All deductions are subtracted from the total income as per the tax return. If the individual is performing a self-employed activity and having related business assets, special deductions in relation to this may be applicable; however, as this is rather in the realm of corporate tax, no further information will be provided in this section.
Based on a court decision, guidance has been published regarding the treatment of non-resident employees when it comes to claiming deductions. The guidance allows for more deductions for non-resident individuals who receive the majority (at least 90% of the worldwide gross income) is taxable in Switzerland. Currently, the new favourable tax treatment is limited to European Union (EU)/European Free Trade Association (EFTA) individuals who reside in an EU or EFTA country.
An employee’s social security contributions are deductible from gross employment income. Contributions to foreign social security systems may be deductible as well. Usually, the employer’s share of the social security contributions is not seen as taxable income and is thus tax-free for the individual.
Tax resident individuals are entitled to deduct several business related expenses, such as actual commuting costs (capped for federal tax purposes and in most cantons), additional costs for meals at place of work (lump-sum), general business related expenses (actual or lump-sum), and costs related to further education (actual or lump-sum). If both spouses are performing a gainful activity, double earner deductions may be applicable as well. As cantonal law regulates these deductions at the cantonal level, there are substantial differences per canton regarding the type of deductions as well as the maximum amounts. Such deductions can also be claimed at federal level in accordance with the federal tax law.
Tax-residents and non-tax-residents may claim expatriate tax deductions.
Several other deductions can be claimed in the tax return as listed below. Cantonal law may allow for further deductions. Conditions and limitations are defined by federal law as well as per canton and may therefore vary substantially.
Alimony and subsistence payments paid to minor children are tax deductible for the payer and taxable for the recipient for federal tax purposes and in many cantons. Subsistence payments paid to children of age (18+) are no longer deductible but may allow for a lump-sum child deduction under certain circumstances.
A deduction (actual) for donations made to a qualifying Swiss based charity organisation can be claimed on the tax return. On the federal level, and in many cantons, the deduction is capped with a certain ratio of the taxable income.
Depending on the circumstances, actual childcare costs up to a capped amount may be claimed at federal level and in many cantons.
Life insurance premiums
Generally, actual insurance premiums are not deductible; however, cantons may provide a standard deduction for insurance premiums (lump-sum, capped) based on the status of the taxpayer (i.e. married, single, or number of children).
A deduction for interest payments for mortgages and other loans/debts may also be claimed on the tax return. Amortisation payments are not deductible. Certain caps with regard to the deductible interest payments (in relation to investment income) are applicable.
Social security and pension schemes
Social security contributions of the employee, if not already deducted from the gross employment income, can be claimed as a deduction. Payments made to recognised pension schemes (actual) and other recognised retirement schemes (actual, capped). If made to non-Swiss schemes, deductibility needs to be assessed.
Switzerland has a very attractive pension system, allowing employees to make additional contributions for missing years or for increases in salary. Such additional contributions are fully deductible in the tax return and therefore can result in substantial tax savings. While this principle is untouched, a court decision has ruled that additional contributions made less than three years before a lump-sum withdrawal (e.g. retirement) of pension funds can no longer be deducted for tax purposes. Based on this court decision, the Swiss Tax Conference (a body formed by the cantonal tax administrations) has issued a new guidance in this regard, which should be thoroughly considered before making substantial voluntary contributions into Swiss pension schemes. Potential taxes at the time of a pay-out (annuity or lump-sum) should also be considered, especially if the potential pay-out happens while resident in another country.
Real estate costs
A deduction can be claimed on the tax return for maintenance costs for self-owned real estate (actual or lump-sum).
A deduction can be claimed on the tax return for qualified bank charges (actual; or lump-sum, capped).
A deduction can be claimed on the tax return for un-reimbursed medical expenses (actual, exceeding threshold).
Personal allowances (for 2020)
Certain personal allowances may be provided based on the individual’s personal circumstances (married, single, number of children, or age). If the taxpayer provides financial support for individuals who are unable to work or who do not work full-time (with the exception of a spouse and their own children), an additional deduction may be granted if all conditions specified by the canton are met.
|Direct federal tax (CHF)||Zurich cantonal tax (CHF)||Geneva cantonal tax (CHF)|
|Single, divorced or widowed taxpayer living with dependent children or other dependants||-||-||-|
|For each dependent minor child||6,500||9,000||9,980|
|For each child of age still in education||6,500||9,000||9,980|
|For each other dependant (neither wife or child)||6,500||2,700||9,980|
|Day care expenses (conditions apply)||10,100||10,100||25,000|
In general, accrued costs/debts (e.g. a pending tax bill that has not yet been formally issued by the tax authorities) can only be considered for wealth tax purposes, but not for income tax purposes.
For self-employed individuals, limited possibilities for deducting accrued costs from the taxable income may exist depending on the accounting standard applied for their mandatory accounting.
Self-employed individuals may be able to claim this as an accrual against their taxable income. The likelihood of occurrence of the contingent liability will determine whether this will be accepted or not. Otherwise, contingent liabilities could only be considered for wealth tax purposes.
Depreciation of fixed assets/amortisation of intangibles
Self-employed individuals may be able to claim depreciation expenses in relation to their business assets as a deduction against their taxable income. Otherwise, depreciation of fixed assets is usually only possible for cars as part of the declarable assets for wealth tax purposes. Depreciation expenses that do not relate to qualifying business assets of self-employed individuals cannot be set off against taxable income.
The following deductions are not specifically considered by Swiss tax law and are thus, in general, not tax deductible:
- Bad debt.
- Fines and penalties.
- Consideration on sale of business such as personal goodwill.
There is no carry forward of losses to future tax years if, for example, the total deductions are higher than the total income. Capital losses from movable assets are not deductible, as likewise capital gains from movable assets are tax free.
Related party transactions/payments to foreign related parties
Payments made to e.g. family members or other persons are in general not deductible from the taxable income. Under certain circumstances (recipient was in financial need of the payment, federal and/or cantonal thresholds are met) a capped deduction may be available. Depending on the tax domicile of the payer/donor and the recipient/donee and the degree of relationship between these two parties, gift taxes could be triggered.