All gross remuneration from employment, whether in cash or in kind, is subject to taxation at the time the employee has received the remuneration or has received an irrevocable right to the remuneration. It is irrelevant whether the remuneration results from a Swiss or foreign employment or whether the remuneration is paid to a Swiss bank account or not.
Payments made to an employee to compensate for business related expenses are not taxable as long as these payments are not considered as covering cost of living expenses for the employee or persons related to the employee.
Assignment related income
Generally, income exclusively relating to an assignment of an employee to Switzerland is subject to taxation. However, various cantonal and federal regulations exempt certain types of income from taxation, if they can be considered special expenses for the expatriate. These exceptions are strictly limited. Depending on how the benefits are delivered and on the individual circumstances, such expatriate benefits may either be tax-free income or allow the expatriate to claim a special deduction in the tax return.
- Relocation costs: Actual moving costs to and back home from Switzerland (e.g. transportation of household goods) as well as travel expenses for expatriates and their families at the beginning and at the end of the assignment.
- Housing: Reasonable housing costs in Switzerland, if the expatriate maintains the principal residence in the home country during the assignment (not rented out). Limitations between CHF 2,000 and CHF 6,500 per month apply, with cantonal differences.
- School fees: Actual tuition fees for private/international schools if the public schools cannot provide adequate education to the children of expatriates, usually due to the difference in languages.
- Commuting costs: Actual costs of the expatriate’s home leave if the family of the expatriate remains in the home country.
Please note that in the canton of Geneva a lump-sum 10% tax deduction can be applied on gross salary income to cover for various expatriate expenses (capped at CHF 100,000).
Only expatriates are entitled to these deductions. The law defines an expatriate as a managerial employee or a specialist temporarily seconded to Switzerland for a period of up to five years, i.e. the (assignment) contract has to be limited in time for a maximum of five years. An employee with a local contract may also be considered an expatriate if the duration of the contract is limited for a period of up to five years maximum and the foreign employer guarantees re-employment afterwards. Foreign and Swiss employer must be of the same group of companies. Other foreign local hires are usually not considered expatriates and cannot claim these special deductions.
Income from stock options that were acquired privately is generally exempted from income taxation. However, if stock options, or other equity participation instruments, were acquired through employment, income derived from such equity participation instruments is qualified as employment income and subject to income taxation.
There is a new Swiss law on the taxation of equity based compensation, which has entered into force as of 1 January 2013. The law basically mirrored the practice developed by many cantonal tax authorities with respect to taxing equity compensation. Based on this law, taxation of stock options generally occurs at exercise, and taxation of restricted stock units (RSUs) at vesting. In international cases (move of tax residency to Switzerland or leave from Switzerland during the lifetime of an equity compensation instrument), a pro rata temporis taxation, based on the Swiss portion of the vesting period, generally applies. It should be noted that there are some details and specialties regarding the taxation rules, which generally require detailed analysis of the specific terms and conditions of the instruments.
If an individual is performing a self-employed activity, then basically the net profit, e.g. the gross revenue minus all business related expenses, is taxable.
Private capital gains on movable assets (e.g. shares) are normally tax-exempt throughout Switzerland as long as an individual does not qualify as being a professional securities dealer.
Capital gains realised upon selling Swiss non-movable assets, i.e. real estate, is however subject to a cantonal capital gains tax. The tax rate varies per canton and is usually progressive depending on the gain itself. Often surcharges apply for short holding periods (less than two to three years) and reductions are granted for longer holding periods (more than five years).
Dividend income derived from investments is taxed at the ordinary rates together with the other income. In general, dividends from Swiss sources are subject to a 35% WHT that can be credited against the Swiss income tax liability, if such dividend income is declared correctly and in full.
Interest income derived from investments is taxed at the ordinary rates together with the other income. In general, certain interest from Swiss sources (e.g. Swiss bank accounts) is subject to a 35% WHT. Swiss WHT can generally be credited against the Swiss income tax liability if such interest income is declared correctly and in full.
Rental income derived from investments is taxed at the ordinary rates together with the other income.
Income from real estate located in Switzerland is subject to tax at the ordinary rates. The owner of self-used real estate is deemed to generate income (i.e. deemed rental income). Foreign rental income is exempted with progression in Switzerland. Therefore, the actual or deemed rental income, and any maintenance or repair costs and respective mortgage interest, must be declared on the Swiss tax return to determine the applicable tax rate.
Royalties are also subject to income taxation in Switzerland.
In principal all income is subject to income taxation. For some specific circumstances, federal and cantonal tax law specifically states that no income tax is due, for example:
- Assets received due to inheritance, gifted assets, or if received through settlement of matrimonial property (but possibly subject to gift or inheritance tax).
- Compensation for personal suffering.
- Some private or governmental social welfare payments.