How can I maximise my tax savings in Geneva?

Introduction

Optimising tax should be a major concern for many residents of the canton of Geneva. At FBKConseils, we see every year that many individuals, families, property owners and the self-employed can find it difficult to understand the tax mechanisms and possible deductions, resulting in a tax burden that is far too heavy.

Understanding the Swiss tax system, and in particular tax in Geneva, can lead to significant savings.

In this article, we’ll explore the different tax optimisation strategies available to Geneva taxpayers in 2024. Get ready to discover practical tips and useful resources for lightening your tax burden and maximising your savings.

Step 1: Understanding the progressive nature of income tax in Switzerland and Geneva

It’s no secret, and this principle is valid in all countries: the higher the taxable income, the higher the tax. However, in Switzerland, unlike in countries like France, you cannot move from a lower tax bracket to a higher one. In Switzerland, each income corresponds to a fixed tax rate.

In Geneva, here’s what the tax rates will look like in 2024, depending on your income and marital status.

Tax rates for single people

Rates vary from 1.5% for the most modest singles to over 40%.

Tax rates for married couples

Rates range from 0% for couples on the lowest incomes to over 36% for the most affluent couples.

But beware: rates do not rise steadily. They rise rapidly at first, then ease off.

This detail is crucial: strategies to reduce your tax bill are particularly effective where the yield curve is rising fastest.

Step 2: A closer look at the special tax features of the canton of Geneva.

Before diving into the various tax optimisation strategies, let’s take a moment to understand the specific tax situation of Geneva compared to its neighbours. Although Switzerland is striving to standardise taxes between cantons, each canton retains a certain amount of freedom. This autonomy can lead to significant variations in your tax burden, depending on your situation.

Health insurance: Significant deduction from annual premiums

The canton of Geneva offers significant advantages when it comes to deducting health insurance premiums, unlike its neighbours Vaud and Valais. By 2024, Geneva will be able to deduct up to twice the average cantonal premium for both compulsory and supplementary health insurance:

• For children aged 0 to 18: CHF 3,554 per year
• For young adults aged 19 to 26: CHF 11,592 per year
• For adults over 26: CHF 15,067 per year

This deduction policy is particularly advantageous for large families, such as a married couple with two children, offering substantial savings on the annual tax bill. In comparison, the other cantons in French-speaking Switzerland generally offer much less generous deduction options, often not even allowing the full amount of premiums paid to be deducted.

Medical expenses

Under cantonal rules, a limit is generally set before medical expenses actually incurred by taxpayers become deductible. In Geneva, this ‘deductible’ is set at a particularly low threshold: as soon as medical expenses exceed 0.5% of your income, the full amount can be declared and deducted from your taxable income. This advantageous measure in Geneva is distinguished by its ease of access, unlike practices in other cantons.

Childcare expenses

Like its health insurance policy, the canton of Geneva stands out for its support for families, allowing taxpayers responsible for looking after their children to deduct up to CHF 25,048 per child under the age of 14.In addition, Geneva is unique in that childcare costs including various types of holiday camp are deductible, an approach not generally adopted in other cantons. This measure underlines the canton’s commitment to family support and tax relief for parents.

3rd pillar B: Life insurance

This insurance policy, which has many similarities with the 3rd pillar A, is also tax-deductible in Geneva, a feature that is not common in most other cantons in French-speaking Switzerland. Every year in Geneva, depending on your family situation, you can take out life insurance (risk, savings or combined) and benefit from deductions on the premiums paid:

• For a single taxpayer: up to CHF 2,232 per year
• For a married couple: up to CHF 1,674 per taxpayer, with a maximum of CHF 3,348 per year
• For each dependant or child : CHF 913

Caution: As we always remind you, be careful with these insurance contracts, whether they are of the 3rd pillar A or B type. When you sign an insurance contract, take into account management fees, commissions paid to brokers and the quality of the investments themselves, which may not be economically advantageous. Before signing anything, take the time to ask the right questions and get the right information.

To sum up, Geneva’s tax policy offers significant advantages to married couples and families with children thanks to very generous deductions that clearly stand out from those offered in other cantons in French-speaking Switzerland. However, Geneva is sometimes more rigid when it comes to certain other deductions that are often recognised by its neighbours, notably :

Business expenses (meals, transport, etc.)

In Geneva, it is particularly difficult to justify high business expenses. On the one hand, flat-rate deductions are extremely limited or non-existent, and on the other, even with good reasons, justifying them remains complicated. While meal expenses are relatively similar to those in other cantons, travel and other business expenses are almost non-deductible.

Banking fees

In Geneva, it is possible to declare actual account-keeping costs and a proportion of investment management costs, provided they can be justified.However, unlike other cantons, there is no flat-rate deduction for these costs if you cannot prove they exist.

Your rent

When you file your Geneva tax return, although you must indicate the amount of your annual rent, this information is used for statistical purposes.It doesn’t matter whether your rent is CHF 15,000 or CHF 50,000, or whether you are single or the parent of six children, no rent deduction is accepted.

These specific tax issues in Geneva underline the importance of understanding the local rules before making any tax declarations or planning.

Step 3: Possible tax optimisations in Geneva

First optimisation: Choosing your commune of residence

Before we tell you which commune in Geneva is the least advantageous from a tax point of view, it’s crucial to understand Geneva’s municipal tax system, which may seem illogical. In Geneva, you don’t just pay tax in your commune of residence. Part of your council tax also goes to your commune of work. This complex system makes it difficult to simply recommend a place of residence to optimise your taxes. The most advantageous tax choice will depend on the combination of your home and work municipalities. If you haven’t yet read our article on calculating municipal tax in Geneva, we recommend that you do so to gain a better understanding of these optimisations.

So now, here’s this famous table.

At FBKConseils, we favour precise, quantified answers based on current tax rates and legislation. We have analysed the tax rates of each municipality and created a ‘matrix’ revealing the best and worst tax combinations. Although our table isn’t the most aesthetically pleasing or the easiest to interpret, it clearly identifies which options are fiscally advantageous and which aren’t, thanks to columns coloured green and red.

To sum up, here’s what your commune of residence can change in terms of tax if you make the best choice and the worst possible choice. Here are our conclusions:

Communes with an advantageous tax system

Collonge-Bellerive, Cologny, Chêne-Bougeries, Plan-les-Ouates and especially Genthod offer significant tax advantages.

Communes with less favourable taxation

For tax reasons, it would be wise to avoid Chancy, Onex and Vernier, although there are surely other excellent reasons to live there.

In short, your choice of commune of residence in Geneva can affect your total tax burden by 3% to 4% between the best and the least attractive.

Second optimisation: Fill in your tax return correctly

Although it may seem obvious, this second optimisation is crucial. Every year, many clients come to us with tax returns containing errors or omissions.

That’s why it’s essential to fill in your return properly or to have it done by a specialist at least once, so that you can draw up a reliable example for future years. Common omissions include :

Understanding withholding tax and/or foreign withholding tax

Investing part of your savings can generate income such as interest, dividends or bond coupons. This income is often partially withheld by the tax authorities to ensure that it is properly declared. It is crucial to declare them to avoid double taxation, a common pitfall for many investors.

Beware of bank charges

Our customers often declare the balances of their accounts or investments in accordance with tax laws. However, many forget to ask their bank for a tax certificate detailing the charges levied annually. These charges are often deductible, so it is essential to obtain the right documents to maximise your tax deductions.

IFD business expenses

The rules can vary significantly between the cantons and the Confederation. For example, while the canton of Geneva limits the deduction for transport costs to CHF 507, the Confederation allows up to CHF 3,200. This difference also applies to other types of business expenses, so it is important to claim the possible deductions at each level.

Property income and expenses in Switzerland and abroad

In Geneva, as elsewhere, the rules vary depending on whether or not your property is rented out. Our clients sometimes declare foreign rental income/rental values well in excess of their actual values, or lump-sum maintenance costs that are not effective. It’s vital to be aware of your deduction options and the correct valuation methods to avoid overpaying tax.

Check your tax decision

Once you have submitted your tax return, the canton of Geneva takes some time to check it, correct it and send you a revised version. This tax decision may be less advantageous than your initial return. You then have 30 days to contest the decision and claim your deductions. Take the time to compare line by line what you have declared and what has been withheld, so that you can draw up an appeal with the supporting documents you need to reinstate the deductions that were initially refused.

The canton of Geneva makes it easier for taxpayers: in your tax assessment decision, you will find a clear indication of the deduction you have claimed and the one that has actually been granted, enabling a direct and transparent comparison.

Contribute ‘the right way’ to one or more 3rd pillar A schemes

You’ve probably been contacted by a financial adviser offering you the chance to reduce your tax thanks to the 3rd Pillar A. Here are two important pieces of advice:

• Don’t blindly follow this advice: Although the 3rd pillar A is indeed deductible, the contracts on offer are not always financially advantageous.
• Be well informed: The 3rd pillar A may be an excellent tool for optimising tax and building up assets, but it must be entered into with full knowledge of the facts: guaranteed or invested? Insurance or bank? What commission is charged? What charges apply to this contract? Should I open one or several? What happens if I leave Switzerland? If I can no longer pay? If I simply want to stop…

In all cases, as an employee you will be able to deduct a maximum of CHF 7,056 a year from your income thanks to your 3rd pillar A.

BVG/LPP purchases in your pension fund

The 2nd pillar in Switzerland is a vast and complex subject. Buying back BVG years is an effective way of reducing your tax bill while securing your retirement. For more details, see our article on BVG buy-backs.

How do you choose between investing in your 3rd pillar and making BVG/LPP purchases?

We generally advise our customers to contribute as much as possible to their 3rd pillar first, as any contributions not made during the year cannot be made up (at least for the time being, as the law may change in the future).

On the other hand, amounts not purchased under the 2nd pillar can be carried forward to subsequent years. As both provide similar tax advantages, it is strategic to maximise 3rd pillar contributions before carefully planning BVG purchases to optimise your taxes even further.

Step 3: optimising your property purchase in Geneva

In a number of videos and articles, we have tried to highlight the tax and economic differences between tenants and landlords:

• Article 1
• Video 1

Here we will concentrate on taxpayers who already own a property and wish to optimise their situation.

Plan maintenance costs over several years

It’s a piece of advice that comes up a lot but is still underused by our homeowner clients. When you buy a home, it’s normal to want to carry out major works to make your new acquisition more suited to your preferences. However, if you carry out as much maintenance work as possible in the same year, your tax bill will be drastically reduced, but it will inevitably rise to its highest level in subsequent years.

Please note: many taxpayers mistakenly think that all bills relating to their property will be deducted from their income. This is not the case! Only maintenance costs designed to maintain the value of the property, in other words the sale price, are deductible from income. Other work, such as improvements or major renovations, will be deductible from tax on property gains at the time of sale.

Managing your debt ratio

If paying mortgage interest were a good idea, no one would be negotiating their mortgage and everyone would be looking to pay as much interest as possible to reduce their income and taxable wealth. But it’s not that simple. Paying interest always costs more than the tax saving. So should you have no debt at all? Not necessarily. Having debts means that you don’t tie up all your money in the walls of your property and can invest it in projects that are more profitable than the cost of the debt.

Three factors will influence your level of debt :

Your household’s marginal tax rate

The higher your household income, the higher the tax rate. So every franc spent on mortgage interest can have a significant impact on your tax bill. For the same franc of interest paid, a household can save between 10% and 40% in tax.

Mortgage interest rate

This advice applies to all homeowners, whatever their income. The higher mortgage rates are, the less attractive it is economically to be in debt. In times of rising interest rates, it may be preferable to reduce your level of debt if possible.

Your ability to generate a return that exceeds the cost of debt

If you are close to retirement and want to calculate your budget accurately without taking any risks, you should generally consider paying down debt as a good option. This will reduce their annual interest bill and slightly increase their tax bill. On the other hand, a person with a lower risk aversion, who is able to manage his savings well, could keep a high level of debt in order to invest this money and generate a return higher than the cost of the debt while keeping his tax burden lower.

Step 4: Marrying or remaining single can also affect your taxes

Deciding to marry should not be based on tax criteria alone, but it is crucial to understand the impact of marriage on your tax liability. In Geneva, the incomes of married couples are added together and then divided by two to determine their tax rate. This method aims to maintain an average tax rate similar to that of two single people. However, there are subtleties in this system due to the non-linear progression of tax rates, which increase rapidly before levelling off. If one spouse earns significantly more than the other, this division can significantly reduce the couple’s average tax rate, thereby reducing the tax burden. However, if the incomes of both spouses are similar, the effect on tax may be minimal or even negative.

To alleviate this disadvantage, the canton of Geneva offers additional lump-sum deductions to married couples, thus levelling the tax playing field between married and single people.

Conclusion: How can I maximise my tax savings in the canton of Geneva?

Having written this article, let’s take a moment to recap the steps you need to take to ensure that your tax burden is as optimised as possible:

Step 1: Ensuring a perfect tax return

Probably the most important step: making sure that your tax return is perfectly executed and that no deductions are missed.

Step 2: Check the tax decision

Examine the tax ruling carefully to ensure that the tax authorities have not made any errors or been deliberately too severe.

Step 3: Simulate the tax tools available

On the basis of your tax return, take the time to simulate the impact of certain tax tools made available by the canton of Geneva, such as buying back LPP years and/or the 3rd pillar. Assess their relevance, and the duration and proportion appropriate to your situation.

Step 4: Optimising your property and financial investments

If you own property or other investments, explore financial structures or products that can significantly reduce your tax burden over the long term.

Step 5: Simulate the impact of life changes

Before making a major life change (such as moving house, getting married, having a child, changing jobs or starting up a self-employed business), always take the time to simulate and calculate the tax impact to better predict the repercussions on your finances.

How FBKConseils can help you optimise your taxes?

At FBKConseils, we offer a number of services to help you manage your annual taxes:

Advice meetings

You can choose the length of the appointment, and we’ll take the time to answer all your questions, run live simulations and suggest ways of optimising your business.

Tax return

Entrust us with your tax return to ensure that no tax deduction is overlooked, guaranteeing a fair and optimised tax burden.

Learn how to complete your tax return

We offer face-to-face training sessions in our offices or by videoconference to teach you how to declare your income and assets accurately. This enables our customers to become more independent while being sure that their tax return is completed correctly.

Tax and economic simulation

If you are considering a life project, whether professional or private (moving house, getting married, having children, changing jobs, starting a self-employed business or buying property), we can provide you with a precise analysis of the tax and economic implications of these changes.

Links to official resources for more information

The canton of Geneva offers a number of useful resources and simulators to help you better understand your tax situation:

The Geneva tax guide

Published every year between January and February, it details the mechanisms, deductions and methods for completing your tax return: The Geneva Tax Guide.

Geneva tax simulator

Although it does not simulate deductions and does not distinguish between the municipality in which you live and the municipality in which you work, this simulator allows you to calculate your wealth tax or income tax balance ‘fairly accurately’ on the basis of your taxable income.

Municipal tax rates in Geneva

If you wish to determine the tax rate for each of Geneva’s communes for 2024.

Privileged share in Geneva

These scales are used to determine how your income will be distributed between the municipality where you live and the municipality where you work in the canton of Geneva in 2024.