Withholding tax in Switzerland: is there an obligation to account for withholding tax?
As a general rule, any person who does not hold a permanent residence permit (type C) is liable to pay withholding tax. Such people may have a permit from type B (resident permit), type G (cross-border worker’s permit), type L (short-term residence permit), type F (provisionally admitted foreign nationals), type N (asylum seekers) or type S (temporary protection).
These include in particular people who work and live in Switzerland but do not hold a Swiss passport as well as people who live abroad but work in Switzerland, such as for instance cross-border workers. Also foreign artists, sportsmen and sportswomen or speakers who receive payment in Switzerland in respect of their activity are liable to withholding tax. In addition, members of an executive board who are resident abroad and earn income in Switzerland are also liable to withholding tax. The tax is deducted directly from the incomes of such people and paid to the tax authorities.
How the rate is determined
The level of the withholding tax is set in the canton in which the employee is resident, and is based on a number of factors. The following rates apply:
rate A for single people
rate B for people who are married or in a registered partnership, but are the sole person earning income
rate C for people earning income who are married or in a registered partnership, where both are earning income
rate G for substitute income paid directly by the insurer to the liable person
rate H for single-parent families
rate E for employees for whom withholding tax is managed according to the simplified settlement procedure; here a flat-rate of five percent is applied.
In addition, liability to church tax is also taken into account when determining the rate of withholding tax. This applies if the person liable to withholding tax is a member of a confession recognised as one of the national churches in Switzerland (Roman Catholic or Evangelical-Reformed). In addition, the number of dependent children is also taken into account. These factors collectively determine the individual rate of tax that is applied to the income.
Withholding tax in the event of more than one employer
If the person works part-time or also works for another employer, it is necessary to establish how high the other rate of employment or the other salary is, as tax is calculated on overall income. The following rule ensures that withholding tax is calculated as fairly and correctly as possible, even if the person has multiple part-time positions or if his/her activity is difficult to quantify:
Effective overall income: the rate of tax must be calculated on the basis of the overall income earned by the person from his/her various activities. This means that all income is added together in order to calculate overall income.
Effective overall rate of employment: the effective overall rate of employment from all activities is used in order to determine the tax rate. If the person has multiple part-time positions, the overall rate of employment must be determined.
Usage of the median salary: if the person liable to withholding tax does not state how high the rate of employment or the salary with other employers is, the medium salary is used as the relevant income for determining the rate. This is a statistical figure that is used within salary analysis in order to describe how salaries are distributed. The median salary would the “middle” salary of the person in the middle of the line if all earners were arranged in a line according to salary. The median salary in Switzerland in 2024 was CHF 5,725. This means that, under these special circumstances, it is assumed that the person earns at least this amount when determining the rate of tax.
Cantonal settlement model
Withholding tax is settled in Switzerland in different ways, depending upon the canton. This has an effect on the frequency of tax payments and the way in which they are made. Most cantons use a monthly settlement model. According to this model, each month the employer deducts the withholding tax from the employee’s salary and pays it to the tax authorities. Monthly settlement means that the tax burden is, in principle, distributed equally over the year and the tax authorities receive a particular amount each month. In the event that special payments are made (gratuity, bonus, length-of-service gift, etc.), the monthly settlement model is however disadvantageous as the tax burden increases disproportionately due to the higher basic salary.
Withholding tax is settled quarterly rather than monthly in the cantons of Geneva, Fribourg, Vaud, Valais and Ticino. The employer calculates the tax due every three months and pays it to the authorities. The gross annual income is used as a basis for calculation, including salaries, bonuses and other taxable benefits. The tax rate is applied to the annual income and the tax is deducted monthly. A settlement occurs at the end of the year in order to correct any discrepancies and to distribute the tax burden fairly.
The employer is responsible for declaring the amounts correctly
The employer is responsible for declaring the employee’s rates and amounts correctly. By obtaining an updated tax information document each year, the employer can ensure that all relevant factors that have an impact on withholding tax are correctly recorded. This allows for precise and fair taxation and reduces the risk of errors and the need to pay arrears. If the employer does not apply the rate of withholding tax correctly, it is possible that payments of arrears or interest and fees for administrative costs as well as additional examinations may be required, for which the employer is held liable.
Retrospective ordinary assessment
People liable to withholding tax with annual income below CHF 120,000 may apply for retrospective ordinary assessment (ROA) by 31 March of the following year. This means that these people file a tax return. This enables them to claim additional deductible costs such as pension contributions, any job-related costs actually incurred, third-party care costs, pillar 3a contributions etc.
The amount paid as withholding tax is offset against the tax bill. It should be noted that people resident in Switzerland only need to complete an application for ROA once, after which ROA must continue until liability to withholding tax ends. People resident abroad need to file an application for ROA each year.
The rules on retrospective ordinary assessment do not apply to people liable to withholding tax with annual income in excess of CHF 120,000. These people are obliged to file a regular tax return, as is ordinarily the case for taxpayers who are not liable to withholding tax. The tax return must state all relevant income and deductions.
Recalculation of withholding tax
In the event of the recalculation of withholding tax, all income and substitute income liable to withholding tax in Switzerland for the tax year in question is computed together. The gross annual income thereby identified is divided by the number of months of gainful activity in order to calculate the relevant income used in order to determine the rate.
The withholding tax owed is determined according to the rate of withholding tax applicable at the start of each month. Any excess withholding tax paid is reimbursed to the person liable to withholding tax, and any shortfall is recovered from that person. The application must be filed by the person liable to withholding tax by no later than 31 March of the following year.
Conclusion
In Switzerland, people without a permanent residence permit (type C) are taxed at source, including people without a Swiss passport and cross-border workers. The tax is deducted directly from income. The amount is dependent on factors such as family status, church tax and the number of dependent children. Each year employers should obtain an up-to-date tax information document. People with annual income below CHF 120,000 may apply for retrospective assessment by the end of March of the following year. An ordinary tax return must be filed in the event that income exceeds CHF 120,000.
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