Taxation information for Switzerland by Overs International
Switzerland
Individual taxation in Switzerland
Pre-assignment procedures
Prior to arrival
Prior to coming to Switzerland you should ensure that you have the necessary work and residence permit to cover your pro-posed assignment period (or at least the first year of the assignment if a long-term assignment is planned). You should be aware that the date of issue of your work permit is not always relevant to the start date of Swiss residence for tax purposes.
On arrival Within 8 days of arrival in Switzerland you have to register your family and yourself with the registration office (Einwohner–dienste/Personenmeldeamt/office can-tonal de la population) of the municipality where you intend to stay. Please note that this date of official registration is usually considered to be the start of your liability to Swiss taxation. In most cantons a church tax is imposed, equal to a percentage of the cantonal tax. The church tax can increase the total combined tax rate by up to three percent. This tax is only imposed on individuals who registered as members of a recognized church. It is common practice for expatriates not to register as a member of a church to avoid the church tax payment.
Residence
Residence is defined as the place where a person stays with the intention of settling there permanently and which is thus the center of his/her personal and business interests. An individual who stays in Switzerland for a certain minimum period and earns his living here (for example, under a B-permit), is also subject to unlimited tax liability.
A person will also be considered resident for tax purposes if he/she remains in the country for a protracted period, e.g. more than 30 days if engaged in a gainful activity or more than 90 days, if not engaged in a gainful activity.
Unlimited tax liability does not extend to capital invested in and income derived from businesses, permanent establishments and real estate situated abroad (but considered for the determination of the applicable Swiss tax rates).
If an expatriate is classified as a resident of both Switzerland and another country, the relevant tax treaty between the countries may include a tiebreaker clause to resolve the conflict.
Taxation of income and wealth
Scope
Foreign nationals have their tax deducted directly from their salary (payroll tax or source tax). However, such payroll tax payment is considered a provisional tax payment only if the annualized gross compensation exceeds currently CHF 120,000 (in Geneva CHF 500,000). If the annualised gross salary exceeds the above mentioned amounts and the expatriate is resident in Switzerland, the final Swiss tax liability is determined based on the information reported in the ordinary income tax return.
Residents
A foreign individual who becomes resident in Switzerland is fully subject to income and wealth taxation from the date
of arrival. Residents of Switzerland are subject to federal income taxes and also to cantonal/municipal income and wealth taxes. Each is based on similar principles and is imposed on worldwide income and net wealth at progressive rates. Taxable income includes all earned income, whether received in cash or in kind, and the rental value of owner-occupied houses as well as pensions and investment income. However, exposure to Swiss taxation does not extend to assets invested in and income derived from businesses, permanent establishments or real estate located abroad. Such assets and income are only relevant for the purpose of calculating the applicable tax rates. Taxable wealth includes all assets and debts (e.g. bank accounts, shares and other securities, real estates, mortgages and other loans). Capital gains are in general tax-free in Switzerland (there is an exception for capital gains from Swiss real estate).
Non-residents
Non-residents may be subject to Swiss taxes on various kinds of Swiss source income: interest or dividends paid by a Swiss entity, income from real estate or from business activities in Switzerland, directors’ fees, or compensation for an activity performed for, and paid by, a Swiss employer. Generally, non-residents only have to file a tax return if they have real estate, or business activities (permanent establishment), in Switzerland. In other cases, tax is withheld at source. Depending on the tax treaty applicable, this tax may be partially or fully refunded, or credited against foreign taxes.
Individual taxation in Switzerland
Under tax treaties, a resident of a treaty country who works in Switzerland for less than 183 days in the tax year for an employer only resident in the treaty country is normally exempt from Swiss income and wealth tax.
Tax year
For individuals, the tax year corresponds with the calendar year. If you become a Swiss tax resident, the first year’s income in Switzerland is annualized for determining the applicable Swiss tax rates. The same principle applies for the year of departure.
Assessment basis
The basis for assessment is the current calendar year.
Family tax concept
Married couples are normally assessed jointly i.e. their income and wealth are aggregated (family tax concept). In order to minimize discrimination, different progressive tax rates apply for married and single persons or splitting of income to determine the tax rate. Another means of avoiding discrimination are higher deductible allowances (i.e. personal and family allowances) for married couples. Deductible items for both married couples and single persons include social security contributions, accident and health insurance premiums, company pension plan contributions and qualified private pension plan contributions (so called third pillar a), certain non-reimbursed business expenses, interest payments, re-pair and maintenance costs of dwellings as well as certain charitable donations.
Some of the deductions are limited to a certain amount or percentage (so-called standard deductions).
Tax filing requirements
Foreign nationals earning less than CHF 120,000 p.a. (Geneva: CHF 500,000 p.a.) or non-residents are generally not required to file a Swiss tax return.
All other taxpayers are generally obliged to file an annual tax return. Tax returns are generally due at the end of March of each year. However, it is easy to extend the filing deadline. The Swiss federal and all cantonal tax authorities levy taxes on the basis of a tax return. Taxes have to be paid on assessments (tax invoices) received.
In general, foreign nationals pay tax at source on their employment income (at source withholding). The tax at source represents a final tax liability and the expatriate does not need to file a tax return.
The tax authorities require the tax payer to file a tax return only if the annualised gross salary exceeds the amount of CHF 120,000 (Geneva: CHF 500,000). The tax withheld at source in these cases clearly does not constitute the final tax liability, but an instalment on account of the total tax liability calculated on the basis of an ordinary annual tax return.
A final tax assessment will be issued by the authorities. Any refunds for over–payment, or demands for settlement of underpayment will be established on the basis of this assessment. Taxes (with the exception of taxes withheld at source) are payable within 30 days of issuance of tax bills or assessments by the cantonal or municipal tax authorities.
Social security system
Unlike other countries, Switzerland has no cap for old age insurance contributions, although the contributions are moderate compared with other countries (10.1%, of which 5.05% to be borne by the employee). Unemployment insurance (2%, of which 1% to be borne by the employee, capped at CHF 126’000) and accident insurance are also part of the social security coverage. Contributions for the accident insurance vary depending on the company’s risk level and economic sector. Contributions for the occupational accident insurance are borne by the employer. In addition to the social security there is a compulsory company pension scheme. The contributions vary between 7–18% of the insured salary (with a ceiling) depending on the age and the sex of the employee where at least 50% of the contributions are to be borne by the employer. Exemption from all social security contributions is, however, available for foreign nationals remaining in their home social security systems and who have a certificate of coverage. Furthermore, exemption from the obligation to contribute to a Swiss pension plan may be claimed if sufficient coverage exists abroad, and is to be filed with the board of the pension plan institution. Furthermore, Swiss law asks for compulsory accident insurance coverage for all employees (provided by the employer).
Maternity insurance
Under maternity insurance all employed or self-employed women are entitled to 14-weeks maternity leave and will, during this time, receive 80% of their salary (based on the average annual salary), or a maximum of CHF 172 per day.
Incentive plans
As mentioned above, Swiss social security contributions are levied on uncapped compensation. Incentive plans (stock purchase plans, stock option plans, phantom plans, etc.) therefore also raise social security contributions. This obligation cannot be avoided by using a foreign group company granting the incentive. Also, benefits distributed once the employee is no longer taxable in Switzerland are subject to Swiss social security contributions if related to the work performed in Switzerland.
Healthcare insurance law
The health insurance law (KVG) regulates the health care insurance coverage which is compulsory for the whole population of Switzerland. Individuals have the obligation to be covered by a Swiss health care insurance, if they:have their residence in Switzerland, or have a work permit which is valid for at least three months, or are performing a dependent activity in Switzerland with a permit valid for less than three months, and are not covered in Switzerland by similar insurance benefits abroad. The premiums are fully borne by the individual (no employer contributions) and vary depending on the insurance provider and the place of abode. Individuals may be exempt from the obligation to be insured:
• if they are subject to a compulsory health care insurance abroad (granting a coverage in Switzerland similar to the coverage foreseen by Swiss law), provided the obligation set in the Swiss law results in a double burden,if the individuals are exempt from Swiss social security obligations based on a social security totalisation agreement between Switzerland and the respective country, provided their employer guarantees that health care coverage similar to the coverage foreseen by Swiss law is granted to them during their assignment. Health insurance exemptions are generally granted upon formal request filed with the appropriate cantonal authorities. Please note that the practice followed in the various cantons may vary considerably. It is, therefore, advisable to seek appropriate advice if an exemption is sought.
Other issues
Incentive plans
Unrestricted stock
In principle, employee stock plans only generate taxable income in cases where employees are allowed to buy shares be- low fair market value, or shares are granted to them without payment. Such plans are taxed preferentially on the difference between the discounted market value and the price paid by the employee, if any. Taxable income is deemed to be “earned” (realized) immediately and taxed according to ordinary assessment rules. Any subsequent capital gain realized upon sale of the shares (without consideration as to whether the stock was restricted or not) is generally tax-free in Switzerland, and is not subject to social security contributions.
Stock purchase plans
Using a stock purchase plan, companies sell shares to their employees at a reduced or market price. The shares purchased by the employees may be at their free disposal or they may be subject to selling restrictions.
Restricted stock
(disposal restricted for a number of years)
Taxable income is deemed to be realized immediately, but a discount applies to the fair market value of the stock granted according to the restriction period as per the above table(6% discount p.a.).
Restricted stock units (RSUs)
Where an employee only receives a “conditional promise” to receive “real” stock after the expiration of a vesting period and where no shareholder rights were granted prior to the vesting date, taxable income is deemed to be realised at the date of vesting. The taxable income is equal to the total fair market value of the stock granted at the date of vesting. No discount is granted for income tax purposes.
Stock option plans
With a stock option plan (call-option) a company provides its employees with the right to purchase shares in the company at a reduced price. The option can be granted for free or a certain price. The shares are acquired by the employee upon exercise of the option, the date of which can be freely chosen by the employee or is determined by the plan (after a fixed date and/or within a certain time frame). Based on a Federal Directive of May 2003 the moment of taxation of employee stock options will generally be deferred from the date of grant to the date the employee receives unlimited exercise right. Consequently, depending on the wording of the specific plan, taxation could occur either at the date of grant, at the date of vesting or at the date of exercise. The directive notes that taxation will be at the point of final vesting or the “unlimited exercise right” which is not standard vesting as it is known in most common stock option plans. It is at the point where the employee can no longer lose his right to exercise his received option. Thus, for most options, this will be on the actual exercise of the option. This is because even when option holders are in an exercise period, many options force accelerated exercise in case of termination of employment, retirement, death, disability, etc. Such limitations would restrict the “unlimited exercise right” of an option and lead therefore to taxation at exercise. The taxable basis will be the difference between the fair market value at the date of exercise and the exercise price defined at grant.
Other issues
the canton of Zurich) or, even if no vesting period is applicable, at the date of grant. The taxable basis determined at grant, respectively at vesting, is the option value calculated at that date using the Black-Scholes formula. Nevertheless, certain cantons – especially in the French speaking area of Switzerland – do not apply the above-mentioned rules implemented by the Federal Tax Authorities in 2003 and in general still tax stock options at the date of grant,
unless a specific tax ruling is in place to defer taxation to exercise.
A specialised tax adviser should be consulted before granting stock options to individuals resident in Switzerland.
The social security contributions will have to be deducted at the date taxation occurs. Phantom stocks, performance units, stock appreciation rights or stock options with mandatory cash settlement, are generally taxed at the date of exercise.
Inheritance and gift taxes
Although the Confederation levies no inheritance or gift taxes, all cantons but one (Schwyz) impose an inheritance tax on the transfer of property to beneficiaries and all cantons but two (Lucerne and again Schwyz) levy taxes on onations.
Inheritance and gift taxes are levied in the canton where the deceased or donor had his (last) residence, or, if real estate is concerned, in the canton where the real estate is located. Neither inheritance nor estate taxes arise if the deceased or donor is resident abroad and no real estate in Switzerland is concerned. The tax rates differ among cantons. In general, they vary according to the value of the property inherited or donated and the relationship of the beneficiary to the
deceased or donor. Most cantons do not levy a tax if the recipient is the spouse or a direct descendant of the deceased or donor.
The inheritance and gift taxes are payable either by the recipient, by the personal representative of the deceased or by the donor. Non-residents are liable to inheritance or gift tax if the deceased or donor was a Swiss resident at the time or the property concerned was real estate located in Switzerland. Switzerland has concluded inheritance tax treaties with Austria, Denmark, Germany, Finland, France, The Netherlands, Norway, Sweden, UK, USA and Faroe Islands. Please note, however, that those treaties are not always able to avoid double taxation completely.
Short-term assignments / Long-term assignments
On short-term assignment in Switzerland an individual may be considered non-resident or resident in Switzerland, depending on the duration of presence in Switzerland. The individual is considered resident in Switzerland (normally for a long-term assignment), please refer to our previous comments for Swiss residents. Being non-resident does not mean that the individual is not subject to taxation in Switzerland. The taxation of various sources of compensation income of non-residents is as follows:
Employment income
Contrary to the situation that prevails for Swiss nationals and permanent residents, whose taxes are assessed based on the self declaration in their annual tax returns, foreign nationals working in Switzerland for a Swiss employer initially have the income tax on their employment income directly deducted at source (payroll tax, source tax). Moreover, a resident of a treaty country working in Switzerland for an employer which is not resident in Switzerland, and
being physically present in Switzerland for less than 183 days in the tax year, is normally exempt from Swiss income tax.
Non-employment income
Non-residents are subject to taxation on Swiss source income only. Examples of Swiss source income include interest earned on a Swiss bank account or dividends received from a Swiss company.
End of assignment procedures
Before leaving Switzerland the individual should ensure that he/she deregisters officially with the registration office of the municipality where he/she was registered. We recommend that deregistration takes place approximately ten days before actually leaving the country. Please note that the date of official deregistration is usually considered to be the end of liability to Swiss taxation. Do not worry if the Swiss taxes are not finally settled by the day of deregistration. As long as Ernst & Young is the tax representative, the authorities will allow departure from the country even if taxes have not been finally settled yet. The final settlement usually only takes place after departure from Switzerland.
Other issues
Immigration categories / work permits
When is a work permit required?
Anyone coming to work in Switzerland who is not Swiss citizen should ensure they have the permission to allow them to carry out their proposed activities here. In general, business trips to Switzerland may be taken without a work permit as long as such a trip does not exceed 8 days in one calendar year. In order to render services or to work for no longer than 90 days per year, nationals of the 15 old EU member states and the EFTA (hereinafter EU/EFTA) do not need a work and residence permit but only have an obligation to register prior to their entry into Switzerland.
What are the general principles of immigration into Switzerland?
The issuance of a work and residence permit for a foreigner is restricted, unless the employer can prove that no domestic or EU/EFTA worker can fill the position. Exceptions apply to highly qualified specialists. The number of most first-time temporary permits is limited (restricted to annual quotas), however no quota restriction applies for EU/EFTA workers as from June 1, 2007.
Am I allowed to work in Switzerland?
Switzerland has made a reservation to uphold primary preferences for EU and EFTA applicants. Exceptions are made, however, for highly qualified specialists.
How long can I stay/work in Switzerland?
Permits are limited in duration. There are several types of permits available:
• Short term permit (so called L-Permit); allows holder to stay under 12 months
in Switzerland
• Long-term permit (so called B-Permit); generally issued for one year, but may
be renewed annually (issued for five years for EU/EFTA citizen) Border permit (so called G-Permit); EU/EFTA workers living in the border zone of one of Switzerland’s neighbour states may receive a border permit for
work in the defined border zone, provided that the worker returns at least weekly to his home abroad. As from June 1, 2007, the border was lifted for EU/EFTA workers. Third-country nationals can only be granted a border permit if they are holder of permanent residence permits in a neighbouring country and have had their regular place of residence in the neighbouring country’s border zone (for at least six months).
Am I allowed to come to Switzerland without working?
Permits for foreigners who are not engaged in a gainful activity are primarily granted to:
Students / Retirees / Affluent EU/EFTA people who wish to settle down in Switzerland / Family members
May I change the employer or place of residence in Switzerland?
Permits are only valid for the canton where they are issued. Foreign employees who want to change their employer or move to another canton need prior approval from the competent authorities. Approvals are only granted if certain conditions are met (exception: permits of EU/EFTA citizens are valid for the whole country).
Is my family allowed to accompany me to Switzerland?
Dependant family members of B-Permit holders (and of L-Permit holders in case of EU/EFTA nationals) are generally granted a permit of the same duration as the principal permit holder.
How can I apply for a permit?
Permit applications have to be fully substantiated and must include comprehensive documentation. There are strict filing obligations to adhere to. Furthermore, the prerequisites for obtaining a residence and work permit may differ from canton to canton. For EU/EFTA workers as from June 1, 2007, only a registration duty exists prior to taking up work. The new proceedings will, however, need to be checked with the canton concerned.
Can I work in Switzerland while my work permit application is pending?
A visit for work purposes is not permitted in such cases.
Are there special requirements for self-employed business persons?
A foreign national resident in Switzerland may only be self-employed if he has a permanent residence permit (so called C-Permit; citizens of EU/EFTA are entitled to work on a self-employed basis even without a C-Permit). The Permanent Residence Permit is granted after a residence of ten years in Switzerland or five years for nationals of privileged states (e.g. EU/EFTA citizens). Neither the change of employment, self-employment or domicile then requires any approval by the competent authority within the whole of Switzerland.
Procedures to follow during applications
What general points should I be aware of when applying for a work permit?
Swiss permits are issued by the respective Cantonal Office of Industry, Trade and Labour or in certain circumstances, by the Federal Office of Industry, Trade and Labour (in case of EU/EFTA workers cantonal migration office). The application requires the filing of the respective form together with a comprehensive application letter either in German, French or Italian language, depending on the canton.
How long is the application process?
Depending on the permit and the cantonal and federal requirements, the application process in general lasts between four to eight weeks (approx. 1–2 weeks for EU/EFTA cizitens).
What are the key information and documentation requirements for a temporary residence
permit?
The key information requirements, covered by the application letter, should encompass the job description as well as the work and personal situation of the applicant and should be supported by proper documentation (e.g. curriculum vitae, diplomas, etc.).
What are the key information and documentation requirements for a permanent residence permit?
In principle, no additional information and documentation is required due to the fact that the Permanent Residence Permit (so-called C-Permit) is basically granted after 10 years (respectively 5 years for nationals of certain countries, e.g. EU/ EFTA citizens) of uninterrupted residency in Switzerland.
Procedures on entry
Are there any procedures I should be aware of when I arrive in Switzerland?
When the individual arrives at the Swiss border, he must be in possession of a valid permit and, depending on the permit, must prove to reside in a reasonable accommodation (except EU/EFTA citizens). On taking up domicile in Switzerland, the individual must register with the competent authorities within eight days following entry into Switzerland and in any case prior to take up work.
What if I am already in Switzerland as a business visitor?
In those cases where a work permit is required, entry into Switzerland for work purposes is not permitted before obtaining the respective permit.
Immigration for dependants
Can I bring my family to Switzerland with me?
Basically, it depends on the nature of the permit whether or not you are allowed to bring your family with you. If you have a temporary or permanent resident permit, you can bring your wife and your children under age 18 (EU/EFTA citizens: chidren under age 21) with you. If, however, you are holder of a 120-day permit, or a border permit, you are not allowed to bring your family with you.
Can my family obtain permanent residence?
If the permit holder has a Permanent Residence Permit (C-Permit), his children under age 18 automatically receive also the Permanent Residence Permit. The spouse of the permit holder receives the Permanent Residence Permit, if she/ he has an uninterrupted stay of five years in Switzerland. If this condition is not fulfilled, the spouse will initially only receive a temporary residence permit for the next five years, before a Permanent Residence Permit is granted.
Swiss employment law
(Summary)
Salary if the employee is unable to work
If the employee, for reasons inherent to his/her person, such as sickness, accident, compliance with legal obligation, etc., is by no fault of his own unable to perform his work, the employer has to pay the corresponding salary for a limited period of time. If longer periods have not been fixed by agreement, the employer has to pay the salary for three weeks during the first year of employment and afterwards for longer periods varying from place to place in Switzerland. As an example, please find below the period foreseen by the scale of the canton Berne (most common scale in Switzerland):
First year: 3 weeks
Second year: 1 month
Third and fourth year: 2 months, etc.
Holidays
It is mandatory that the employer grants at least four weeks of individual holiday in each year of service in addition to public holidays. The employer must pay the full salary during regular holidays.
Competition ban
The parties may agree (only valid in written form) that the employee confirms to refrain from engaging in any competitive activity during and after termination of the employment relationship, in particular neither to operate a business for his/ her own account which competes with the employer’s business, nor to work for, nor to participate in such a business, which competes with the employer. Please note that the competition ban is only binding if the employment relationship has given the employee access to clients/client information or to manufacturing or business secrets, and if the use of such knowledge could significantly damage the employer’s business.
The Competition ban has to be limited in time, territory and subject to be enforceable.
Other useful information about Switzerland
For your and your family’s comfort it may be important that you get a general impression about Switzerland. Useful information, which can make your life easier especially during the transition period, can be found on the following websites:
www.swissinfo.ch
www.switzerland.com
www.admin.ch
www.basel.ch
www.geneva.ch
www.zuerich.ch
For more information on moving to Switzerland, please visit Overs website at www.overs.co.uk
Pre-assignment procedures
Prior to arrival
Prior to coming to Switzerland you should ensure that you have the necessary work and residence permit to cover your pro-posed assignment period (or at least the first year of the assignment if a long-term assignment is planned). You should be aware that the date of issue of your work permit is not always relevant to the start date of Swiss residence for tax purposes.
On arrival Within 8 days of arrival in Switzerland you have to register your family and yourself with the registration office (Einwohner–dienste/Personenmeldeamt/office can-tonal de la population) of the municipality where you intend to stay. Please note that this date of official registration is usually considered to be the start of your liability to Swiss taxation. In most cantons a church tax is imposed, equal to a percentage of the cantonal tax. The church tax can increase the total combined tax rate by up to three percent. This tax is only imposed on individuals who registered as members of a recognized church. It is common practice for expatriates not to register as a member of a church to avoid the church tax payment.
Residence
Residence is defined as the place where a person stays with the intention of settling there permanently and which is thus the center of his/her personal and business interests. An individual who stays in Switzerland for a certain minimum period and earns his living here (for example, under a B-permit), is also subject to unlimited tax liability.
A person will also be considered resident for tax purposes if he/she remains in the country for a protracted period, e.g. more than 30 days if engaged in a gainful activity or more than 90 days, if not engaged in a gainful activity.
Unlimited tax liability does not extend to capital invested in and income derived from businesses, permanent establishments and real estate situated abroad (but considered for the determination of the applicable Swiss tax rates).
If an expatriate is classified as a resident of both Switzerland and another country, the relevant tax treaty between the countries may include a tiebreaker clause to resolve the conflict.
Taxation of income and wealth
Scope
Foreign nationals have their tax deducted directly from their salary (payroll tax or source tax). However, such payroll tax payment is considered a provisional tax payment only if the annualized gross compensation exceeds currently CHF 120,000 (in Geneva CHF 500,000). If the annualised gross salary exceeds the above mentioned amounts and the expatriate is resident in Switzerland, the final Swiss tax liability is determined based on the information reported in the ordinary income tax return.
Residents
A foreign individual who becomes resident in Switzerland is fully subject to income and wealth taxation from the date
of arrival. Residents of Switzerland are subject to federal income taxes and also to cantonal/municipal income and wealth taxes. Each is based on similar principles and is imposed on worldwide income and net wealth at progressive rates. Taxable income includes all earned income, whether received in cash or in kind, and the rental value of owner-occupied houses as well as pensions and investment income. However, exposure to Swiss taxation does not extend to assets invested in and income derived from businesses, permanent establishments or real estate located abroad. Such assets and income are only relevant for the purpose of calculating the applicable tax rates. Taxable wealth includes all assets and debts (e.g. bank accounts, shares and other securities, real estates, mortgages and other loans). Capital gains are in general tax-free in Switzerland (there is an exception for capital gains from Swiss real estate).
Non-residents
Non-residents may be subject to Swiss taxes on various kinds of Swiss source income: interest or dividends paid by a Swiss entity, income from real estate or from business activities in Switzerland, directors’ fees, or compensation for an activity performed for, and paid by, a Swiss employer. Generally, non-residents only have to file a tax return if they have real estate, or business activities (permanent establishment), in Switzerland. In other cases, tax is withheld at source. Depending on the tax treaty applicable, this tax may be partially or fully refunded, or credited against foreign taxes.
Individual taxation in Switzerland
Under tax treaties, a resident of a treaty country who works in Switzerland for less than 183 days in the tax year for an employer only resident in the treaty country is normally exempt from Swiss income and wealth tax.
Tax year
For individuals, the tax year corresponds with the calendar year. If you become a Swiss tax resident, the first year’s income in Switzerland is annualized for determining the applicable Swiss tax rates. The same principle applies for the year of departure.
Assessment basis
The basis for assessment is the current calendar year.
Family tax concept
Married couples are normally assessed jointly i.e. their income and wealth are aggregated (family tax concept). In order to minimize discrimination, different progressive tax rates apply for married and single persons or splitting of income to determine the tax rate. Another means of avoiding discrimination are higher deductible allowances (i.e. personal and family allowances) for married couples. Deductible items for both married couples and single persons include social security contributions, accident and health insurance premiums, company pension plan contributions and qualified private pension plan contributions (so called third pillar a), certain non-reimbursed business expenses, interest payments, re-pair and maintenance costs of dwellings as well as certain charitable donations.
Some of the deductions are limited to a certain amount or percentage (so-called standard deductions).
Tax filing requirements
Foreign nationals earning less than CHF 120,000 p.a. (Geneva: CHF 500,000 p.a.) or non-residents are generally not required to file a Swiss tax return.
All other taxpayers are generally obliged to file an annual tax return. Tax returns are generally due at the end of March of each year. However, it is easy to extend the filing deadline. The Swiss federal and all cantonal tax authorities levy taxes on the basis of a tax return. Taxes have to be paid on assessments (tax invoices) received.
In general, foreign nationals pay tax at source on their employment income (at source withholding). The tax at source represents a final tax liability and the expatriate does not need to file a tax return.
The tax authorities require the tax payer to file a tax return only if the annualised gross salary exceeds the amount of CHF 120,000 (Geneva: CHF 500,000). The tax withheld at source in these cases clearly does not constitute the final tax liability, but an instalment on account of the total tax liability calculated on the basis of an ordinary annual tax return.
A final tax assessment will be issued by the authorities. Any refunds for over–payment, or demands for settlement of underpayment will be established on the basis of this assessment. Taxes (with the exception of taxes withheld at source) are payable within 30 days of issuance of tax bills or assessments by the cantonal or municipal tax authorities.
Social security system
Unlike other countries, Switzerland has no cap for old age insurance contributions, although the contributions are moderate compared with other countries (10.1%, of which 5.05% to be borne by the employee). Unemployment insurance (2%, of which 1% to be borne by the employee, capped at CHF 126’000) and accident insurance are also part of the social security coverage. Contributions for the accident insurance vary depending on the company’s risk level and economic sector. Contributions for the occupational accident insurance are borne by the employer. In addition to the social security there is a compulsory company pension scheme. The contributions vary between 7–18% of the insured salary (with a ceiling) depending on the age and the sex of the employee where at least 50% of the contributions are to be borne by the employer. Exemption from all social security contributions is, however, available for foreign nationals remaining in their home social security systems and who have a certificate of coverage. Furthermore, exemption from the obligation to contribute to a Swiss pension plan may be claimed if sufficient coverage exists abroad, and is to be filed with the board of the pension plan institution. Furthermore, Swiss law asks for compulsory accident insurance coverage for all employees (provided by the employer).
Maternity insurance
Under maternity insurance all employed or self-employed women are entitled to 14-weeks maternity leave and will, during this time, receive 80% of their salary (based on the average annual salary), or a maximum of CHF 172 per day.
Incentive plans
As mentioned above, Swiss social security contributions are levied on uncapped compensation. Incentive plans (stock purchase plans, stock option plans, phantom plans, etc.) therefore also raise social security contributions. This obligation cannot be avoided by using a foreign group company granting the incentive. Also, benefits distributed once the employee is no longer taxable in Switzerland are subject to Swiss social security contributions if related to the work performed in Switzerland.
Healthcare insurance law
The health insurance law (KVG) regulates the health care insurance coverage which is compulsory for the whole population of Switzerland. Individuals have the obligation to be covered by a Swiss health care insurance, if they:have their residence in Switzerland, or have a work permit which is valid for at least three months, or are performing a dependent activity in Switzerland with a permit valid for less than three months, and are not covered in Switzerland by similar insurance benefits abroad. The premiums are fully borne by the individual (no employer contributions) and vary depending on the insurance provider and the place of abode. Individuals may be exempt from the obligation to be insured:
• if they are subject to a compulsory health care insurance abroad (granting a coverage in Switzerland similar to the coverage foreseen by Swiss law), provided the obligation set in the Swiss law results in a double burden,if the individuals are exempt from Swiss social security obligations based on a social security totalisation agreement between Switzerland and the respective country, provided their employer guarantees that health care coverage similar to the coverage foreseen by Swiss law is granted to them during their assignment. Health insurance exemptions are generally granted upon formal request filed with the appropriate cantonal authorities. Please note that the practice followed in the various cantons may vary considerably. It is, therefore, advisable to seek appropriate advice if an exemption is sought.
Other issues
Incentive plans
Unrestricted stock
In principle, employee stock plans only generate taxable income in cases where employees are allowed to buy shares be- low fair market value, or shares are granted to them without payment. Such plans are taxed preferentially on the difference between the discounted market value and the price paid by the employee, if any. Taxable income is deemed to be “earned” (realized) immediately and taxed according to ordinary assessment rules. Any subsequent capital gain realized upon sale of the shares (without consideration as to whether the stock was restricted or not) is generally tax-free in Switzerland, and is not subject to social security contributions.
Stock purchase plans
Using a stock purchase plan, companies sell shares to their employees at a reduced or market price. The shares purchased by the employees may be at their free disposal or they may be subject to selling restrictions.
Restricted stock
(disposal restricted for a number of years)
Taxable income is deemed to be realized immediately, but a discount applies to the fair market value of the stock granted according to the restriction period as per the above table(6% discount p.a.).
Restricted stock units (RSUs)
Where an employee only receives a “conditional promise” to receive “real” stock after the expiration of a vesting period and where no shareholder rights were granted prior to the vesting date, taxable income is deemed to be realised at the date of vesting. The taxable income is equal to the total fair market value of the stock granted at the date of vesting. No discount is granted for income tax purposes.
Stock option plans
With a stock option plan (call-option) a company provides its employees with the right to purchase shares in the company at a reduced price. The option can be granted for free or a certain price. The shares are acquired by the employee upon exercise of the option, the date of which can be freely chosen by the employee or is determined by the plan (after a fixed date and/or within a certain time frame). Based on a Federal Directive of May 2003 the moment of taxation of employee stock options will generally be deferred from the date of grant to the date the employee receives unlimited exercise right. Consequently, depending on the wording of the specific plan, taxation could occur either at the date of grant, at the date of vesting or at the date of exercise. The directive notes that taxation will be at the point of final vesting or the “unlimited exercise right” which is not standard vesting as it is known in most common stock option plans. It is at the point where the employee can no longer lose his right to exercise his received option. Thus, for most options, this will be on the actual exercise of the option. This is because even when option holders are in an exercise period, many options force accelerated exercise in case of termination of employment, retirement, death, disability, etc. Such limitations would restrict the “unlimited exercise right” of an option and lead therefore to taxation at exercise. The taxable basis will be the difference between the fair market value at the date of exercise and the exercise price defined at grant.
Other issues
the canton of Zurich) or, even if no vesting period is applicable, at the date of grant. The taxable basis determined at grant, respectively at vesting, is the option value calculated at that date using the Black-Scholes formula. Nevertheless, certain cantons – especially in the French speaking area of Switzerland – do not apply the above-mentioned rules implemented by the Federal Tax Authorities in 2003 and in general still tax stock options at the date of grant,
unless a specific tax ruling is in place to defer taxation to exercise.
A specialised tax adviser should be consulted before granting stock options to individuals resident in Switzerland.
The social security contributions will have to be deducted at the date taxation occurs. Phantom stocks, performance units, stock appreciation rights or stock options with mandatory cash settlement, are generally taxed at the date of exercise.
Inheritance and gift taxes
Although the Confederation levies no inheritance or gift taxes, all cantons but one (Schwyz) impose an inheritance tax on the transfer of property to beneficiaries and all cantons but two (Lucerne and again Schwyz) levy taxes on onations.
Inheritance and gift taxes are levied in the canton where the deceased or donor had his (last) residence, or, if real estate is concerned, in the canton where the real estate is located. Neither inheritance nor estate taxes arise if the deceased or donor is resident abroad and no real estate in Switzerland is concerned. The tax rates differ among cantons. In general, they vary according to the value of the property inherited or donated and the relationship of the beneficiary to the
deceased or donor. Most cantons do not levy a tax if the recipient is the spouse or a direct descendant of the deceased or donor.
The inheritance and gift taxes are payable either by the recipient, by the personal representative of the deceased or by the donor. Non-residents are liable to inheritance or gift tax if the deceased or donor was a Swiss resident at the time or the property concerned was real estate located in Switzerland. Switzerland has concluded inheritance tax treaties with Austria, Denmark, Germany, Finland, France, The Netherlands, Norway, Sweden, UK, USA and Faroe Islands. Please note, however, that those treaties are not always able to avoid double taxation completely.
Short-term assignments / Long-term assignments
On short-term assignment in Switzerland an individual may be considered non-resident or resident in Switzerland, depending on the duration of presence in Switzerland. The individual is considered resident in Switzerland (normally for a long-term assignment), please refer to our previous comments for Swiss residents. Being non-resident does not mean that the individual is not subject to taxation in Switzerland. The taxation of various sources of compensation income of non-residents is as follows:
Employment income
Contrary to the situation that prevails for Swiss nationals and permanent residents, whose taxes are assessed based on the self declaration in their annual tax returns, foreign nationals working in Switzerland for a Swiss employer initially have the income tax on their employment income directly deducted at source (payroll tax, source tax). Moreover, a resident of a treaty country working in Switzerland for an employer which is not resident in Switzerland, and
being physically present in Switzerland for less than 183 days in the tax year, is normally exempt from Swiss income tax.
Non-employment income
Non-residents are subject to taxation on Swiss source income only. Examples of Swiss source income include interest earned on a Swiss bank account or dividends received from a Swiss company.
End of assignment procedures
Before leaving Switzerland the individual should ensure that he/she deregisters officially with the registration office of the municipality where he/she was registered. We recommend that deregistration takes place approximately ten days before actually leaving the country. Please note that the date of official deregistration is usually considered to be the end of liability to Swiss taxation. Do not worry if the Swiss taxes are not finally settled by the day of deregistration. As long as Ernst & Young is the tax representative, the authorities will allow departure from the country even if taxes have not been finally settled yet. The final settlement usually only takes place after departure from Switzerland.
Other issues
Immigration categories / work permits
When is a work permit required?
Anyone coming to work in Switzerland who is not Swiss citizen should ensure they have the permission to allow them to carry out their proposed activities here. In general, business trips to Switzerland may be taken without a work permit as long as such a trip does not exceed 8 days in one calendar year. In order to render services or to work for no longer than 90 days per year, nationals of the 15 old EU member states and the EFTA (hereinafter EU/EFTA) do not need a work and residence permit but only have an obligation to register prior to their entry into Switzerland.
What are the general principles of immigration into Switzerland?
The issuance of a work and residence permit for a foreigner is restricted, unless the employer can prove that no domestic or EU/EFTA worker can fill the position. Exceptions apply to highly qualified specialists. The number of most first-time temporary permits is limited (restricted to annual quotas), however no quota restriction applies for EU/EFTA workers as from June 1, 2007.
Am I allowed to work in Switzerland?
Switzerland has made a reservation to uphold primary preferences for EU and EFTA applicants. Exceptions are made, however, for highly qualified specialists.
How long can I stay/work in Switzerland?
Permits are limited in duration. There are several types of permits available:
• Short term permit (so called L-Permit); allows holder to stay under 12 months
in Switzerland
• Long-term permit (so called B-Permit); generally issued for one year, but may
be renewed annually (issued for five years for EU/EFTA citizen) Border permit (so called G-Permit); EU/EFTA workers living in the border zone of one of Switzerland’s neighbour states may receive a border permit for
work in the defined border zone, provided that the worker returns at least weekly to his home abroad. As from June 1, 2007, the border was lifted for EU/EFTA workers. Third-country nationals can only be granted a border permit if they are holder of permanent residence permits in a neighbouring country and have had their regular place of residence in the neighbouring country’s border zone (for at least six months).
Am I allowed to come to Switzerland without working?
Permits for foreigners who are not engaged in a gainful activity are primarily granted to:
Students / Retirees / Affluent EU/EFTA people who wish to settle down in Switzerland / Family members
May I change the employer or place of residence in Switzerland?
Permits are only valid for the canton where they are issued. Foreign employees who want to change their employer or move to another canton need prior approval from the competent authorities. Approvals are only granted if certain conditions are met (exception: permits of EU/EFTA citizens are valid for the whole country).
Is my family allowed to accompany me to Switzerland?
Dependant family members of B-Permit holders (and of L-Permit holders in case of EU/EFTA nationals) are generally granted a permit of the same duration as the principal permit holder.
How can I apply for a permit?
Permit applications have to be fully substantiated and must include comprehensive documentation. There are strict filing obligations to adhere to. Furthermore, the prerequisites for obtaining a residence and work permit may differ from canton to canton. For EU/EFTA workers as from June 1, 2007, only a registration duty exists prior to taking up work. The new proceedings will, however, need to be checked with the canton concerned.
Can I work in Switzerland while my work permit application is pending?
A visit for work purposes is not permitted in such cases.
Are there special requirements for self-employed business persons?
A foreign national resident in Switzerland may only be self-employed if he has a permanent residence permit (so called C-Permit; citizens of EU/EFTA are entitled to work on a self-employed basis even without a C-Permit). The Permanent Residence Permit is granted after a residence of ten years in Switzerland or five years for nationals of privileged states (e.g. EU/EFTA citizens). Neither the change of employment, self-employment or domicile then requires any approval by the competent authority within the whole of Switzerland.
Procedures to follow during applications
What general points should I be aware of when applying for a work permit?
Swiss permits are issued by the respective Cantonal Office of Industry, Trade and Labour or in certain circumstances, by the Federal Office of Industry, Trade and Labour (in case of EU/EFTA workers cantonal migration office). The application requires the filing of the respective form together with a comprehensive application letter either in German, French or Italian language, depending on the canton.
How long is the application process?
Depending on the permit and the cantonal and federal requirements, the application process in general lasts between four to eight weeks (approx. 1–2 weeks for EU/EFTA cizitens).
What are the key information and documentation requirements for a temporary residence
permit?
The key information requirements, covered by the application letter, should encompass the job description as well as the work and personal situation of the applicant and should be supported by proper documentation (e.g. curriculum vitae, diplomas, etc.).
What are the key information and documentation requirements for a permanent residence permit?
In principle, no additional information and documentation is required due to the fact that the Permanent Residence Permit (so-called C-Permit) is basically granted after 10 years (respectively 5 years for nationals of certain countries, e.g. EU/ EFTA citizens) of uninterrupted residency in Switzerland.
Procedures on entry
Are there any procedures I should be aware of when I arrive in Switzerland?
When the individual arrives at the Swiss border, he must be in possession of a valid permit and, depending on the permit, must prove to reside in a reasonable accommodation (except EU/EFTA citizens). On taking up domicile in Switzerland, the individual must register with the competent authorities within eight days following entry into Switzerland and in any case prior to take up work.
What if I am already in Switzerland as a business visitor?
In those cases where a work permit is required, entry into Switzerland for work purposes is not permitted before obtaining the respective permit.
Immigration for dependants
Can I bring my family to Switzerland with me?
Basically, it depends on the nature of the permit whether or not you are allowed to bring your family with you. If you have a temporary or permanent resident permit, you can bring your wife and your children under age 18 (EU/EFTA citizens: chidren under age 21) with you. If, however, you are holder of a 120-day permit, or a border permit, you are not allowed to bring your family with you.
Can my family obtain permanent residence?
If the permit holder has a Permanent Residence Permit (C-Permit), his children under age 18 automatically receive also the Permanent Residence Permit. The spouse of the permit holder receives the Permanent Residence Permit, if she/ he has an uninterrupted stay of five years in Switzerland. If this condition is not fulfilled, the spouse will initially only receive a temporary residence permit for the next five years, before a Permanent Residence Permit is granted.
Swiss employment law
(Summary)
Salary if the employee is unable to work
If the employee, for reasons inherent to his/her person, such as sickness, accident, compliance with legal obligation, etc., is by no fault of his own unable to perform his work, the employer has to pay the corresponding salary for a limited period of time. If longer periods have not been fixed by agreement, the employer has to pay the salary for three weeks during the first year of employment and afterwards for longer periods varying from place to place in Switzerland. As an example, please find below the period foreseen by the scale of the canton Berne (most common scale in Switzerland):
First year: 3 weeks
Second year: 1 month
Third and fourth year: 2 months, etc.
Holidays
It is mandatory that the employer grants at least four weeks of individual holiday in each year of service in addition to public holidays. The employer must pay the full salary during regular holidays.
Competition ban
The parties may agree (only valid in written form) that the employee confirms to refrain from engaging in any competitive activity during and after termination of the employment relationship, in particular neither to operate a business for his/ her own account which competes with the employer’s business, nor to work for, nor to participate in such a business, which competes with the employer. Please note that the competition ban is only binding if the employment relationship has given the employee access to clients/client information or to manufacturing or business secrets, and if the use of such knowledge could significantly damage the employer’s business.
The Competition ban has to be limited in time, territory and subject to be enforceable.
Other useful information about Switzerland
For your and your family’s comfort it may be important that you get a general impression about Switzerland. Useful information, which can make your life easier especially during the transition period, can be found on the following websites:
www.swissinfo.ch
www.switzerland.com
www.admin.ch
www.basel.ch
www.geneva.ch
www.zuerich.ch
For more information on moving to Switzerland, please visit Overs website at www.overs.co.uk
posted by Gary Fenwick at
14:29
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