Withholding tax explained: 7 things you need to know

Most swiss residents are subject to the principle of self-assessment when it comes to paying their taxes. Anyone who lives or works in this country files a tax return and is required to pay the income and wealth tax based on the data provided. However, this system does not apply to people who are subject to the withholding tax, such as foreigners without a settlement permit and cross-border commuters. But what exactly is the withholding tax? We will tell you the 7 most important things you need to know about it.

1. What is the withholding tax?

The withholding tax is a special method of taxing income from employment. It is equivalent to the income and wealth tax, but usually includes church tax in addition to direct federal taxes as well as cantonal and municipal taxes.

2. Who is liable for the withholding tax?

Employees who live and work in Switzerland but do not have a permanent residence permit (Permit C) or people who do not have a tax residence in Switzerland (cross-border commuters) are subject to the withholding tax. A construction worker with a (short-term) residence permit (Permit B or L) is as much subject to the withholding tax, as a member of the board of directors of a Swiss company who is living abroad.

3. Who pays the withholding tax?

Although the withholding tax is ultimately borne by the foreign employee, it is the employer who pays the tax. The employer is obliged to register with the cantonal tax office at the employee's place of residence. If the employee is a cross-border commuter, he/she must be registered at the place of work.

For example, if a German citizen without a settlement permit residing in Berne works for a Zurich company, the employer must register said employee with the tax office of the Canton of Berne. If the employee lives in Stuttgart, the withholding tax must be paid to the Zurich tax office.

The employer deducts the withholding tax from the employee's monthly salary and pays it directly to the tax office. The deducted amount is shown on the wage statement.

4. Why does the withholding tax exist?

Taxation at the source, i.e. at the employer, is a simple way for the state to ensure that the tax liability is actually paid. It is intended to prevent foreign employees from returning to their home country after receiving their wages in order to avoid taxation. In the latter case it would be much more difficult for swiss tax authorities to collect the debt.

5. What are the withholding tax rates?

As is the case with the income and wealth tax, the withholding tax is divided into different tariff categories depending on the personal situation of the taxable person. There is the tariff for singles (A), the tariff for married single earners (B), the tariff for married double earners (C) and the tariff for sideline income (D). The tariffs may vary from canton to canton.

6. Are deductions from the withholding tax possible?

Yes, it is possible to deduct expenses from the withholding tax. However, these cannot be listed as in the ordinary assessment, but are deducted in the form of a lump sum. Under certain circumstances, a subsequent adjustment to the tariff is possible, for example if the employee has paid contributions to private pension (Pillar 3a).

7. Is it necessary to complete a tax return?

As a general rule, employees who are subject to the withholding tax are not required to fill out a tax return. However, the relevant tax authority may require a conventional tax return if the employee has several income sources or large assets. Furthermore, if the earned income exceeds a certain threshold (CHF 120,000 in most cantons), a regular tax return must be filed.

Still got questions regarding the withhoulding tax? - The specialists at taxea are happy to assist you with their comprehensive expertise.