canton and community where you are registered on December 31--it may be worthwhile postponing your move; however, we recommend you seek advice from your tax advisor first.
Family support: If you financially support a parent or relative living in poverty (usually abroad), the amount given is tax deductible in most cases; however, clear proof of their situation and receipts must be provided.
Home office and professional expenses: If you have a home office, related expenses can also be deducted, as well as exceptional self-financed travel expenses. The authorities usually accept professional association fees and those for professional education.
Finally: tax at source, don't forget ...
If tax is being deducted directly from your salary and you earn less than SFr 120,000 (gross income)--or you don't own Swiss property--you probably do not have to complete a Swiss tax return.
Unfortunately, in such cases, the source taxation tariff does not account for all possible tax deductions; including interest on loans, alimony payments, pillar 3a savings, financial assistance to needy relatives, or excessive medical costs.
To ensure you benefit from such deductibles, it is important to write, submitting receipts, to the cantonal tax-at-source office at the start of the new tax year, requesting the tariff be corrected.
In this article, we have only mentioned the measures we believe could still be implemented in 2009. To ensure you do not miss any deductions in the future, we recommend you ask your tax advisor at the beginning of the year for a list of all available deductions, and maintain a file with all necessary receipts and contracts for your next tax return.
Brien Donnellon is the owner of KEY INVESTMENT, a financial services company providing unbiased financial advice and solutions for Swiss-based expats, HR departments and foreign investors.
The company, formed in 1997, is authorised and regulated by the Swiss Federal Banking Commission.
For further information: bd@keyinvestment.ch www.keyinvestment.ch +41 (0)81 257 13 14
