Tax and Social Security in Switzerland: what you need to know

Key facts you should know about tax and social security in Switzerland

• The level of tax is determined by your place of residence. Switzerland is a federal state, so you are taxed on three jurisdictions (federal, cantonal and communal). This means you will be taxed differently depending on where you live. Cantons with a high level of taxation are Basel, Vaud, and Geneva, while cantons with a relatively low level of taxation are Zug, Obwalden, Appenzell Innerrhoden or Schwyz.

• The Swiss social security system is based on three "pillars" and each pillar aims to help retired individuals and their immediate family to maintain the lifestyle they are accustomed to. Some of these pillars are mandatory, while others are not. For the latter, it's completely up to you to decide if and how you want to save more for your retirement.

• Foreigners arriving in Switzerland and who are above the age of 25, will inevitably have a gap in their second pillar pension fund due to the missing years of contributions. You may close this gap with so-called voluntary pension buy-back contributions.

Taxation in Switzerland

According to Swiss tax legislation, you are tax resident at the place where you intend to stay permanently, and which determines the center of your personal and professional interests. Additionally, you would also be considered a resident for tax purposes if you remain in Switzerland for a prolonged period of more than 90 days, or 30 days if performing a gainful activity.

In practice, it can be said that if you hold a Swiss residence permit (L, B or C permit) and/or are registered as a resident with the local authorities, you are considered a tax resident in Switzerland based on domestic legislation. However, international double tax treaties may overrule domestic legislation. The double tax treaties aren't available for all the countries, and they may vary from country to country. Thus, it's very important that you find exactly which category you belong to.

As a Swiss tax resident, you are subject to tax on your worldwide income and wealth (so-called unlimited tax liability). Whereas all taxable income and wealth must be declared, certain types of income or wealth are exempt from Swiss tax such as income and wealth from real estate assets located abroad. 

If you are a foreign individual without C-permit status working for a Swiss employer, you are generally subject to payroll tax withholding 'at source', also known as "Quellensteuer" in German or "taxation à la source" in French. The payroll tax withholding is levied by the Swiss employer on a monthly basis and includes federal, cantonal and communal income tax.

The payroll tax rate also takes into account the following: your marital status, i.e. single, married or registered partnership, the employment status of your spouse/registered partner, dependent children and registered religious affiliation, and certain lump-sum tax deductions.

In some cases, the payroll tax withholding may be your final tax liability. If you are entitled to claim additional deductions such as pillar 3a funds contributions, alimony payments etc. and you want to benefit from these deductions, you need to file a request to complete a tax return on a voluntary basis. In most cantons, this request needs to be submitted no later than end of March of the year following the tax year without the possibility for extension. If you opt to file a voluntary tax return in one year you are required to file a tax return in subsequent years as well even if you do not have any tax deductions to claim.

Social security and pensions in Switzerland

The first pillar of the Swiss social security and pension system contains the Old Age and Survivors/Disability Insurance (short OASDI or AHV/AVS) also known as the Swiss state pension. The second pillar includes the occupational pension scheme (short BVG/LPP) and the third pillar contains private pension provisions.

First pillar: OASDI/AHV/AVS

The first pillar social security or state pension is meant to cover the basic needs of an individual and their immediate family. The state pension is set-up as a pay-as-you-go-system meaning that the contributions collected are spent immediately to the current beneficiaries.

The first pillar not only includes benefits in cases of retirement and disability, but also compensates loss of income due to compulsory services (military, civil service etc.) or maternity leave. 

Although it is covered by separate legislation, the first pillar system also includes the mandatory unemployment insurance, ALV/AC. In case someone involuntarily becomes unemployed, the insurance will pay 70% (80% if supported children live in the household) of the insured salary for up to 520 workdays depending on the individuals age and months of contribution made to the ALV/AC. Another 120 days may be added, if the individual is close to the ordinary retirement age (64 for women and 65 for men).

Every individual who resides in Switzerland is required to pay contributions to the OASDI regardless of the employment status. The obligation to contribute starts from the first day of January after the age of 17 is reached for employed individuals. For those who are not employed, the obligation to contribute starts from the first day of January after the age of 20 is reached.

Retirement age for women is 64 and for men is 65 years old.

Second pillar: occupational pension OP/BVG/LPP

Unlike the state pension scheme, the occupational pension scheme is a fully funded pension system, which means that your contributions are credited to your individual savings account and will be used to pay your future benefits, not those of current beneficiaries.

Third pillar: private pensions and their characteristics

The voluntary third pillar pension plans are flexible pension plans in addition to those of the mandatory first and second pillar schemes. Their purpose is to close financial gaps if your benefits from the first and second pillars are insufficient.

Neither the state nor your employer is involved with funding your private pension provisions.

The decision as to whether you want a private pension provision is completely up to you, just like the amount you choose to contribute to this fund.

Need help navigating the above? Talk to experts in the Swiss tax, social security and pension systems:

Ready for more? For a more in-depth look at the Swiss social security & pension system, have a look at the articles below: 

Everything You Need to Know about the Swiss Social Security and Pension System

Ready for a more in-depth look at the Swiss social security and pension system? The following article explains how these three pillars of the Swiss social security and pension system work and offers insights into how you can leverage them to the fullest, depending on your personal situation and goals.

Let's dive right in!

What happens to your pension when you leave Switzerland?

While working in Switzerland significant funds can be saved in Swiss pensions. But what happens to this money when leaving Switzerland? This article focuses on Pillar 2 and Pillar 3a savings.

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Taxation in Switzerland

What does it mean to be a Swiss tax resident? And how is your tax burden influenced by your place of residence in Switzerland? This and more in this Swiss tax guide for foreigners and expats. 

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How to claim your tax benefits

Did you know you might be entitled to tax deductions? Find out how simple it is to claim your tax benefits. 

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Taxation of Swiss Real Estate

What are your income tax consequences if owning a Swiss real estate? What maintenance expenses can you claim as a homeowner? Does owning real estate affect your wealth tax obligation? Answers to these questions and more in this article. 

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Unpunished Voluntary Tax Disclosure

Tax residents in Switzerland are obligated to file an annual tax declaration in which all worldwide income and assets must be reported. What happens if you fail to do that and how can you avoid penalties? Read on to find out.

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US Persons Living and Working in Switzerland: Do They Still Need to Pay US Tax?

There are several possibilities to reduce your U.S. tax liability. Read on to find out.

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Gift & Inheritance Tax Consequences in Switzerland

If you are living in Switzerland, there may be tax consequences on top of ordinary income and wealth tax, if you receive gifts or inheritance. Read on to find out.

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When it comes to taxes, there are 26 different Switzerlands

Depending where you choose to live, this will have significant consequences for your life and finances as soon as you take up residence here. 

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Do you have any tax-related questions?

You probably do! Don't worry - you don't have to figure it out all on your own. Professional support with tax, social security or pension is just a click away:

«When you move to Switzerland, you may have a lot of questions and concerns relating to your personal tax, social security and pension situation. The Exactio team can support you with these complex matters and work with you in a personal and flexible manner. My name is Karin and I'll be your first contact at Exactio for any tax, social security, pension and payroll related questions.»

Karin Verheijen
Exactio team