IT Contracting in Switzerland: Money & Tax
Profile written by Matt Walters of Capital GES (updated September 2016).
Switzerland, due to its geographical situation in the centre of Europe, high salaries, safety and quality of life make it a popular destination for the international contractor. It is of note that while working in Switzerland you must be employed on a Swiss payroll.
1. Declaration of arrival
For citizens of EU/EEA countries, the first thing to do when arriving in Switzerland is to register with the local town hall (Maison de commune/Gemeindeverwaltung) and ask for a residence permit with the relevant documentation. Depending on the length of the employment contract, you will either get a “B” or “L” permit.
2. AVS Card
When taking up employment, the employer will request your social security number and card (“AVS/AHV card”). If you have not worked in Switzerland before, your employer will apply for one on your behalf.
II. Taxation in Switzerland
The Swiss tax year is the calendar year, and tax returns must be filed usually by the end of March each year. The deadline differs from one canton to another, as do the tax rates. Switzerland has four types of taxes applicable to its residents: federal tax, cantonal tax, local tax, and wealth tax. In certain cantons there is also a church tax. A unique tax rate comprising federal, cantonal and local tax is applicable for contractors taxed at source, but this also varies from one canton to another.
1. Tax residency
There are two possible residencies in Switzerland: permanent and temporary. The distinction is based on your intention to remain in the country.
a. Permanent residency is determined by whether your centre of social and economic interests is in Switzerland.
b. Temporary residency is established by anyone who spends at least 30 days in Switzerland for work purposes, or 90 days in Switzerland for any other purpose.
Any resident of Switzerland (temporary or permanent) is automatically taxable on their worldwide income, although double taxation treaties will mitigate this in most instances
Non-residents are taxable on income arising on permanent establishments and real estate located in Switzerland, but the rate of tax is based on the individual's world-wide income.
2. Taxation at source
All individuals working in Switzerland on an “L” or “B” permit will automatically be taxed at source (similar to PAYE). Any expenses may be offset on the yearly tax return if applicable and will be refunded if accepted.
a. Expenses such as commuting costs, food expenses if it is not possible to eat at home, tools, books, etc. are tax deductible.
b. Personal allowances: CHF 6’100 may be deducted annually for each dependent child under 18 years of age or pursuing studies.
III. Social Security / Medical cover
In Switzerland the pension system is split into three "pillars":
• The first “pillar” covers old age pensions, disability and redundancy,
• The second, called LPP, tops up the pension allowance (mandatory) for employees
• The third, (voluntary) tops up the first two in order to reach a good standard of living when retiring. This is similar to a private pension but has some tax advantages in that the first CHF 6’682 paid in per annum is tax free.
Basic private medical cover is also compulsory to any person living in Switzerland. A wide range of insurance companies are available to choose from with a variety of services and premiums (which are tax-deductible). In some instances, this can be replaced by private health insurance from another country.
On a contract basis, it is not possible to make use of a detachment certificate from another European country as you must be employed by a local entity in Switzerland
IV: Work permits
All individuals coming to take up employment in Switzerland require a work permit. However since Switzerland signed up to the EU social charter it now has a reciprocal agreement with the EU for the free movement of personnel. This includes all of the member states except for Bulgaria and Romania. Citizens of these countries may enter Switzerland without a visa and stay for up to three months, but may not work without a work permit. To get a work permit, they must prove that no suitable person has been found on the Swiss labour market or in the old EU member states.
Capital GES is an international payroll and contract-management company providing tailor-made tax planning services to contractors working overseas. For more detailed information on your personal situation, please contact Capital on +41 32 732 97 00.