The general public knows Switzerland as home to the rich. Therefore, they might think that tax residency in Switzerland can also benefit them. But is that also true for digital nomads? Let’s have a closer look at Switzerland tax residency.
Overview of Tax Residency in Switzerland
- Switzerland is a federal state which gives a lot of fiscal autonomy to its cantons and municipalities.
- Personal and corporate income tax rates heavily depend on the canton and municipality you’ll live in.
- Switzerland offers a lump-sum tax for high-net worth individuals.
- Wealth tax is also determined on a cantonal and municipal level.
- You can trigger tax residency more easily than in many other countries.
Switzerland Tax Rules
If you are investigating Switzerland tax residency, you need to take into account different taxes.
Personal Income Tax
Personal income taxes in Switzerland are a combination of taxes at different levels. You have the federal level, the cantonal level and the municipal level.
The income tax rates are progressive on the federal level. This is also the case for most cantons and municipalities but recently some have introduced flat tax rates. You can find the detailed numbers on website of the Swiss tax authority.
Consequently, the exact income tax rate will heavily depend on where you decide to base yourself on the one hand and your actual income on the other hand.
The progressive income tax rates apply to professional income, as well as dividend income.
However, you don’t pay income tax on capital gains if you are a passive investor. Therefore, we put Switzerland on our list of best countries with no capital gains tax.
Moreover, the same rules regarding capital gains also apply to cryptocurrencies. Yet, if you want to learn the details I recommend to check out our article on Switzerland crypto tax.
Switzerland Tax Residency: Lump Sum Taxation
As you can see, Switzerland does have progressive tax rates in line with many other Western countries.
Yet, it is often deemed a tax haven for wealthy people. There are various reasons for this.
It offers banking secrecy and the absence of capital gains tax is another element. However, the most important element is that the country also offers lump sum taxation.
The lump sum taxation regime – also called Pauschal regime – taxes individuals on their (deemed) expenses rather than on their income.
This allows wealthy individuals to just pay income tax on part of their income although certain minimum thresholds apply. Furthermore, you need to meet certain conditions.
Moreover, you need to apply for the lump sum taxation regime upfront with the Swiss tax authorities where you’ll basically also negotiate with them on how much taxes you will pay.
Social Contributions in Switzerland
Apart from personal income tax, you’ll also have to pay different kinds of social contributions on your professional income.
First of all, you pay 10,6% in social contributions for old age and survivors’ insurance (AVS), invalidity insurance (AI) and health and accident insurance (APG) combined. These contributions are equally split between the employer and the employee. Therefore, each has to pay 5,3%.
For self-employed individuals, separate scales apply but they generally pay up to 10% in contributions.
Next, there is unemployment insurance at a rate of 2,2%. Again split between the employee and employer. This doesn’t apply to self-employed individuals.
Moreover, you need to contribute to a private pension plan and your employer will mostly match your contribution. The exact contribution will depend on the plan you choose. These contributions are optional for self-employed individuals though.
Furthermore, there are some smaller miscellaneous contributions which are mostly paid by the employers.
Individuals also need to get medical insurance on a private level directly with an insurance company.
Wealth Tax
Switzerland doesn’t have a capital gains tax but it does have a wealth tax.
Just like the personal income tax rates, the rates of the wealth tax are progressive. The higher the value of your assets, the higher the tax rate.
The wealth tax is levied on the cantonal and municipal level but not at a federal level. Therefore, your actual place of residence will again have a big impact on the actual tax rate.
In order to calculate the wealth tax, you’ll have to declare your worldwide assets. This includes amongst others real estate, financial investments, cryptocurrencies, art, etc.
Swiss Corporate Income Tax
Just like most other taxes in Switzerland, the corporate income tax is a combination of taxes on different levels.
There is a federal corporate tax of 8,5%. On top of this, cantons and communes also levy corporate taxes.
So, just as with the income tax on a personal level, the exact tax rate will depend on where your location. In other words, where you establish your business.
The total corporate tax rates vary between 11,9% and 20,5% while the average is 14,6%.
How to Become a Tax Resident in Switzerland
In order to get Switzerland tax residency you need to meet certain conditions and take some steps.
Criteria for Swiss Tax Residency
Under Swiss tax law, an individual can qualify as a tax resident based on different criteria.
First of all, you can qualify for Switzerland tax residency if you have your domicile in the country. This is usually the case if you have your centre of vital interest (personal and economic ties) in the country and when you register with the local authorities.
Nevertheless, you can also be seen as a Swiss tax resident if you meet one of the criteria to have your qualified abode in Switzerland. This is the case if you stay in the country consecutive – not taking into account any short absences – for at least:
- 30 days while exercising gainful activities (work);
- 90 days with no intention to exercise any gainful activity (e.g. retirees or students).
Hence, these criteria are stricter than the 183 days which many digital nomads focus on.
Steps to Become a Tax Resident in Switzerland
In order to become a tax resident in Switzerland you need to take some steps:
- Residency permit: get the appropriate residency permit to stay in Switzerland. The exact permit you need will depend on your goal (e.g. work vs retire). You will need to apply with the immigration office of the canton you want to stay in.
- Register with authorities: register your local address with the Residents’ Registration Office (Einwohnerontrolle) of the municipality within 14 days after your arrival.
- Meet criteria tax residency: meet any of the aforementioned criteria for Swiss tax residency.
- Health insurance: get health insurance within three months of your arrival.
- Tax return: file your annual tax return with the cantonal tax administration. In case you want to resolve double taxation or you need to fall back on double taxation agreements you can contact the State Secretariat for International Financial.
When is Tax Residency in Switzerland Convenient?
If you genuinely want to spend a lot of time in the country, Switzerland tax residency could be a good solution for you. However, your tax burden will heavily depend on where you’ll register yourself.
Moreover, Switzerland is obviously very attractive to very wealthy individuals who also can benefit from the lump sum tax regime. However, this is not available to the average digital nomad.
Consequently, this means that Switzerland is probably not the best option for the everyday nomad who is just looking for a tax residency without any further particular interest in the country.
How is Switzerland for Digital Nomads?
Although Switzerland is popular for expatriates and high-net worth individuals, it currently is not really a hotspot for digital nomads.
There are different elements to take into account to determine if Switzerland is a good destination for a digital nomad:
- Visa: Switzerland currently doesn’t offer a visa specifically dedicated to digital nomads or digital nomad visa.
- Cost of living: generally speaking, it’s rather expensive to live in Switzerland. This is definitely the case if you want to live in the city. Smaller villages might offer a more affordable cost of living.
- Infrastructure: although the cost of living is high in Switzerland, the infrastructure it offers is significant: great public transport and ultra-fast internet.
- Nature: it doesn’t need much explanation that if you like nature and mountains, Switzerland is your place to be!
- (Winter)sports: if you’re into (winter)sports you’ll also find plenty of options.
Work With Me and Lower Your Taxes
Do you also want to lower your taxes? Then I recommend to explore the options you have through our Tax Masterclass for Digital Nomads.
