Withholding tax in Switzerland

Introduction

If you’ve landed on this page today, it’s likely because you have questions about withholding tax in Switzerland. Withholding tax can be a complex topic, especially for foreign residents and cross-border workers. Our goal is simple: to ensure you have no more questions after reading this article. And if any doubts remain, don’t hesitate to book a free introductory consultation to get answers to all your questions.

What is withholding tax ?

To fully grasp the concept, it’s essential to start with its definition. While it might seem unusual for Swiss residents, most European countries implement the concept of withholding tax. This term simply means that a third party—often the employer—is responsible for directly deducting income tax from an employee’s salary and transferring it to the tax authorities. As a result, the taxed individual receives only part of their gross salary (referred to as net salary in Switzerland): with the tax already deducted at source.

Withholding tax primarily applies to foreign residents in Switzerland, particularly those holding short- or medium-term permits (e.g., B and L permits).

For cross-border workers subject to withholding tax and residing in France, we invite you to consult our dedicated article.

Objective 1 of withholding tax: Ensuring payment before departure

The primary goal of this mechanism is to ensure that everyone who works and earns income in Switzerland pays their taxes, even if they don’t have a permanent residence in the country. This system prevents taxpayers from leaving Switzerland without fulfilling their tax obligations.

Objective 2 of withholding tax: Simplifying the tax process

Beyond securing tax payments, withholding tax also simplifies life for taxpayers who may not be fluent in the local language or familiar with Swiss tax specifics. In most cases (though not always), it spares them the need to file a taxation ordinaire ultérieure (TOU): which can be time-consuming and complex.

In summary, withholding tax aims to streamline the process for foreign residents while safeguarding the tax revenues of the authorities.

Who is subject to withholding tax in Switzerland?

Withholding tax in Switzerland primarily applies to individuals working in the country who are not Swiss citizens or do not hold a long-term residence permit (permit C).

The main categories of individuals subject to this tax are as follows:

Foreign residents employed in Switzerland without permit C

This includes individuals holding permits B or L who are not Swiss citizens.

Foreign artists and athletes

Anyone performing in Switzerland, such as musicians, actors, or athletes, is subject to withholding tax on income earned during their stay.

Foreign residents receiving Swiss retirement benefits

When individuals who have left Switzerland receive pensions from the 2nd or 3rd pillars (learn more about withdrawing the 2nd pillar upon leaving Switzerland), these benefits are also taxed at source.

Cross-border workers

For instance, Geneva-based cross-border workers are systematically taxed at source. In other cantons like Vaud, the number of days worked in Switzerland determines their tax liability.

Beneficiaries of Swiss pensions living abroad

Individuals residing abroad but receiving a Swiss pension may also be subject to withholding tax.

The specific taxation rules for each situation can vary depending on the taxpayer’s residence and the canton involved.

How is withholding tax calculated on employee income?

Now let’s dive into the details of how withholding tax is calculated. Although it might seem complex at first glance, the process is relatively straightforward when broken down. The calculation is based on two essential steps:

Step 1: Determine the applicable tax scale

The first step is to identify the tax scale that matches your situation. Withholding tax scales take into account several factors, such as the type of income, marital status, and the number of dependents. This ensures that every taxpayer subject to withholding tax is assigned a specific scale tailored to their circumstances.

Step 2: Calculate the taxable amount and apply the corresponding tax rate

Once the scale is defined, the tax is calculated by applying the corresponding tax rate to the employee’s gross monthly income.

Step 1: What are the withholding tax scales?

In Switzerland, withholding tax scales are represented by a letter followed by a number, reflecting the taxpayer’s personal and family situation. Here are the most common scales for salaried income:

Scale A

This scale applies to single individuals or unmarried couples without children (A0). Scales A1 to A5 are for single individuals or unmarried couples paying child support, with the number indicating the number of children supported.

Scale B

This scale is for married couples where only one spouse is professionally active. The following number (B0, B1, B2, etc.) indicates the number of dependent children. For example, B1 applies to a married couple with a single income and one dependent child.

Scale C

This scale applies to married couples where both spouses are employed. In such cases, an adjustment may be necessary, as one spouse’s income is estimated by the employer. Corrections are typically made using the DRIS form (Request for Withholding Tax Adjustment). The number following the letter C also indicates the number of dependents.

Scale H

This scale is for single individuals or unmarried couples with dependent children. For example, a divorced or single person with custody of their children is taxed under Scale H. Similarly, for unmarried couples, the partner with the higher income will be taxed under this scale. The number associated with Scale H (H1, H2, etc.) indicates the number of dependent children.

The scales are generally consistent across cantons, though there may be minor variations. Specific details can be found through the tax administration of your canton or their official websites.

Step 2: How to calculate your withholding taxable income

Fortunately, this step is straightforward. To determine your taxable income for withholding tax, simply sum up all your earnings (fixed salary, variable income, and any additional compensation). The total represents your taxable income.

Once your tax scale is defined (from Step 1), you’ll find that each income bracket corresponds to a specific tax rate. Your task is to identify which bracket your income falls into and apply the associated tax percentage.

Example of Zoé

Let’s consider Zoé, who accepted a job in Switzerland with an annual salary of CHF 60,000, or CHF 5,000 per month.

Assuming a tax rate of 11% for her income bracket:

• Her payslip will show a gross salary of CHF 5,000, but she will only receive part of this amount after deductions.
• Social insurance contributions and payments into the 1st and 2nd pillars will be deducted, in addition to withholding tax.

For withholding tax, the calculation will be:

CHF 5,000 x 11% = CHF 550

Thus, CHF 550 will be deducted at source each month.

It’s important to note that these source deductions are typically calculated monthly. However, your employer may apply a higher rate if additional remuneration elements, such as a 13th-month salary, overtime, or vacation pay, are included in your earnings.

How to ensure your withholding tax bracket is correct?

To confirm that the correct tax bracket is being applied, follow these steps to verify your situation:

Determine your tax bracket and applicable rate

By reviewing the tax brackets for your situation (available online or from the tax authorities), you can ensure that the bracket applied matches your profile (e.g., single, married with one income, etc.).

Compare the rates on your payslip

Take your payslip and divide the amount deducted as withholding tax by your gross income. Then compare this figure to the tax rate for your situation. If there is a discrepancy, it’s possible that the wrong tax bracket has been applied.

Contact your employer or the tax authorities if in doubt : If you detect an error, first discuss it with your employer, who may be able to correct it. If this does not resolve the issue or you remain uncertain, contact the tax authorities for clarification or to submit a correction request.

Can you claim deductions when taxed at source?

Before 2021, individuals taxed at source could request deductions for certain expenses such as transportation, third-pillar contributions, or childcare costs through a simple rectification request. However, since that date, these deductions—and more broadly the “simple rectification” process—are no longer available for taxpayers subject to withholding tax.

Now, withholding tax is calculated on gross income without accounting for these expenses.

Unfair, you might think? It’s worth noting that withholding tax brackets are designed to include average deductions that someone in your situation would typically claim.

In fact, the amounts factored into tax calculations are adjusted to account for estimated social contributions, meal costs, transportation, etc. While the system aims to be balanced on average, it may be slightly disadvantageous for individuals with high deductions and advantageous for those with minimal deductible expenses.

What to do in case of a change in family situation (marriage, divorce)?

Family events such as marriage, divorce, or the birth of a child have a direct impact on the applicable tax bracket. It is therefore crucial to report any changes to your employer to ensure that your tax bracket is adjusted accordingly.

Typically, once the change is reported, the adjustment to the tax rate takes effect starting from the following month.

What are the rights and obligations of taxpayers subject to withholding tax?

The main advantage of withholding tax is its simplicity for the taxpayer, as the employer is responsible for collecting and remitting the taxes. However, even though the system is simplified, it is crucial for each taxpayer to ensure that the correct tax bracket is applied. If you suspect an error, it is your responsibility to contact the tax authorities to have it corrected.

Special Cases

• Barème C: For married couples, the tax bracket used for this category is often an estimation that may not reflect the actual situation. In cases where the second salary is lower, the tax amount withheld may be too high. In such cases, a Request for Rectification (DRIS) can be submitted to adjust the tax burden.
• Mandatory Subsequent Ordinary Taxation (TOU): Some taxpayers, particularly those with an annual income exceeding CHF 120,000, those holding taxable assets, or those with supplementary self-employment income alongside a salaried job, are required to file an ordinary tax return even if they are subject to withholding tax. This means their tax burden will be adjusted to reflect their entire financial situation, not just their salaried income.

Correction requests must be made by March 31 of the following year; otherwise, they cannot be processed.

From withholding tax to subsequent ordinary taxation (TOU)

Subsequent Ordinary Taxation (TOU) is a right available to all taxpayers subject to withholding tax. It allows taxpayers to request that the tax authorities calculate their taxes based on the regular tax declaration process, which enables them to present their actual financial situation instead of being subject to the flat-rate deductions applied by the withholding tax brackets. Before making this request, it is essential to evaluate whether this option will be beneficial.

Fortunately, and out of generosity, we have taken the time to detail all the steps for someone subject to withholding tax who wishes to request a subsequent ordinary tax assessment.

How FBKConseils can assist you?

FBKConseils offers comprehensive support and advisory services for taxpayers subject to withholding tax:

Simulation of Subsequent Ordinary Taxation (TOU)

Not sure whether to request a TOU? FBKConseils can carry out an accurate simulation to help you determine if this could reduce your tax burden.

Tax declaration training

If you are required to complete a tax return, FBKConseils offers practical training to teach you how to file your tax return independently and efficiently.

Tax return handling

If you prefer to delegate this task, FBKConseils can manage the entire process for you, from preparing your tax return to submitting it to the tax authorities, including responding to any queries from the authorities if necessary.