What is the Swiss salary withholding tax?
In Switzerland, taxes on income from employment are generally assessed in the ordinary tax assessment procedure based on the personal income tax return sub-mitted by the taxpayer to the tax authority. However, an exemption applies to employees who are subject to salary withholding taxes in Switzerland. For these employees the employer is required to directly deduct income taxes owed from the salary payment (i.e., withheld at source) and to pay these taxes withheld at source periodically to the competent cantonal tax authority. The employer, whose place of residence, registered office, place of effective management, permanent estab-lishment or fixed base is in Switzerland, is considered the debtor of the taxable benefit, and is therefore liable for the payment of the Swiss salary withholding tax.
Both a formal employer (being an employer with whom an employee has con-cluded an employment contract) as well as a de-facto employer (being a company different from the formal employer, such as e.g., a group company, that has the authority to issue instructions to the employee who (temporarily) owes to this company his work performance; thereby the salary payments continue to be made by the formal (foreign) employer and, as applicable, are passed on to the Swiss company benefiting from the employees work performance) qualify as employer and thus debtor of the taxable benefit. Whether in a specific case the status of a de-facto employer is given, is examined on a case-by-case basis con-sidering various criteria and based on the actual circumstances. In the case of temporary recruitment, the temporary employment agency is generally considered to be the employer.
Which employees are subject to Swiss salary withholding tax?
Employees subject to Swiss salary withholding tax can be divided into two differ-ent categories:
- Employees who are not domiciled or resident in Switzerland for tax pur-poses (such as e.g., cross-border commuters and weekly commuters); and
- employees who are domiciled or resident in Switzerland for tax purposes but do not have a permanent residence permit (permit C) (such as e.g., foreign employees with B, Ci and L permits) and who are not married to or living in a legally and factually unseparated registered partnership with a person who has Swiss citizenship or a permanent residence permit.
It should be noted that foreign employees who are in principle subject to Swiss salary withholding tax may, under certain conditions, be assessed retrospectively in the ordinary tax assessment procedure (either on mandatory basis or upon application). For this, the person liable to Swiss salary withholding tax must observe the deadline of 31 March of the year following the tax year for (i) requesting the tax return form from the tax authority in the case of the mandatory retrospective ordinary assessment and (ii) submitting the written application in the case of the retrospective ordinary assessment upon request. For example, Swiss tax resident employees subject to Swiss salary withholding tax will be assessed according to the mandatory retrospective ordinary tax assessment procedure, if their gross income from employment in a tax year reaches or exceeds CHF 120,000, or if they earn income that is not subject to Swiss salary withholding tax or if they have taxable wealth. The Swiss salary withholding tax that has already been paid is credited interest-free against the ordinarily assessed tax.
What income is subject to Swiss salary withholding tax?
In principle, the following income of employees is subject to Swiss salary withholding tax:
- All income from employment (gross income);
- ancillary income, such as e.g., non-cash benefits from equity incentive plans and benefits in kind;
- substitute income; and
- the old-age and survivors’ insurance contributions reimbursed to the em-ployee on the basis of art. 18 para. 3 of the Swiss Old-Age and Survivors Insurance Act.
How is Swiss salary withholding tax calculated?
The amount of Swiss salary withholding tax deducted from the salary payment is calculated according to the applicable tariff code (tariff codes A to Q) that applies to the respective employee. The applicable tariff code depends on the personal circumstances of the employee at the time of the payment, the transfer, the credit, or the due date of the taxable benefit. Relevant factors for determining the appli-cable tariff include, for example, the employee's marital status, the employee's family circumstances (e.g., maintenance and support obligation for children or persons in the same household for whose maintenance the employee is mainly responsible, income from employment or substitute income from a spouse or regis-tered partner) or the employee's denomination (tariff with or without church tax). If no tariff classification is available from the competent tax authority at the time of the salary payment, the employer being the debtor of the taxable benefit must determine the applicable tariff code based on the information provided by the employee on his/her personal circumstances.
The salary withholding tax tariffs vary from canton to canton. The applicable tariffs for a tax period are published by the cantonal tax authorities.
What are employers’ obligations regarding the salary withholding tax?
Employers have the following obligations regarding Swiss salary withholding tax:
- They are obliged to clarify the Swiss salary withholding tax liability and must register the Swiss salary withholding tax with the competent can-tonal tax authority as well as report any changes in circumstances rele-vant for the Swiss salary withholding tax. The competent canton is (i) the employee's canton of residence in the case that the employee is a Swiss tax resident, (ii) the canton of the employer's tax residence or the canton of the permanent establishment in the case of employees without Swiss tax residence, and (iii) in the case of international weekly commuters, the canton in which the weekly commuter is staying during the week;
- they must withhold the Swiss salary withholding tax when cash benefits are due and claim the Swiss salary withholding tax from the employee for other benefits (in particular benefits in kind and tips);
- they must provide the employee with a statement or confirmation of the tax deduction; and
- they must periodically pay the Swiss salary withholding tax to the compe-tent tax authority, account for it with the tax authority and grant the tax authority access to all documents relevant for reviewing the tax collec-tion.
Is an employer compensated for collecting Swiss salary withholding tax?
For its cooperation in collecting Swiss salary withholding tax the employer receives a collection commission of between 1% and 2% of the amount of the Swiss salary withholding tax. The rate and modalities of the collection commission are determined by the cantons. For instance, certain cantons provide that the collection commission amounts to 2% for digital invoicing and 1% for paper invoicing in order to promote the digitization of the tax system.
Do you have any questions concerning the Swiss salary withholding tax or do you employ employees who are subject to Swiss salary withholding tax and would like to get advice on specific questions in this respect? Please contact our employment law team and we will be happy to assist you.