Switzerland Global Payroll & Tax Information Guide

October 11, 2021 | Yana Todorova 5 Mins read

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Ease of Doing Business in Switzerland: An Overview

Compared to most first world nations, Switzerland is a much happier country. Employment exceeds 80%, and the Swiss culture places great emphasis on families. The Swiss economy is considered as an employer-centric one.

Switzerland attracts wealthy individuals and foreign businesses with favorable tax rates, a strong economy, and a banking system renowned for its secrecy.

When moving to Switzerland, it’s important to get to grips with the Swiss tax system and tax rates, which vary considerably depending on which of the country’s 26 cantons you live in.

Companies based in Switzerland must pay corporate tax on taxable profits generated in the country. Non-resident companies may have to pay if they are partners of a Swiss business, have permanent establishments, own property, or act as a broker of real estate in Switzerland. Non-resident companies pay tax on the income generated in Switzerland.

Swiss corporate tax is levied at a federal, cantonal, and communal level. As a result, how much you pay varies depending on where your company is based.

Employers negotiate directly with their employees on work, compensation, and benefits terms. Citizens are highly affluent, and while there is a considerable wage gap between high and low income earners, citizen life satisfaction still scores among the top countries in Europe.

Payroll in Switzerland – 2021 Updates

Due to covid-19, from 1 January 2021 the following changes entered into force:

    • New law on wage withholding taxes with amended rules regarding the filing of an ordinary tax return.
    • Small increase of the premiums to the earnings compensation insurance (EO), reducing the available net salary.
    • Several cantons enhanced the possibility for an electronic filing of the tax return and its enclosures.

The practice of the local tax authorities relating to the Covid-19 situation differ significantly. Some cantons disregard the home office days and allow the usual professions deductions for work related expenses, travel and lunch allowances.

Basic Facts about Payroll in Switzerland

Payroll in Switzerland is not simple. Tax collecting authorities invoice employers for income taxes owed. Employers file withheld taxes on a monthly or quarterly basis.

As such, employers must withhold federal, cantonal, and municipal taxes. Keeping track of which authority is owed what amount is a complex task, and employers are encouraged to work with a payroll professional. Further complicating payroll in Switzerland is the country’s liberal approach to residency and work permits. A Swiss workforce is made up of many residents and non-residents, some of whom live just across the border and commute to work in Switzerland. Each of these employees are taxed differently.

Taxes

While federal government income taxes are low, Swiss employees must also pay cantonal, commune, and municipal taxes. There are significant tax breaks for employees with children. Social security taxes are a shared expense by the employee and employer, split evenly at 6.2% each. Social security in Switzerland services the elderly, unemployed, sick, and disabled.

The federal Swiss corporate tax rate is a flat rate of 8.5%, but additional cantonal and municipal rates can vary considerably. The maximum corporate tax rate including all federal, cantonal, and communal taxes is between 11.9% and 21.6%. However, a range of allowances and deductions means you’ll usually pay much less.

Rates and Thresholds

Individual income tax rates of the capital cities of the cantons for the tax year 2021 for a married taxpayer including federal, cantonal and communal income taxes, excluding church tax. Tax rates may vary in different communities within a canton and are subject to changes in future tax years.

The direct federal tax (marginal rate: 11.5%) is uniform throughout Switzerland and only due on income.

Income tax rates are progressive at the federal level and in most of the cantons. In 2021, the federal income tax varied from a bracket of 0.77% (for single taxpayers) and 1% (for married taxpayers) to the maximum rate of 11.5%. For individuals with a taxable income below CHF 14,500 and couples with a taxable income below CHF 28,300 no federal tax is levied.

On cantonal level, tax rates vary heavily with a maximum rate in Zurich of approximately 41.3%, compared to 23.1% in Zug or, 32.6% in Lucerne, 41.5% in Lausanne and to 48.0% in Geneva (all rates including federal income tax). The canton of Zug is currently discussing a tax rate reduction.

On the Federal Tax Administration website, you can calculate the amount of income tax you will have to pay using the online tax calculator (includes comparison between cantons).

How Withholding Works

Employers withhold income and social security taxes from their employees’ paychecks at whatever frequency they’ve agreed to be paid.

Federal withholding tax is levied at 35% on some forms of income, most notably dividend payments, interest on bank loans and bonds, liquidation proceeds, lottery prizes above CHF 1,000, and payments by life insurances and private pension funds. A rate of 15% applies for pensions, and 8% on other insurance benefits.

Tax Credits, Returns and Remittance

Switzerland’s tax year is from January 1 to December 31. Employers file tax returns by January 31 of the following year, and resident employees must file their returns (along with any taxes owed) by March. Specific filing requirements vary by canton.

Tax on Goods and Services (VAT)

VAT (Mehrwertsteuer or Taxe sur la valeur ajoutée) in Switzerland is charged on goods and services. Companies with revenues of more than CHF 100,000 per year must register for VAT. You can find out if your company is liable for VAT on the Swiss government website.

The standard VAT tax rate in Switzerland is 7.7%. A lower rate of 3.7% is charged for the hotel industry. Food, books, and newspapers are taxed at 2.5%, while medical, educational, and cultural services are exempt from VAT.

Compensation and Benefits

Swiss employers and employees negotiate directly overpay and benefits. There is no set minimum wage for most industries, and this is primarily due to employees and employers being able to come to mutually beneficial terms.

Employees with families are given an extra allowance by their employer. Maternity leave is generous in Switzerland. For work hours, normal workweek hours and overtime are also negotiated in work contract.

Minimum Wage

In most Swiss industries, there is no standard minimum wage. The cantons of Jura and Neuchatel have minimum wage levels of CHF 20 per hour and Geneva recently introduced CHF 23 per hour. For example, domestic workers in Switzerland are paid a minimum wage ranging from CHF 19.20 to CHF 23.20, depending on applicable skills and certifications.

Hours of Work

Office staff and industrial employees have standard workweeks of no more than 45 hours. All other full-time employees generally work 40-50 hours/week, Monday through Friday.

Holiday & Leave

Switzerland has 6 national holidays (that includes New Years and Christmas), but most employers also observe the many regional holidays. See the full list for 2021 here.

The statutory minimum annual leave is 4 weeks for employees and apprentices over the age of 20 and 5 weeks for employees and apprentices up to the age of 20. New mothers are entitled to a minimum 8 weeks of maternity leave, with the option to extend that leave to 14 weeks.

Foreign Hires

Citizens of a European Union country may come and go freely as employees of a Swiss employer. Foreign hires from non-treaty or non-EU nations must first obtain a work permit. These foreign workers are not guaranteed a work permit since Switzerland sets visa caps.

In order to help expats to avoid double taxation, Switzerland has double tax treaties with more than 100 countries.

Switzerland is one of more than 100 countries that has signed up for the automatic exchange of information (AEOI) system, which aims to prevent cross-border tax evasion.

 

For more information about how our Global Payroll Control Platform integrates with local payroll providers in Switzerland, contact us today

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