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US Expat Taxes Explained: Filing Taxes as an American in Switzerland

You are going to be required to file U.S. expat taxes no matter which country you live in, but how will your taxes be affected if you live in Switzerland? Switzerland is a landlocked country geographically divided between the Alps. While the Alps occupy the greater part of the territory, the Swiss population of approximately eight-and-a-half million people is concentrated mostly on the plateau, where the largest cities are to be found: among them are the two global cities and economic centers Zürich and Geneva.

Nevertheless, it is important to understand how your U.S. expat taxes are going to change with your move to Switzerland, and what taxes you will be required to pay to your host country while residing there.

Protax is the world’s leading U.S. individual international tax firm, specializing in the delivery of world class professional services to U.S. Expatriates.

US Expat Taxes in Switzerland

If you are a citizen or permanent resident of the United States, then you are obligated to file US expat taxes with the US federal government each year no matter the country in which you reside.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

  • The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
  • foreign tax credit that could allow lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
  • foreign housing exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your tax bill.  Please do note that you will still need to file even if you know you will owe no US expat taxes.  For more information, see US Expat Taxes Explained: An Overview of Our New Series.

Swiss INCOME TAX RATES

For December 31 calendar tax years, the Swiss income rates are broken out into three different levels of income taxes: federal level (same all over the country), cantonal level (e.g., Zurich or Geneva – based on canton’s own tax law and rates), and municipal level. The country has progressive income tax rates at the federal level and in most cantons, while others adopted a flat rate of taxation.

The tax rates are based on tables with taxable income ranges, and a basic tax assigned to each bracket.  Each level of taxation has several tables. The federal tables have a maximum taxable income of CHF 755,200 for individuals (CHF 898,900 for married or single with minor children), for which the overall tax rate will be 11.5%. Each cantonal tax then has its own overall table and rates.

In addition to the rates mentioned above are the communal taxes. Each communal tax varies considerably. The highest rate is 51% of the basic cantonal tax, and the lowest is 25%.

Furthermore, interest and dividend income is subject to a 35% withholding tax directly deducted from the gross total paid to the recipient.

WHO IS A Swiss Tax RESIDENT?

Your taxation in Switzerland is based on whether or not you’re a tax resident.  You are considered a resident of Switzerland if you meet the following conditions:

  • You intend to permanently establish your usual abode in Switzerland. This means the country is the “center of vital interest,” and you are registered with a Swiss municipality.
  • You stay in Switzerland with the intention to exercise profitable activities for an uninterrupted period of at least 30 days.
  • You stay in Switzerland with no intention to exercise profitable activities, but for a consecutive period of at least 90 days.

Swiss Source Income

On the other hand, a non-tax resident is only taxed on Swiss sources of income. Examples of income sources include employment while physically working in Switzerland, real estate within the country, dividends, interest, and pensions from Swiss sources, and other specific activities related to the country.

Swiss TAX DUE DATE

Switzerland has a calendar year tax year. The tax returns and tax payments have to be submitted by March 31st of the following year in the canton where the taxpayer was a resident at the end of the tax period. US expatriates can request an extension until September or November.

SOCIAL SECURITY IN Switzerland

All social security taxes, with the exception of medical insurance, are the responsibility of the employer. The employer must withhold and remit the total deduction and the employee’s share from their gross pay. Self-employed individuals must cover both shares.

Social security contribution rates vary based on the insurance categories in which it falls. There are several types, including old age, survivors, and disability insurance (5.125% for each employer and employee) and unemployment insurance (1.1% each employer and employee).

IS FOREIGN INCOME TAXED WITHIN Switzerland?

Under Swiss tax law, if you are considered to be a tax resident then you will be taxed on worldwide income. That is, you would be taxed on earnings originating not only within the country, but also anywhere in the world.

US – Swiss TAX TREATY

There is a Switzerland U.S. Tax Treaty, which can help mitigate double-taxation.  Signed in 1996, this important treaty was las updated in 2009.

The US – Switzerland income tax treaty is useful for defining the terms for situations when it is unclear to which country taxes should be paid.  The country that receives the tax payment is usually determined by the taxpayer’s resident status in each country.  It is in place to help relieve double taxation of dual citizens while also being available to explain any tax matters that may be unclear.  It is helpful in eliminating dual taxation on US expat taxes.

TAXES IN SWITZERLAND

Switzerland has a very complex tax system. Taxes are imposed not only at federal levels but also on cantons and municipalities.

Each canton then has its own set of tax laws and rules. For instance, all cantons levy a net wealth tax based on the balance of the worldwide gross assets (bank accounts, life insurance, cars, boats, real estate, etc.) minus debts. Each canton has its own table to assess the wealth tax on its residents.

Moreover, all cantons impose a progressive inheritance and gift tax if the deceased or donor had been a resident or if real estate located in the canton is relocated. Some cantons also impose property taxes.

The Swiss system of taxation, which is slightly more complex than in some other countries due to its tiered system of taxation. There are four levels of taxation, though you may only be subject to three:

  • Federal tax: the marginal rate is 11.5%; this is only due on income.
  • Cantonal tax: this tax differs between cantons and applies to income and wealth.
  • Communal tax: this tax is different depending on which community you live in. It’s applied to income and wealth. Typically this tax is based on your cantonal tax.

Church tax: this tax is levied in many different cantons on both income and wealth of those associated with the three official Swiss churches: Roman‑Catholic, Christ‑Catholic, and Swiss protestant. Those affiliated with different religions or who are agnostic are exempt

SAVING ON US EXPAT TAXES in Switzerland

With the many various forms of taxation that are applied to foreign nationals working and residing in Switzerland, it is important that you apply all of the exclusions, deductions and credits to your US expat taxes.  It is also important to understand the resident and domicile rules for savings on your Switzerland income tax. Understanding your US expat taxes and your Swiss filing requirements while living in Switzerland will streamline the tax filing process and make it as hassle-free as possible.  Filing US expat taxes in Switzerland doesn’t have to be a hassle! If you have any questions about your US expat taxes or your Switzerland income tax, please contact our expat tax experts.

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