Taxation in Switzerland: Mustachian Know-How, Best Practices

[under construction]
[panned: tax rat formulae for use in excel/ computation]
Here I want to collect any information relevant for taxation in Switzerland. It has 2 parts: first taxation regarding Income and second taxation regarding investment.

Content:

  1. income related Taxation
  2. Investment taxation
  3. Consumer Taxes

1) Income related Taxation

Income Tax

If you are a swiss person, have a C permit or earn above CHF 120k per year you will be taxed with the normal income tax system. There are Tax calculators for all Kantone from the federal tax authority, as well as several calculaters by the cantons.

Take your last years income, and substract all deductables (get started here) and find the taxable income. Now your income tax is made up of 3 parts:

  1. “Einfache Staatssteuer”: you have to dig your canon’s tax tables to find that. Depends on income, marial status, Kids, confession,…
  2. “Gemeindesteuer”: take your Statssteuer and multiply it wit the Steuerfuss of your Gemeinde
  3. Find the “direkte Bundessteuer” according to your salary from this official calculator. A table can be found at the end of this document (the direkte Bundessteuer should be valid like this in all switzerland, not only Zurich)
  4. The findal income tax is the sum of these three taxes.

If you don’t declare your taxes the authorities will make assumption based on the last years. be warned, these assumpions are not exactly beneficial. so sit down an do your tax declaration :slight_smile: Also keep in mind that you recieve tax bills. this means you are technically able to spend all your income and later be unable to pay the tax. This usually gets you in very bad situations,so put aside the expected taxes right from the beginning!

Quellensteuer

If you are not subject to the standard taxation because you are a foreigner without C permit and below CHF 120k in salary, then you are instead taxed with the Quellensteuer (“source tax”) system. It is much simpler: your canton has a table that says how much of any monthly payment directly goes to the tax authorities. Yes, it is applied on a monthly basis. That means if your salary varies between the months, an optional tax declaration might refund you a bit of taxes for few effort.

The complete data set can be found here including documentation on how to read it.

For Kanton Zurich to be found here in a more readable form. I put some of the tables together into an excel sheet:

2) Investment Taxation

Capital gains

The great things about Switzerland is that capital gains are fully tax-free! This makes investing in Switzerland insanely attractive. So if you put CHF 1M in stocks and you sell them later at CHF 2M you pay zero taxes! However, most stock and bond investments come along with dividends:

Dividends, Coupons, Interest

Swiss based Stock Dividends, Bond Coupons and interest on your cash are generally taxed. The Idea is that they add to your income and are taxed as such. But since those companies that keep your stocks, bonds and cash usually don’t know about your income, Switzerland makes you pay incredible 35% Tax called Verrechnungssteuer when these incomes happen. You are then intended to declare these incomes with your next tax declaration, where the difference between the upfront Verrechnungssteuer and your income tax will be refunded.
So basically, Dividends are taxed on your income tax level, but you have to wait for the Verrechnungssteuer to be refunded a couple of months.

Foreign dividends are not taxed. Be sure you still declare them, because legally they are an income that you must declare. No guide on the grey zone of tax evasion should be given here :money_mouth: :point_up: BUT: due to double taxation treaties (Doppelbesteuerungsabkommen) they might not need to be declared 100%. To find out exactly, check the official tool.

Interestingly the swiss law makers created the so called KapitalrĂĽckzahlungen (Capital refund) in 2008 which works identically as a divided (is distributed by companies per share) but is not subject to taxes. You should not add these to your tax declaration :wink: Find and compare the following 2 examples of the Vanguard all World ETF vs. UBS SPI ETF (big thaks to Grog for pointing this out)

In this very interesting NZZ article a summary is given about foreign source taxed that can be re-claimed. The essence is

  1. get the DA-1 form of your cantonal Tax Authority
  2. with it, claim the “claimable” fraction of foreign source taxes
  3. for those parts of your dividends beyond the DA-1-claimable fraction, have alook at the Federal Tax Authority, they provide links and forms to directly claim back taxes from foreign tax authorities.

further interesting lists of interesting aspects:
Handelszeitung (german)

Stamp Tax (Stempelsteuer)

The stamp tax applies on any purchase of stocks, funds, bonds, derivatives etc. that you buy with your bank or broker. It amounts to 0.075% of the purchase value for swiss based products and 0.15% for foreign based products. This has a slight implication on the distributing vs. accumulating topic, since reinvesting distributed dividends are subject to this tax. however, broker fees usually dominate the costs of purchasing products, so you dont need to wast too much thought son the Stamp Tax.

Wealth tax

In some cantons wealth taxes apply. Find the (german) federal law here.
It can be calculated (for Kanton Zurich) with the official calculator.

Help for gathering other canton’s data is much appreciated!

Wealth tax is typically of the order of 0-2‰. in zurich it starts with zero at 77’000, CHF 300’000 are taxed around 0.4‰ (CHF 115) and the 1‰ mark is somewhere above CHF 1’000’000. Wealth tax aplies to the summ of all your cash stocks, real estate, anything that has a value. Important exception: Pillars 1, 2 and 3a are exempt.

interesting ktipp article (german) (thanks to @grog) on what about deductables of vermögenssteuer

Kapitalauszugssteuer

applies to money from säule 3a and Säule 2, if recieved as lump sum (not as a rent,hm? (Source?)
Postfinace has a very handy calculator here (thanks to MrRIP)
if you dont want to only find out you numbers but what-if, check out the tables & graphs sheet from MrRIP
Since the Kapitalauszugssteuer is progressive it does make sense to distribute the cash out over several years. This can easily save you about half of the taxes.

more details on Säule 3a can be found here

3) Consumer Taxes

Consumer Taxes are typically quite boring. They are “god-given” and you cannot do anything about it. There is a list of exceptions like child care, commuting expenses,…
The most imortant consumer Tax is VAT or Mehrwertsteuer (MwSt). It is 8% for almost everything and 2.5% for food and basic needs. One speciality is The Hotel Tax of 3.8%.
Then there are special additional taxes with the idea of guiding peaple away from some products (Lenkungsabgaben) for example on Tobacco, Alcohol, fossil fuels and others.

##Addendum
50 interesting tax aspects by Migros bank

Outro

I hope you now have some idea on how to go about taxes, especially in your finacial planing. If you think I mesed something or want to add something, please go ahead! make a comment, ask questions, help me make this post evn more useful! Thank you!

12 Likes

good idea, do you already plan to add an estimation of VAT(MWSt, TVA, IVA)? Like annual expense * 5% (weighted average of 2.4% for food and 8% for other stuff). It could be a shock for some people to see how much more taxes are they paying because of it…

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Hey Grog,
thanks for your comment!
I have not yet considered VAT/ MWSt at all. So far i thought it really does not matter, since you always have it and you cannot deduct it somewhere else.
However, the pure information might be interesting, I agree :smiley:

What about adding the PostFinance Besteuerung Kapitalauszahlung calculator?

Oh yes, i added it, thanks for pointing out!

A question: how are dividends taxed if you are paying the Quellensteuer? Do we have to file taxes if we own any stocks?

Hey Zuri,
I think it does not make a difference in terms of Dividends if you are Quellensteuer or not. In both cases, Swiss dividends are taxed upfron with 35% Verrechnungssteuer which you get back up to the level of your income tax (=Quellensteuer rate) in case you let your Taxes be re-calculated after the year.

I think & heard (but not yet by a professional!) that you must list dividends as income. however, wealth is not asessed for Quellensteuer calculation afaik.

So you think I have to file taxes if I receive any dividends, no matter how negligible? One advantage of the Quellensteuer is that I don’t have to do anything with taxes…

this is a valid point. i do know that there is a threshold of CHF 200 for some things before the verrechnungsstauer is applied, but i know nothing for certain. If anybody does with a proper source - please post!

@not having to do anything with taxes: there is indeed not much hassle with taxes in case of quellensteuer. however, if you are enganged in 3a pillar, you should have the tax-recalculation for some reimbursement. also mind that (depending on your Quellensteuer tarif) you might get back 25% or one forth of your dividends if you declare them!

But don’t simply trust that random internet guy and later blame him for anything :smiley:

Thanks for the very informative post. Do you have any info on how joint investment accounts are taxed? I would like to invest with my partner, who earns less than me. Could we set up a joint account and add the dividend income to his tax base? Or does this in effect not matter as we are taxed as a married couple anyway?

good question!
But I dont know :confused: i did not look into taxes for couples. Sorry! but I will gladly add this information once we have it here!

Hi
For married people won’t matter since your income is lumped together.
If you are not married you can only transfer a fix amount of money without taxes to a non-relative person. Usually around 5000 chf but it’s cantonal law so it may vary.
If you want to give more money to your partner you have to write a loan document (even on a napkin) at whatever interest you want, usually 0% interest loan for your partner. Then you have to keep the credit amount on your wealth and declare eventual interest (if you don’t go the 0% route) as income on your taxes.
In exchange your partner must declare the same amount as debit and can even write off the interest from his income. If invest that money of course h must report the ETF shares he bought. So in the end is more or less a 0 gain game, particularly if you give a loan to your partner of 0%. Is just that this is a completely legal way of avoid taxation for money transfer to non relative, which would count as private donation.

This only applies to private investors. Unfortunately, it is not up to you to say whether you count as a private or professional trader.

According to moneyland.ch:


The tax authority applies these 5 criteria

The Swiss Federal Tax Administration FTA has set five criteria. If you want to make absolutely sure that you are exempt from paying taxes on your capital gains, you need to fulfill all of these five criteria together:

  1. You have been holding the securities for at least 6 months before selling them again.

  2. The volume of your transactions during one calendar year – that is the sum total of the purchase and sales prices of your securities during the tax period – is no more than five times higher than the total value of your assets and securities at the beginning of the tax period.

  3. You do not depend on the profits from trading your securities in order to finance your household expenses. Rule of thumb: the profits from trading should make up less than 50% of your total net income during one tax period.

  4. You are not borrowing money in order to buy securities. Or in other words: the taxable income you receive on the investment – like interest payments and dividends – exceeds debt interest payments.

  5. In case you are trading derivatives, particularly options, you may only use them to hedge your own securities.

It is worth noting that the tax authority can use a good deal of discretion when applying these five criteria. It can thus happen that you do not count as a professional trader – and therefore pay no income tax on your profits – even though you are falling under one or more of these criteria.


More detailed information in German can be found here: STEUERFREIER KAPITALGEWINN Schwierigkeit der Abgrenzung: steuerfreier Kapitalgewinn versus steuerbares Einkommen

Conclusion
If you reach FI and make a living selling your shares, you can be classified as professional trader and have to pay taxes on capital gains.

5 Likes

Interesting, I have never seen these rules. I always thought it was the freedom of the tax administration.

If you reach FI and make a living selling your shares, you can be classified as professional trader and have to pay taxes on capital gains.
=> using the for 4% rule ~2.5% would come from dividends and 1.5% from selling shares. In this case, you wouldn’t be taxed.

BTW: it can be interesting to invest in growth stock which distribute less dividends

@ElMago That is a very good point. I guess the third criteria alone is enough for a mustachian to be taxes on capital gains. And you not only have to pay taxes, but also social cotisations :

“Wer allzu fleissig Aktien kauft und verkauft, kann von der Steuerbehörde als „gewerbsmässiger Wertschriftenhändler“ eingestuft werden. Gewinne werden dann als Einkommen aus selbstständiger Erwerbstätigkeit besteuert, und es werden Sozialversicherungsbeiträge für AHV, IV, EO und ALV fällig. Im Fokus stehen Anleger, die häufig hohe Volumina handeln, ihre Anlagegeschäfte mit erheblichen Fremdmitteln finanzieren oder in grossem Masse Derivate einsetzen. Waren die Behörden vor einigen Jahren noch übertrieben streng in diesem Bereich, so hat sich nun eine etwas kulantere Praxis durchgesetzt.”

Now I am wondering : In this case, how are capital gains taxed? Like regular income?

Now I am wondering : In this case, how are capital gains taxed? Like regular income?

“Gewinne werden dann als Einkommen aus selbstständiger Erwerbstätigkeit besteuert” - profits are considered self-employment income. In tax declaration for individuals, employment and self-employment income are added together and so, yes, it’ll get taxed under regular personal income tax rates. Plus you’ll pay a hefty 10.25% AHV on it - double of the normal rate because you’re your own employer for self-employment purposes. You could deduct realized capital losses from profits for up to several years back however AFAIK. All business expenses (i.e… trading fees) would be deductible too - but I guess you’ll lose the pauschal Vermoegensverwaltung deduction in exchange, so not such a good deal probably.

1 Like

My understanding of this matter is that if all 5 criteria are fulfilled, you can be absolutely certain that your capital gains will not be taxed.
If this is not the case, the tax authorities must examine each case individually to determine whether someone can be qualified as a professional trader or not.
However, as stated in the “circulaire 36” of the Federal tax administration: “Une gestion «dynamique» de la fortune privée doit demeurer possible. Le recours à des fonds étrangers constitue l’indice le plus pertinent d’un commerce professionnel de titres” (circulaire 36, page 3)
When passing the law in Parliament, Mr Villiger, Member of the Federal Council at the time, commented: “Nous ne voulons pas d’impôt sur les gains en capital pour les investisseurs et les épargnants traditionnels, ou quel que soit le nom que vous leur donnez, même s’ils administrent un bon portefeuille en appliquant les méthodes les plus modernes. Là, le fisc ne «se servira» pas, sinon il introduirait un impôt sur les gains en capital par la petite porte…” (Circulaire 36, page 3, footnote 4).

What I take away from all of this is that if you are investing your own money, it should be quite easy to claim that you are not to be qualified as a professional trader.

Then again, I have no experience whatsoever as to how the Tax authorities handle these cases…

Link to the circulaire 36
French: https://www.estv.admin.ch/dam/estv/fr/dokumente/bundessteuer/kreisschreiben/2004/1-036-D-2012.pdf.download.pdf/1-036-D-2012-f.pdf
German: https://www.estv.admin.ch/dam/estv/de/dokumente/bundessteuer/kreisschreiben/2004/1-036-D-2012.pdf.download.pdf/1-036-D-2012-d.pdf

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when I asked the taxation guys about this rules they answered me that the two most important criteria are: selling stuff that you purchased less than 6 months ago (active trading means for them buying and selling inside 6 months) and using leverage products.
People selling shares bought 20 years before usually do not count as professional investors, even if the capital gain are relevant and would amount to more than 50% of household income. But it would a case to case analysis.

But this was an opinion of a guy in one office so it is not law, is just how usually they look at these things.

3 Likes

I think you missed the Church tax…

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