Guide To Switzerland Expat Tax Advice
The Tax Samaritan country guide to Switzerland Expat Tax advice is intended to provide a general review of the tax environment of Switzerland and how that will impact your Switzerland Expat Tax return.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Switzerland and the U.S. For example, certain benefits may be tax free or excluded from taxable income in Switzerland, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to Switzerland Expat Tax and this brief article will address a few of those considerations.
US Expat Living In Switzerland
Switzerland is a popular choice among expats. When thinking of living in Switzerland, Swiss chocolate, the Alps (as an avid skier the Swiss Alps is a HUGE selling point…) and fondue are usually the first things that come to mind. There are a lot of opportunities and a high standard of living. Although it is a high cost of living, somewhat counterbalanced by high salaries and lower taxes (as compared to the rest of Europe).
Below is a list of our top 7 popular Switzerland cities for foreigners to reside in (in no particular order):
Switzerland Expat Income Taxes
Who Is Liable For Income Taxes In Switzerland
Switzerland’s complex tax structure has been shaped by the country’s three levels of government, which are federal, cantonal and municipal. The following two types of taxes are levied:
- Federal taxes
- Cantonal and municipal taxes
An individual who is resident or domiciled in Switzerland is subject to federal, cantonal and municipal taxes on worldwide income, except income derived from real estate located abroad and income from either a fixed place of business or a permanent establishment located abroad. Individuals are subject to Swiss income tax and net wealth tax from their first day of residency until they officially leave the country.
Swiss federal tax law is uniform throughout Switzerland, but each of the 26 cantons has a separate law for cantonal taxes. Tax laws and tax rates vary widely among cantons and municipalities and as such the choice of residence is an important part of tax planning.
Taxes are calculated based on applicable rates for specific cantons and municipalities. However, the maximum overall rate of federal income tax is 11.5%. The various cantonal and municipal taxes are also levied at progressive rates, with a maximum combined cantonal and municipal rate of approximately 35%.
Who Is A Switzerland Tax Resident
Individuals are considered residents in Switzerland if they take up legal residence in Switzerland or if they intend to stay there for a certain period (usually longer than one month), as well as if they work in Switzerland for a period exceeding 30 days.
Income tax returns must be filed by March 31. Tax filing and payment procedures vary widely from canton to canton and also depend on individual circumstances.
Switzerland Expat Tax Advice For Your US Expat Tax Return
When dealing with your Switzerland Expat Tax Return, there a number of preferential expat tax treatments that may benefit your Switzerland Expat Tax return. In fact, for many U.S. expats it could reduce your U.S. taxes to zero.
Below is our Switzerland expat tax advice for your US expat tax return:
- If you are a U.S. citizen or a resident alien of the United States and you live in Switzerland, your Switzerland Expat Tax is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in Switzerland. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
- When it comes to Switzerland Expat Tax, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Switzerland. A U.S. taxpayer working overseas in Switzerland may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a Switzerland Expat Tax Return does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that these tax benefits, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability and tax return until they are claimed on a filed tax return. So, be sure to file your US expat tax return!!!
When it comes to Switzerland expat tax advice there are many tax items to consider, but the above are by far the most common tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
U.S.- Switzerland Tax Treaty And Tax Relief For US Expat Tax In Switzerland
The U.S. does have a tax treaty with Switzerland.
Please click on the link to the U.S. – Switzerland Tax Treaty.
Switzerland Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in Switzerland is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at Union Bank of Switzerland (UBS), Credit Suisse, Swiss Raiffeisen, Zurich Cantonal Bank, Julius Baer or at another bank in Switzerland or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
Qualified Dividends In Switzerland For Your Foreign Corporation or Investment
Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” are subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States. Switzerland foreign corporations are eligible for this lower “qualified” dividend rate and can be a significant benefit for reduced US expat tax in Switzerland.
U.S. – Switzerland Social Security Totalization Agreement
Swiss retirement benefits are derived from the following sources:
- The mandatory social security system
- Company pension plans
- Individual savings
The Swiss social security contribution rate is 10.3% of total salary (with no ceiling) of which the employer and employee each pay 5.15%. In general, employees who pay into the Swiss social security system must contribute to a pension plan. The employer must make contributions of at least 50% of the total contribution.
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.
As of this time, Switzerland has entered into a Totalization Agreement with the United States thus there is opportunity to avoid double taxation of social security income for Switzerland Expat Tax.
Click here to read more on the US – Switzerland Totalization Agreement .
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Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for Switzerland Expat Tax. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates that need experienced help with their Switzerland Expat Tax. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on Switzerland Expat Tax returns and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about Switzerland Expat Tax. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with Switzerland Expat Tax. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional Switzerland Expat Tax advice based on your individual needs.