Tax planning

 

 

The 2011 tax form will arrive during the first quarter of 2012, however, if you want to reduce your taxes for this year then you will have to take action before December 31.

 

Move canton or community before December 31st

Federal taxes are the same throughout Switzerland, however there are huge differences between the cantonal and community taxes; many expats may only realise that only after they have lived here for a year or two. If you are moving to Switzerland, it is worthwhile checking the various scenarios. For example, eastern Switzerland generally has lower taxes than the west. The cantons of Schwyz, Zug, Obwalden and Nidwalden are particularly advantageous, however even in these cantons the community taxes vary considerably. Changing location is the most effective way of reducing tax, although it may not always be practical! Private individuals pay tax for the whole year to the canton and community where they are registered on December 31.

 

Pillar 3A

The government promotes and rewards active retirement savings. If you are employed or self-employed and can afford the yearly payment, it is worthwhile to have a pillar 3A account because the contributions you make are fully deductible from income and no tax is levied on the interest. Assets in a pillar 3A account are taxable at a reduced rate once withdrawn. If you have a pension fund, the maximum amount you can contribute in 2011 is SFr 6,682. The maximum amount for the self-employed who do not belong to a pension fund is 20 per cent of their income, up to a maximum of SFr 33,408. If you don’t require insurance cover then we currently recommend pillar 3A bank accounts instead of pillar 3A insurance policies.

 

Pillar 2 (company pension)

Contributions for savings in a Swiss company pension fund commence at the age of 25. Many expats miss years of contributions but have the possibility to purchase the missing years. The amount is calculated by the pension fund and is payable in a lump sum or spread out over a number of years. An opportunity for additional investment in the pension fund can also occur due to a significant pay rise or following a divorce. The contributions are tax deductible and no tax is levied on the interest. Capital from a pillar 2 account is taxed at a reduced rate when withdrawn.

 

Payment from pillar 3 in different tax years

If you are approaching retirement age and have two or more pillar 3A accounts or policies then it usually makes sense to distribute the capital payout over different tax periods to reduce your tax liability.

 

Charity

Donations to approved charities are tax deductible. The majority of approved charities can be found at www.zewo.ch however you can also ask your local tax office.

 

Family support

If you are supporting a parent or relative because they are living in poverty (usually abroad) the amount given is tax deductible in most cases. Clear proof of their situation and the payment made must be provided.

 

Energy saving renovation

Almost all forms of energy saving alterations and improvements to your home are tax deductible.

 

Charge  a rent
Do not let anyone live on your property free of charge. Sign a contract and charge a small rent because this will usually result in you only paying tax on a low income from rent rather than a tax on a high rent for self-owned property.

 

Buying property

If you buy property, it is best to opt for real estate in the canton of Schwyz where no inheritance tax is levied. Real estate and land plots are taxable in the community or canton where the property is located.

 

Life insurance

Once the interest levels increase, certain forms of fund-based life insurance are worth considering as part of a portfolio. 

 

Travel expenses

Travel expenses are deductible. This includes the cost of a season ticket for public transport, or those using a bike or moped can deduct, in most Cantons, CHF 700 from their taxable income. Commuters using a car or motorbike can only deduct higher travel expenses if it would be “unreasonable” for them to use public transport. The term unreasonable is defined differently by the cantons. Travelling sales staff are generally granted larger tax deductions.

 

Fringe benefits

Rather than negotiating a salary increase, explore ways of receiving fringe benefits that the taxman may  not consider salary. For example company-paid travel, gym membership or a company car, however with the introduction of the new salary declaration, the possibility of tax breaks on fringe benefits has been reduced.

Completing the form

On receipt of the tax form at the beginning of the year, you will be given 30 days from receipt to complete and return it. If you have a good reason you can apply in writing for an extension of up to six months.

If possible, you can deduct for a private office or further education. Medical and health bills exceeding five per cent of your net income can be deducted in most cantons. Be sure to reclaim federal withholding tax. Deduct interest on all loans and mortgages. This includes private loans but not leasing contracts. To make tax form completion easier, we recommend you prepare a file and put aside the relevant documents – especially the end of year bank statements as they arrive in the January post.

 

And when the dreaded letter from the tax office does arrive, perhaps consider U.S. President Franklin D. Roosevelt:

“Taxes, after all, are dues that we pay for the privileges of membership in an organised society.”