Income tax

The personal income tax is a complex subject deserving special attention. In Switzerland, income tax is a direct tax levied on the income of individuals. It is collected by the cantons and municipalities and is one of their main sources of revenue. Indeed, it is one of the main sources of funding for public communities. 

Subject to income tax

Individuals are subject to income tax in Switzerland if they have a domicile or habitual residence in Switzerland. People who work in Switzerland but have their domicile abroad are also subject to Swiss income tax, provided their Swiss income exceeds a certain threshold.

Taxable income includes earnings from gainful activity, such as salaries, independent income, pensions, and annuities, as well as income from movable and immovable property, such as interest, dividends, rents, and capital gains.

For people working in Switzerland but domiciled abroad, the issue of double taxation may arise. Indeed, these individuals may be subject to income tax in their country of domicile and in Switzerland. However, to avoid double taxation, Switzerland has concluded tax treaties with many countries.

Individuals who are not domiciled in Switzerland but engage in gainful activity there are also subject to income tax in Switzerland. This also applies to cross-border workers. In this case, the taxable income is calculated based on the number of days worked in Switzerland.

Calculation of tax

The calculation of income tax in Switzerland is based on a progressive scale. The tax rate increases with the amount of taxable income. Cantons have their own tax scale, and the tax rate therefore varies from one canton to another. Municipalities may also levy an income tax, whose rate depends on the canton and the municipality.

Moreover, the tax calculation takes into account deductions that reduce the amount of taxable income. For more information on this subject, please refer to the chapter below entitled “possible deductions.”

The calculation of income tax in Switzerland varies depending on each individual case. It can be complex, particularly for individuals with multiple sources of income or complex tax situations. Therefore, consulting a lawyer can be useful to optimize one’s tax situation and avoid tax errors.

Non-taxable income

Some income is not taxable in Switzerland, such as unemployment benefits, family allowances, disability or accident insurance benefits, and social benefits such as housing assistance. It is important to note that these incomes are not subject to income tax in Switzerland but may be taken into account for the calculation of certain social benefits.

For example, individuals with a disability or chronic illness may benefit from partial or total tax exemption. Similarly, individuals with dependent children may benefit from a tax exemption for children.

Capital gains are not taxable in Switzerland unless they are realized as part of a commercial or professional activity. Capital gains made on shares, bonds, or other financial instruments may be exempt from tax if the holding period is more than one year.

Possible deductions

Deductions allow reducing the amount of taxable income in Switzerland. The most common are contributions to health or accident insurance, pension fund contributions, and childcare expenses. It should be noted that the various deductions vary from one canton to another.

Tax deductions can be an effective way to reduce the amount of income tax in Switzerland. Therefore, it is important to take into account all the tax deductions one is entitled to, in order to optimize one’s tax situation.

In conclusion, personal income tax in Switzerland is a direct tax based on a progressive scale. The cantons and municipalities collect this tax, and the tax rate varies from one canton to another. Tax deductions and possible deductions help to reduce the amount of taxable income in Switzerland. It is important to understand the rules applicable to income tax in Switzerland, in order to be able to optimize one’s tax situation. It is recommended to consult a lawyer for personalized advice based on your individual situation.