Your Definitive Guide to Paying Taxes as a U.S. Expatriate in Switzerland

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Are you a US Expatriate Living in Switzerland? As a U.S. citizen in a foreign country, you have to pay taxes to both the U.S. and Swiss government. But there are ways of reducing the amount you pay in taxes on your foreign earned income.

You can claim foreign tax credit – a credit for the tax you have paid to a foreign country or foreign earned income exclusion– allowing you to not pay taxes on $105,900 for tax year 2019 from your earnings. Not sure about foreign tax credit or foreign earned income exclusion? Then read our guide on how to pick one that you qualify for.

Did you know that you must report all your foreign bank accounts to FinCen and IRS? Get more details about foreign bank reporting and FBAR.

You can also deduct international moving expenses and reimbursements. Get insight about international moving expense deduction

Did you also know that as part of foreign housing exclusion, you can deduct the money spent on household expenses, such as rent, repairs, or utilities from the income you report? No? Don’t begin stressing out just yet. Below we simplify tax matters for you and all the U.S. citizens in Switzerland: 

Tax Due Date

The tax year in Switzerland mandates all payments must be paid by March 31st of the following year. However, as a U.S. expatriate, you may be entitled to an extension until September — or possibly November.

Learn more about US tax due dates and worldwide country by country tax deadlines, tax year and extension. 

U.S. – Switzerland Tax Treaty

The U.S.-Switzerland tax treaty makes double taxation extremely unlikely. But as a citizen of dual countries, your income – and wealth in some cases – may be subject to both Switzerland and U.S. taxation. Thus, you will be filing the Federal Tax Returns annually in the U.S. and also following the Swiss system of taxation. 

Residency in Switzerland

Before you consider delving into Taxes for Expats issues, determine whether you are a tax resident or not. U.S. citizens who spend 30 consecutive days in Switzerland involved in gainful activity – 90 otherwise – must pay taxes. Pass these tests and pay less in taxes. A part of your income may also qualify for exclusion. Confirm here! 

On confirming that you are a non-tax resident, only your earnings while physically being employed within the country, owning real estate there, or gaining via dividends, interest, or pension from Swiss sources will be taxable.

Social Security

Your employer is held responsible for all social security taxes, except for medical insurance. Therefore, they will withhold and remit your share of those taxes from your gross pay. Self-employment means you will have to pay both shares.

The rate will vary based on the insurance category you belong to, such as old age or survivors. The tax rates for disability and unemployment insurance are 5.125% and 1.1% for both you and your employer. 

Switzerland Tax System

While most foreign tax systems will seem alien to U.S. citizens, Switzerland uses a very complex one. Residents have to pay taxes on multiple levels, i.e., federal, cantonal, and municipal. The laws associated with each level are different, and ignorance may be quite costly for you! Additionally, each canton has its own rules that its residents must follow. For instance, for any canton, you must be aware of the net wealth, progressive inheritance, and gift taxes. In some cantons, there may also be a property tax.

Income Tax Rates in Switzerland

The tax at federal and cantonal levels may be progressive by nature, while a flat rate of taxation exists at the municipal level in Switzerland. Depending on how much you earn, your income may be taxable and will fall in a certain bracket, just as with the US Tax Brackets. For example, for an individual who earns CHF 755,200 – CHF 898,900 if they are single but have minors to provide for or are married – or more, they will qualify for an overall tax rate of 11.5%. The federal tax applies just to your income.

Cantonal taxes are due on both your wealth and income. Communal taxes are additional to the overall taxes and may fall anywhere from 51% to 25% of the basic cantonal tax. If you earn via interest and dividend, your income is also subject to a 35% withholding tax. The latter will be deducted from your salary directly. Unlike the federal tax, the cantonal taxes are applicable to both the wealth and income you have.

Moreover, a Church tax at a varying Switzerland Tax Rate, depending on your canton, is levied on your income and wealth. Should you be an agnostic or practice religions other than the official Swiss Roman-Catholic, Swiss protestant, and Christ-Catholic, you will be exempt from the Church tax.

Do you have unique issues or concerns not discussed in this blog? If you have a complicated situation and are in need on consultation then, please contact us by email or phone. 

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