If you are planning to relocate to Switzerland, the issue of tax should be at the top of your research list. Living here will mean that you are considered a Swiss resident, and with that comes the responsibility of paying taxes. Hence, you need to have a basic understanding of how the tax system in the country works, as well as your tax responsibility to the country.
According to Cosmos Values, the following are what you need to know in regards to paying taxes especially when it comes to personal income and wealth taxes.
- Unlimited tax liability
If the government recognizes you as a resident of the country, then you are subject to unlimited tax liability. This means that all of your income is liable to be taxed, and this applies to all Swiss residents whether they are residing in the country permanently or temporarily.
Limited tax liability only applies to non-resident individuals who have specific income generating ties with Switzerland. In this instance, taxes are only applied to specific items of income that are generated within the country such as rent from property.
- Household Income
The tax system in Switzerland also considers members of one household to be a singular economic unit. This translates to having only one tax return submission per household where the incomes of the spouses are added together, and then singularly taxed. Furthermore, if a household has children under the age of 18 years that have began earning an income, they are required to declare this income as well as its source in their parents’ tax return.
- Taxable income bracket
When calculating the amount of your income that is taxable, you need to know which type of income falls under the personal tax bracket. The incomes that you should declare in your tax return include any income that you have received from any gainful employment or self-employment within the country. You should also include income from any lottery or pool that you win as long as it is over CHF 1000.
Any compensatory income such as pensions or annuities need to be declared, and the same case applies to secondary income that may originate from tips and allowances like those provided to seniors. Furthermore, income from real estate property ownership, securities’ earnings as well as interests gained on bank accounts should also be declared in a resident’s tax return.
It is also important to familiarise yourself with the deductions that one should make from their gross taxable income. Usually, the most important deduction that Swiss taxpayers should make is the expenses incurred in the generation of income. This is a crucial deduction especially for sole proprietorships whose owners are subject to unlimited, worldwide tax liabilities.
Other general deductions include the likes of contributions made for social security and pension plans, interest paid for private loans, those for multiple income earners, for married couples living in the same house, for households with children, for single parent households, for needy individuals, as well as for disability.
- Wealth Tax
The wealth tax is applied to all of property that a resident individual has, which is taken to mean all of the rights and the assets that an individual owns that has a determinable cash value. The value allocated to these assets and rights is determined by the current market prices.
Property that should be taxed in accordance with Swiss law includes capital and business assets, annuity and life insurances, and real estate.
The net wealth tax is what is taxable, and not your gross wealth tax. You arrive at your net wealth tax by removing your documented debt, social deductions, as well as personal allowances from your gross wealth tax.