Relocating to Switzerland: Tax Considerations for Individuals

When moving to Switzerland, it should be considered how one will be taxed in Switzerland.
This article explains what taxes are levied on individuals (natural persons) with residency in Switzerland.

As a base case the unlimited tax liability in Switzerland will be discussed first (full tax residency in Switzerland). This is how native Swiss residents are taxed.

Any person staying in Switzerland for more than 30 days with professional activity or more than 90 without professional activity is considered a resident for tax purposes. That means he or she will become unlimited tax liable in Switzerland unless a double tax treaty or other special case prevents it.

Becoming unlimited tax liable in two countries at the same time that do not have a double tax treaty with each other is to be avoided, since one can end up being taxed twice. Sometimes it's desirable to become unlimited tax liable in Switzerland, since then other countries may stop taxing, depending on the other countries' internal laws and the presence of a double tax treaties.

Social security costs will not be discussed in this article, since they go by different rules than tax matters. They have to be looked at separately.

The article is structured as follows:

1. Introduction to Unlimited Tax Liability in Switzerland
2. Income Taxes
3. Capital Gains
4. Wealth Taxes
5. Real Estate Capital Gains Taxation ("RECGT")
6. Lump-Sum Taxation (Expenditure-Based Taxation)
7. Taxation at Source
8. Double Taxation Treaties
9. Value Added Tax on Crossing Border (VAT)
10. Leaving Switzerland Again (Exit Taxes)
11. Inheritance Taxes
12. Gift Taxes

Introduction to Unlimited Tax Liability in Switzerland

This is how native Swiss residents are taxed.

A foreigner who takes up residence in Switzerland will also be taxed like this with the following two exceptions:

• Foreign individuals without a permanent residence permit "C" and an employment income below CHF 120'000 per year and no meaningful other income or wealth. These individuals are subject to taxation at source. The taxation at source is supposed to mimic the full tax declaration and as such the place with the lowest regular taxation within Switzerland should also be the place with the lowest taxation at source.
• Foreign individuals that are eligible and opted for lump-sum taxation

These two exceptions only apply to income and wealth taxes, the remainder stays the same for these individuals.

Income Taxes

Taxable Income

Income taxes are generally levied on all forms of income:

• Employment income
• Interest income from loans
• Dividend income
• etc.

The taxation rate is progressive. This means, that a person earning CHF 20'000 per year will pay less taxes as percentage of income than a person earning CHF 100'000 per year.

Not Taxable Income, but Included for Tax Rate Progression

Not directly taxed, but used for tax rate determination are:

• Foreign real estate income
• Foreign business income

The not taxed incomes are still used for the determination of the tax rate (exemption with progression). That means that:

• a person earning CHF 100'000 in Switzerland and
• a person earning CHF   20'000 in Switzerland and CHF 80'000 in foreign real estate income, for a total income of CHF 100'000

Will both have the same Swiss tax rate, but the second person will have his tax rate multiplied by only CHF 20'000 to calculate the tax burden.

Not Taxable

Not taxable because it is not considered income is:

• Capital gains on privately held assets
• Repayment of qualifying capital contributions of companies (basic idea: when capital is paid into a company, taking it out again shall not be income taxable. But any pay-out of company earnings shall be income taxable)

Since capital gains as well as repayment of qualifying capital contributions are not considered income, they are also not used for the tax rate progression.

Federal, Cantonal and Municipal Income Taxes

There are three levels that levy income taxes in Switzerland: federal, cantonal and municipal.

Only one tax return will need to be filled per year to declare all three of them.

Two sets of taxable incomes will be calculated: the taxable income for federal taxes and the taxable income for cantonal taxes. In many cases, both calculations and the resulting taxable income are similar. The cantons have authority to introduce additional deductions and other changes, but federal laws limits what they are permitted to do.

Both, the cantonal and the municipal tax, are calculated based on the cantonal taxable income.

The municipal tax burden can be larger or smaller than the cantonal tax burden, depending on the tax rate of the municipality. The same applies to federal vs cantonal taxes.

The federal tax should be the same, regardless of where a person has residence in Switzerland. Since the cantons are responsible for the federal tax assessment, some differences in the administrative practise cannot be ruled out completely. But all cantons are required to follow the federal tax law.

Since each canton determines his tax calculation and tax rate structure by himself, the cheapest canton to live might change depending on the precise income. Within a canton, the cheapest municipality will always be the same regardless of income: the one with the lowest multiplication factor relative to the cantonal taxes.

Highest Income Tax Rates

The following table shows the highest tax rate in the cheapest municipality of each canton for the year 2020. The shown tax rates are the maximum tax rates possible for a single individual, which are only achieved with very high income.

As such, the table is most useful for high earners. For lower incomes, the table can still give good indications on what residential locations to consider if looking for low taxes.

Below are links to two calculators that show you a map of all municipalities along with the tax rates. They are good tools to help making your choice considering location and tax rate.

• taxjungle.ch
• swisstaxcalculator.estv.admin.ch, please note that this calculator uses gross employment income and not the taxable income. The gross employment income is higher than the taxable income due to mandatory social security deductions that will be applied to the gross employment income, before it is paid out to an employee. And only the amount paid out is taxable income. As such, the calculated tax rates on gross employment income are lower than the tax rates calculated on taxable income.

Income Tax Reduction on Dividends from Qualifying Investments

There is a reduced taxation on the federal level for dividends and similar income from qualifying investments. An investment is qualifying if represents at least 10% of the share capital of the company2. Such dividends are only taxed at 70% for taxable income and income tax rate determination.

Many cantons also have a reduced taxation on income from qualifying investments. Cantons must tax at least 50% of such dividend or similar income, but may tax up to a 100%3. If the canton has a reduced taxation, then the municipality will also have a reduced taxation, since the municipal taxes are based on the same cantonal taxable income calculation.

Capital Gains

Price appreciations of privately held assets are mostly not taxable in Switzerland. The base rule is these capital gains are not taxable except special cases.

Not taxable:

• Appreciation of share prices (stocks)
• Appreciation in value of a collection of old-timer cars
• etc.

The capital gains are only tax exempt as long as the assets are considered to be held privately. If a person trades heavily in the stock market, he is considered to have started a business as a trader and the assets are then commercially held and no more privately held. The same applies to, for example, a collection of old-timer cars: the owner cannot buy and sell them like a business or it will be considered a professional activity. Profit derived from professional activities are subject to personal income taxes as income from self-employment.

Taxable:

• Profit from business activity
• Real estate price appreciation (Real Estate Capital Gains Taxation)

Because a capital gains of privately held assets are not taxable as income, capital losses can also not be deducted from income,

If assets are considered to be commercially held, then capital losses can be deducted from income. But then gains will also be taxable as income.

The distinction between privately held assets and commercially held assets is crucial.

Wealth Taxes

The cantons levy a wealth tax. Taxable is the global (mobile) wealth.
Real estate in foreign countries is exempt (exemption with progression).

The following table shows the 2020 maximum tax rate in the lowest-tax municipality in each canton.

There is no wealth tax on the federal level.

Real Estate Capital Gains Taxation ("RECGT")

The cantons must levy a real estate capital gain tax ("RECGT") at the cantonal level and/or municipal level4.

The RECGT is paid on the profit realized when Swiss real estate is sold compared its buying price. The taxes paid decline the longer the real estate was held.

There is no RECGT at the federal level.

International Exchange of Taxation Relevant Information

A tax resident in Switzerland is subject to automatic exchange of financial account information (AEOI) and the American FATCA regimes.

Lump-Sum Taxation (Expenditure-Based Taxation)

The lump-sum taxation is a special case of the unlimited tax liability in Switzerland, only available to foreigners.

Both, the taxable income and the taxable wealth, are taxed at the ordinary tax rates under the expenditure-based taxation.

But the taxable income and the taxable wealth are calculated differently. The assessment is only partially based on real figures.

The lump-sum taxation is only for the income and wealth taxation. It does not apply to other taxes, like inheritance or gift taxes.

The expenditure-based taxation has been losing political support in recent years. Some cantons abolished it altogether and some made the rules stricter. It is, however, available in many cantons and on the federal level.

Federal Level

Expenditure-based taxation on the federal level is only available to individuals who5:

• are not Swiss citizens
• are becoming unlimited tax-liable in Switzerland for the first time or after a break of at least 10 years
• are not gainfully employed in Switzerland

For married couples living together, both spouses have to fulfil the above requirements.

The income taxation basis is the highest figure of the following (simplified overview):

• the worldwide living expenses of the taxpayer and their dependents
• CHF 400'000
• sevenfold housing costs in Switzerland
• all income from Swiss sources plus all income for which the taxpayer claims relief from foreign taxation according to double taxation agreements concluded by Switzerland

If another country only refrains from taxing certain income when Switzerland fully taxes it, then these incomes will also be added to the above amount and be fully taxed in Switzerland6. This is the case for income derived from the following countries: Belgium, Germany, Italy, Norway, Canada, Austria, USA 7.

To determine the federal taxable income under expenditure-bases taxation a tax ruling from the cantonal tax authorities must be obtained.

Since the cantons are responsible for the assessment and the collection of the federal income taxes, differences in practice cannot be ruled out.

Cantonal and Municipal Level

The cantons are permitted to also implement an expenditure-based taxation. They are also permitted to implement more strict requirements compared to the federal level.

The cantons also decide on how they implement the wealth tax under the lump-sum regime.

Taxation at Source

The Swiss employment income of foreigners with tax residence in Switzerland without a residence permit "C" is taxed at source. This tax is deducted from the monthly pay check.

There is a mandatory filling of a full tax declaration at the end of the year if the income exceeds CHF 120'000 or if the individual is especially wealthy or has other income that make the taxation at source unreasonably low. For all others, there is no mandatory (full) tax declaration at the end of the year.

But every individual has the right to a full tax declaration if desired.

The tax at source is supposed to mimic the tax burden of a full declaration, but is by its simplified calculation does not take into account the personal situation of individuals as much as a full tax declaration.

Double Taxation Treaties

Double Taxation Treaties in General

There are many tax objects that can be the target of taxation:

• income
• wealth
• owning of real estate
• income from real estate
• sale of real estate
• dividends
• gifting
• inheritance
• etc.

There are two reasons why the same tax object might be taxed by two or more countries:

• Related to an involved person: multiple countries consider an involved person to be some sort of tax resident in their country
• Related to the object itself: the object has some connection to a country and the country taxes it regardless who is involved. An example would be income from Swiss real estate, which is taxed in Switzerland regardless of in what country the owner's tax residence is.

Regarding the first reason: Under what circumstances a person is considered a resident for tax purposes is determined according to the internal law of each country. Each country completely ignores the laws of all other countries for this purpose.

As already noted in the introduction, Switzerland considers any person staying in Switzerland for more than 30 days with professional activity or more than 90 without professional activity a resident for tax purposes.

If a person is also considered resident for tax purposes in another country, then Switzerland and this other country might both tax the same income, wealth, etc.

That can easily happen, as a stay of 30 days with professional activity is already enough for Switzerland to declare unlimited tax liability of the person. Other countries could be even faster.

Double taxation can result in high taxation. An extreme example would be an aggregated income tax rate above 100% - three countries, each taxing the same income at a rate of 35% could do that.

There are two ways that can prevent double taxation issues:

• One of the involved countries does not levy a tax on the tax object, because the internal law of the country does not tax this tax object in general
• A double taxation treaty between two countries that prohibits one of the countries from taxing the tax object

There are many possible constellations:

• none of the two countries taxes a tax object.
• both countries would tax a tax object, but a double tax treaty prevents of them from taxing it.
• one country wants to to tax an object, but the double tax treaty only gives the other country the right to so and this other country does not tax it.
• one country wants to tax an object, but the double tax treaty gives only the other country the right to tax it, given that the other country taxes it.
• etc.

To determine what gets taxed it is important to look at both, the internal laws of the countries involved as well as existing double tax treaties. Only because a double tax treaty gives a country a right to tax something, it does not mean that the country will also tax it.

Double Taxation Treaties Relevant in Switzerland

Switzerland has concluded double taxation agreements with more than 100 other countries.

These treaties mostly cover only income and wealth taxation. There are only few treaties covering inheritance taxes.

There are, for example, double taxation treaties covering income and wealth for: Germany, United States (USA; only income), China, etc.

A full and regularly updated list of all tax treaties is available here.

Value Added Tax on Crossing Border (VAT)

Goods crossing the border into Switzerland are generally subject to customs and import VAT. The import VAT rate is currently at 7.7% for most goods.

To apply for an exception for a duty-free import of household effects, the imported articles must have been used by you personally for at least 6 months and they have to be continued to be used by you after importation.

Please check ahead of time to meet the required formalities. More information is available here.

Leaving Switzerland Again (Exit Taxes)

Switzerland does not have an exit tax for individuals with the exception of commercially held assets.

Hidden reserves of commercially held assets belonging to an individual are taxed when they are moved out of Switzerland. Please see the section above about capital gains for the distinction of commercial vs privately held assets.

Hidden reserves arise from an understatement of commercially held assets. It can arise when capital gains are not recognized or when assets are written down without economic justification. The Swiss tax laws permits the existence of these hidden reserves in many cases.

In some cases, private individuals have ownership in legal entities that will be leave Switzerland together with the private individual. For this reason, some information on the departure of legal entities is discussed below.

The hidden reserves of corporation will also be taxed, when these assets are moved out of Switzerland.

In addition, when a legal entity moves abroad, the self-created added value is taxed with the profit tax (Art. 61b DBG). The self-created added value corresponds to the goodwill. This is the difference between the company's true value and the items present in the company, such as cash, furniture, accounts receivable, etc.

The taxation of the self-created added value can be problematic.

To illustrate this, consider the following fictitious example: Ms. Müller moves to Switzerland and starts a company for CHF 100'000. She is the only employee. The company records neither profits nor losses. Nevertheless, she can sell 10% of the company to an investor for CHF 200'000. This means that the company is valued at CHF 2'000'000 (100%). Ms. Müller now meets an Australian and moves to Australia. Since Ms. Müller is the company's only employee, the place of the company's true administration also shifts to Australia. Or perhaps Ms. Müller wants to officially move the company to Australia. With this movement of the company out of Switzerland, CHF 1,900,000 will be taxed as if it were a normal annual profit of the company (2,000,000 - 100,000 = 1,900,000 goodwill). Depending on the canton, the company now owes more than CHF 400,000 in profit taxes, even though no profits have ever been generated. In certain cases, the payment of the tax can be postponed.

This example shows that moving a company out of Switzerland can be problematic. It is recommended to consult a tax advisor in advance.

Inheritance Taxes

There is no inheritance tax at the federal level. Most cantons have inheritance taxes. The cantons decide on how they implement it.

The inheritance taxes on the cantonal level distinguishes who receives the inheritance and levies different tax rates.

The inheritance tax if often levied when the deceased had his (last) residence in the canton. The tax has to be paid by the recipient, but the estate (inherited wealth) is liable if the recipient does not pay.

Taxable is the global wealth.

The tax rates are progressive, what means that the percent tax rate increases with higher taxable wealth.

There are special rules for real estate located in Switzerland. Cantons with inheritance taxes will most likely tax real estate regardless of where the (last) residence of the deceased was.

Below are some examples of cantonal inheritance taxes for a few selected cantons and receiver groups. The cantonal tax laws usually distinguish between many more groups of receivers than shown below. Not all cantons have inheritance taxes.

A more detailed table is available here.

There are few double tax treaties that cover inheritance taxes, and if there is one, then it might not cover all possible scenarios adequately. As such, it is important to check under what circumstances another country also wants to levy inheritance taxes.

The Swiss civil law stipulates minimum percentages of the estate that must go to selected relatives (in German: Pflichtteil). The greatest beneficiaries by law are the children followed by the spouse. Only a part of the estate can be distributed at free will. An inheritance contract while still alive can circumvent these minimum percentages, but it requires the consent of all people giving up their claim. Another way is gifting while still alive. However, if the gift goes to a person with a claim on the inheritance, it will reduce his future inheritance, but depending on the circumstances that can be fully or partially avoided. An updated inheritance law will be applicable starting January 1, 2023. The updated law allows for more flexibility at the distribution, but significant parts of the estate still go to mandatory recipients.

Gift Taxes

There is no gift tax at the federal level.

Cantons are free to impose gift taxes. The cantons decide on how they implement the taxes. Most cantons have gift taxes. The gift taxes are often equal to the inheritance taxes, what prevents that individuals can circumvent inheritances taxes by gifting while still alive.

Below are some examples of cantonal gift taxes. Note that not all cantons have gift taxes.

Published: December 29, 2021
Last modification: April 10, 2024
Author: Raffael Neeser