Anyone over 20 years old living and working in Switzerland, including the self-employed, must pay compulsory social security contributions towards their state pension, known as AHV Switzerland or OASI – the Old Age and Survivor’s Insurance. For this reason, I want to go through a Swiss pension and taxes!
They are entitled to a state pension after contributing for 12 months.
The payment depends on two factors – the number of qualifying years of contributions and the expat’s average wage over the contributory period.
Benefits are paid between a year or two before reaching the official retirement age and up to five years after if the expat keeps on working.
The full pension is only paid if an expat has contributed every year since the age of 20 to their Swiss retirement age.
OASI/DI is the Swiss social security scheme and is split into two parts or Pillars.
It’s possible to draw benefits from both at the same time. Besides the state pension, the OASI/DI covers disability pensions and spouse pensions.
Swiss Pension Pillar 1 – The OASI/DI
Often called an AHV or AHS, depending on which language you speak. AHV is short for Alters-und Hinterlassenenversicherung in German, while an AHS is the same as an AHV but in French or Italian.
Paying into the AHV is mandatory and like the UK State Pension, covers state benefits and the state pension.
OASI/DI protects everyone in Switzerland.
Contributions are uncapped and amount to 10.55% of total income each year split evenly between employers and workers.
OASI/DI is run by the government.
Swiss Pension Pillar 2a – Workplace pensions
Pillar 2a is another mandatory pension for employees. Workers and employers both pay into the fund, like auto-enrolment in the UK.
Like auto-enrolment, Swiss workplace pensions are designed to top-up the AHV in the same way auto-enrolment complements the UK state pension.
Workers have to opt-in when their annual earnings top 21,150 Swiss francs (CHF).
Employers must offer these pensions by law.
Swiss Pension Pillar 2b – Workplace pensions
Pillar 2b is a system for voluntarily topping up savings.
Pensions also have a third Pillar:
Swiss Pension Pillar 3 – Private pensions
Pillar 3a and 3b pensions are popular with freelancers and the self-employed, these pensions top-up Pillar 1 and 2 savings. Contributions to a private pension are not mandatory and are the responsibility of an individual.
Expats can retire in Switzerland if they have the money to live without claiming benefits and medical insurance, including cover for accidents.
Pillar 1 Reimbursements For Expats
Expats can apply for OASI/DI contribution refunds when they leave Switzerland or from overseas.
The opportunity is limited.
You can’t claim a refund but can apply for partial benefits if you move to a European Union state, an EFTA (European Free Trade Association) country or somewhere with a reciprocal social security agreement with Switzerland.
Generally, you can only apply for a refund up to five years after leaving Switzerland and any lump sum payment only covers the termination value of the state pension.
But to qualify, you must have paid into the system for at least a year, have moved permanently away from Switzerland and not claimed an OASI/DI pension.
The refund only covers contributions by you and an employer to the OASI scheme – DI contributions are non-refundable.
Married couples must make separate refund applications.
Any refund is paid into an overseas personal bank account.
Countries with social security agreements with Switzerland
How the pension is paid is covered by countries having bilateral social security agreements with Switzerland.
All countries in the European Union (EU) and European Free Trade Association (EFTA) have an agreement.
This is where Brexit may complicate the status of British expats in Switzerland on leaving the European Union. Switzerland had a social security agreement with the UK until December 31, 2020, when the UK left the EU the transition period ended.
Switzerland also has social security agreements with several countries outside Europe: Australia, Chile, China, Bosnia and Herzegovina, India, Israel, Japan, Canada, Macedonia, Montenegro, Philippines, San Marino, Serbia, South Korea, Turkey, Uruguay, and the USA
Claiming The Swiss State Pension
The OASI/DI state pension is not paid automatically.
If you live in the country where you were born, applications go to your local social security office.
If you live in another country, applications must go to the Swiss Compensation Office in Geneva.
Keeping OASI/DI benefits as an expat
If you have not requested a cash pay-out, you are still covered by the Pillar 1 scheme, which can pay benefits overseas.
Bear in mind refunds are only due if you move to a country without a social security agreement with Switzerland.
If you move to somewhere with no social security tie to Switzerland, you can claim benefits under the OASI/DI scheme.
These include:
- A reduced state pension on reaching retirement age
- A reduced disability pension if your condition is classed as a 50% or more disability
- Your family may have a claim for survivor benefits when you die
Pillar 2 Pension Reimbursements For Expats
If you did not claim a cash refund before leaving Switzerland, you can make an application from overseas at any time.
You can keep the pension open with a pay-out if you reach retirement age, which is 65 for men and 64 for women.
Claims for refunds should go to the company running the scheme.
Requesting a cash pay-out
Speak to your last employer who will give you an application form.
You will need paperwork to prove your date of departure from Switzerland and written permission from your spouse to stop the scheme if you are married.
Keeping Pillar 2 benefits as an expat
If you want to keep your Pillar 2 benefits, tell your employer at any time.
You will receive a pension or lump sum on reaching retirement age.
Pillar 3 Pension Reimbursement For Expats
Pillar 3 pensions are savings plans offered by banks and insurance companies, which puts them outside the Swiss social security system.
Expats leaving Switzerland who have a Pillar 3 plan can cash in these pensions when they move overseas.
Taking Pillar 1 and Pillar 2 Cash Early
In some cases, expats can ask for an early refund on money paid into the OASI/DI or workplace pension system. The triggers are:
- Buying a Property– Up to the age of 50, savers can withdraw at least CHF20,000 once every five years to buy a home, repay a mortgage or to buy shares in a housing co-operative
- Starting self-employment – On becoming self-employed, retirement savers can switch their entire funds between Pillar 1 and 2 contributions to a Pillar 3 scheme or withdraw the money
- Expats leaving Switzerland – Pension transfers and refunds are a choice for some expats, depending on where they move to and if they have had any cash under the terms of the AHV or workplace pension.
The minimum early retirement age set by most pension providers is 58 years old, but vested benefit funds cannot be paid any earlier than five years before state retirement age (59 for women and 60 for men).
What Happens To Pensions That Aren’t Reimbursed?
If you don’t claim a refund, the money is transferred to a vested benefits account with no investment potential that will start paying out on reaching retirement.
Transferring a Swiss Pension
See Swiss Pillar 1 And Pillar 2 Pension Outcomes For Expats above
Where your pension provider is based can make a big difference to the tax you pay on stopping your pension.
Switzerland is a confederation divided into 26 cantons. Each canton has the power to set tax rates, so what an expat pays when they cash in their pension depends on the tax rates set by the canton where their pension is based.
Expats often live and work in the higher taxed cantons, like Geneva, Basel, or Zurich.
But expats have the right to move their pension to a lower-taxed canton, such as Schwyz, before moving the money overseas.
This hugely affects the tax paid on lump-sum pension refunds.
Filing deadlines may also affect tax as they vary between cantons, leaving a lower rate for one while another rises.
How pension tax affects your fund
| Canton | Pension value | Tax due | Remaining fund |
| Basel | CHF 500,000 | CHF 47,075 | CHF 452,925 |
| Zurich | CHF 500,000 | CHF 40,325 | CHF 459,675 |
| Geneva | CHF 500,000 | CHF 38,888 | CHF 461,112 |
| Schwyz | CHF 500,000 | CHF 22,825 | CHF 466,700 |
Tax by Pension Pillar
Many countries tax these pension refunds, so expats should consider drawing the money in Switzerland at beneficial rates before they leave.
Swiss Pension Pillar 1
Strict refund rules only allow a claim if an expat moves to a non-EU/EFTA country, where tax may be due in Switzerland and the expat’s new home.
Swiss Pension Pillar 2
A 2a pension is a mandatory pension and is not refunded if expats move to a country with a social security agreement with Switzerland or an EU/EFTA country.
A 2b pension is a non-mandatory top-up often taken by high earners. These are not mandatory contributions, so can be refunded wherever an expat moves.
Swiss Pension Pillar 3a
If the Pillar 3a scheme is insurance rather than a banking product, some expats may leave the pension invested.
How To Access Your Swiss Pension
Reinvesting the money could give you greater control over how your fund is invested and when you can drawdown.
However, closing a Swiss scheme means the loss of benefits like invalidity cover and a spouse’s pension if you die while married. Balancing the value of these benefits against the improved investment and drawdown. Cashing in a pension early always involves a financial trade-off between taking the money now and losing future retirement income and benefits.
Who needs to pay Swiss taxes?
Individuals, residents or temporary residents of Switzerland are subject to unlimited Swiss tax obligations. The same applies to legal entities resident in Switzerland. This means that Swiss taxes apply to income and assets around the world.
Limited tax liability applies to non-residents and companies in economic relations with Switzerland. In these cases, Swiss tax is levied only on certain items of income originating in Switzerland.
Place of residence – a place where a person stays with the intention of settling on a permanent basis; thus, it is the centre of their personal and business interests.
A person is a resident for tax purposes if he stays in the country for a long period; usually, it is 90 days (30 days if they work) even if they don’t work. Companies are considered residents if their registered office or actual administration is in Switzerland.
What Swiss taxes apply?
Switzerland imposes taxes on income and wealth (direct taxes) and on goods and services (indirect taxes).
In addition, most cantons levy inheritance and gift taxes in Switzerland (although spouses and direct descendants are usually tax-exempt); this is a tax on income from the sale of real estate, as well as some other taxes and duties.
Internationally, taxes in Switzerland are fairly moderate. Note, however, that there are significant differences between the various cantons and municipalities.
Types of taxes in Switzerland
To understand the Swiss tax system, it is important to understand that there are different tax levels. Swiss taxes are levied by the Swiss Confederation, 26 cantons as well as municipalities.
The federal and cantonal constitutions regulate the delineation of the Swiss tax authority. However, the cantons enjoy all the rights of a sovereign state. They can levy any kind of tax, as long as the Federal Constitution does not leave the national government the right to do so.
There are only a few types of Swiss taxes for which the confederation requires exclusive tax powers, including:
- Swiss VAT
- Stamp duties
- Income tax
- Customs duties
- Special consumption taxes
Consequently, the cantons have wide freedom to enact their own tax legislation. Municipalities can only collect taxes with the permission of the constitution of the respective canton.
In addition, the parishes of the three national churches (Christian Catholic, Protestant and Roman Catholic) collect church tax from their members in almost all cantons. This also applies to legal entities that are taxable in the canton.
Thus, the levels of the Swiss tax authorities are:
- Federal level: governed by the Federal Constitution.
- Cantonal level: ruled by the canton
- Municipal level: run by the commune
- Church: Members of the three national churches are taxed in almost all cantons.
Swiss income tax and property tax
Swiss residents, as well as temporary residents carrying out income-generating activities in Switzerland, are subject to unlimited (worldwide) tax liability, with preferential provisions in a tax treaty.
Limited tax liability applies to non-resident individuals with special economic ties to Switzerland. In such cases, taxes are not levied on an international basis, but only on certain items of income that are sourced from Switzerland (e.g. property, permanent establishment).
It is important to note that Swiss tax law is based on the principle that family income and wealth are an economic unit and are taxed together. Therefore, only one tax return is required for each household; the income and wealth of both spouses go together. Children under 18 who are earning income must report their income on their parent’s tax returns.
High Income Tax Assessment
Foreign employees residing in Switzerland, whose gross salary exceeds 120,000 Swiss francs per year (500,000 Swiss francs in the Republic and the canton of Geneva), are required to file a tax return on their income and assets worldwide. Withholding tax on wages is credited to the accrued tax account without interest.
Assets tax assessment
Foreign employees residing in Switzerland, whose gross salary does not exceed 120,000 Swiss francs per year (500,000 Swiss francs in the Republic and the Canton of Geneva), but who have additional sources of income or additional assets (for example, income from securities, real estate) are also required to file a tax return. However, in most cantons, this is only due to additional income or property.
Foreign Employees: Withholding Income Tax
Foreign employees (without a Category C permit) withhold a monthly tax amount directly from their salary by their Swiss employer. The rates are lower than the accrued income tax rates as they apply to gross profit.
All standard deductions and surcharges are standardized and directly included in the tariffs. Rates are usually progressive; the more you earn, the higher the tax rate. They take into account whether you are married or single, living with children, or subject to church tax.
Withholding tax adjustment
If you are a foreign employee who has tax deducted from your salary, and if you are not required to file a tax return, you can ultimately reduce your tax burden by filing a withholding tax correction application. This may result in partial tax refunds.
You can apply for correction on the following points:
- International weekly accommodation cost
- Debt interest (consumer loans and credit cards)
- Costs of further education and retraining
- Health expenses and accidents
- Disability-related costs
- Support payments
- Payment of alimony
- Contributions in recognized forms to own retirement benefits (third pillar)
- Buying retirement years in a pension fund (second tier)
- Childcare costs
- Donations
Most cantons accept such claims. Usually, the cantons provide a special form to be completed and additional deductions must be properly documented. Some cantons require a full tax return for these deductions to be taken into account.
When applying for a withholding tax adjustment, the application must be submitted by March 31 of the following year. In most cantons, this is a fixed term that cannot be extended.
Swiss corporate taxes
Any company with a registered office in Switzerland is liable for unlimited Swiss tax, while foreign companies abroad are liable for limited taxation if they own real estate or have a permanent establishment in Switzerland.
An international comparison shows that Switzerland is a very attractive destination for corporate taxpayers. Read a comprehensive guide to Swiss corporate taxes.
Swiss VAT or value added tax
Value Added Tax is one of Switzerland’s main funding sources. This is a consumption tax that is levied at a rate of 7.7% on most commercial exchanges of goods and services. Some items, including food, medicine, books and newspapers, are subject to a 2.5% VAT.
Medical, educational and cultural services are tax-free. Goods and services delivered abroad are also tax-free. There is a special rate of 3.7% for hotels.
Although Switzerland is not a member of the EU, its value-added tax system is in line with EU rules as it is non-cumulative, multi-phased and deductible for incoming tax.
Generally, any natural or legal person who does business in Switzerland is responsible for paying VAT in Switzerland and if the annual turnover exceeds the threshold of 100,000 Swiss francs (150,000 Swiss francs for charities).
This also applies to foreign companies operating in Switzerland. Only the taxable turnover in Switzerland is on this threshold.
Companies that supply goods or services in Switzerland or reside there are exempt from registration for Swiss VAT only if their global turnover does not exceed 100,000 Swiss francs. If their global turnover is higher, the company must register as a Swiss VAT payer.
Foreign companies that provide services only in Switzerland are still exempt from registration.
The Swiss VAT law does define services in a very narrow range. It does not qualify as a service, but as the delivery of goods – this is any type of work that is performed in relation to a specific product, even if the product is not changed by work, but only installed, tested, calibrated, adjusted, checked for its conformity. a function available for use or exploitation, or otherwise processed.
Submitting a Swiss tax return as an expat
Swiss citizens, foreigners with permanent residence C or foreigners who are married to a Swiss citizen do not withhold taxes from their wages. Instead, they must file a tax return annually.
Some cantons contain additional criteria in their tax legislation that require a regular tax assessment of foreign residents in Switzerland (for example, ownership of real estate). An annual tax return is also required if you work freelance or for a foreign company.
In Switzerland, the tax year corresponds to the calendar year. Thus, the tax year ends on December 31st. In most cantons, the deadline for filing a tax return is March 31; that is, three months after the end of the tax period. Most cantons allow one free extension. Further extension of the term may be possible at an additional cost.
If a taxpayer does not file his/her tax return on time, he/she may be subject to taxation by default. In such a case, the tax authorities assess the taxpayer based on a reasonable estimate.
This tax base will usually be substantially higher than the actual tax base and is likely to be more expensive for the taxpayer. If you do not take action within 20 or 30 days (depending on the canton), you cannot appeal. Fines for failure to submit may also apply.
Filing US taxes from Switzerland
Even though every US citizen and green card holder must file a tax return with the IRS, many expats still don’t.
Many are unaware of these obligations, believing that, as immigrants, they do not need to file tax returns in the United States.
You do! For more information and assistance with filing US tax returns from Switzerland, contact the according to figures to file US tax returns from abroad.
Calculating taxable income and wealth in Switzerland
Taxable income includes:
- Income from paid work and self-employment
- Compensatory income (e.g. annuities, pensions)
- Secondary income (for example, seniority allowances, tips)
- Income from bank accounts / securities and real estate
- Other income (for example, prizes from lotteries and pools over CHF 1,000).
Expenses related to earning income (e.g. professional expenses) are deducted from gross income. In addition, several general deductions (for example, deductions for people with double income, for insurance premiums, social security contributions and retirement plans, for interest on private debt up to a certain amount) and social contributions (for example, deductions for married couples, single-parent families, for children, for low-income) are provided.
Generally, all property is subject to property tax. Common property includes all assets and rights of the taxpayer that have a monetary value. These assets and rights are usually measured at market value.
Taxable property includes, but is not limited to, real estate, property, plant and equipment, redeemable life and annuity insurance, and commercial assets. The tax base for a wealth tax is net wealth, that is, gross wealth reduced by the amount of the taxpayer’s documented debt, as well as personal allowances and social security contributions, which vary from canton to canton.
Swiss tax refunds for expats
Expatriates may claim certain additional tax credits under the Expatriate Ordinance of the Federal Department of Finance. However, the definition of an expat is very rigid.
To obtain foreign qualifications, a temporary secondment of senior personnel, as well as specialists with certain professional qualifications, from a foreign employer to Switzerland is required.
Professionals or managers with a timely limited local contract qualify as expatriates only if their employment is an intra-group transfer and the foreign employer guarantees re-employment after staying in Switzerland.
Examples of specific deductions include living expenses in Switzerland, relocation, travel and education of minor children.
This special regime ends as soon as the temporary assignment becomes a timely permanent contract or after five years in Switzerland, whichever comes first. In some cantons, a one-time expatriate deduction, known as the OEXPA deduction, is provided in lieu of the itemized deductions. This is usually around CHF 1,500 per month.
We tried to place all the necessary information about Swiss taxes in this small guide, so every resident or expat of Switzerland could imagine the financial situation of the country he/she lives and works in. Paying taxes is a very important part of every employee, employer and businessman, and we all should know how much we have to pay daily, monthly or annually.
If you have any questions about your pensions or taxes in Switzerland, please email me and I can answer your questions. Please email info@investmentsforexpats.com
