Switzerland payroll and tax overview.

Switzerland is located in the heart of Europe, sharing borders with France to the west, Germany to the northeast, Austria and Liechtenstein to the east, and Italy to the south. Switzerland’s historic economic strength has led to modern prosperity: the country is one of the wealthiest in the world by GDP, which stood at around $678,968 million in 2017 - while the Swiss economy is predicted to grow by over 2% in 2018. Important industrial sectors in Switzerland are the manufacturing sector - which includes pharmaceutical, machinery, electrical product and metal industries - the agricultural sector, and the services sector, which employs the majority of the population (around 70%). Switzerland is a stable parliamentary republic with influence on a regional and international scale as a member-state of the UN, the WTO, and the OECD - amongst others. Although it is not a part of the EU, Switzerland is a part of the Schengen Area. In 2018, Switzerland was ranked 33 on the World Bank’s Ease Of Doing Business Survey.

Why invest in Switzerland?

Investors targeting Switzerland should consider the following:

• Incentives: The Swiss government operates a tax regime favourable to business interests, offering tax incentives at the federal and canton (district) level. Some cantons offer investors tax relief on corporate income for up to 10 years, while others offer specific relief for job creation. The government offers subsidised loans of up to 25% for businesses in certain sectors.
• Infrastructure: Switzerland boasts one of the world’s finest financial infrastructures, which serves some of the most prestigious enterprise organisations. Businesses in Switzerland benefit from a safe, discrete, and stable trading environment and strong international financial connections,
• Location: At the heart of Europe, Switzerland is a gateway to some of the world’s most important economies and markets with France and Germany on its doorstep, and the United Kingdom and Scandinavia in close proximity. Road, rail and air links connect Switzerland’s businesses to the rest of the continent, while Schengen-status means labour and goods can move in and out of Swiss territory freely.
• Skilled workforce: The Swiss workforce is skilled and motivated - and is drawn from a world-renown educational infrastructure which is supplemented by an effective apprenticeship system. Switzerland’s literacy rate is around 100%, with a high level of English language proficiency as standard.
• Social benefits: Swiss society is stable, affluent and progressive, and offers residents a high quality of life and one of the best healthcare systems in the world. Crime and unemployment is relatively low, while Switzerland itself is historic and scenic, representing a beautiful place to live and work.

Foreign Direct Investment in Switzerland

Switzerland offers global companies an exciting opportunity for expansion in Europe, being centrally located. The country provides residents with an unrivalled quality of life, attracting highly talented workers from around the world. Attracting talent is not difficult, with a wealth of well qualified and experienced candidates in the area.

Registering A Company and Establishing an Entity in Switzerland

Normally the companies establish a legal entity in Switzerland. But it is possible to employ people in Switzerland without a Swiss company. This structure is not recommended because it’s more complicated to settle with the authorities/social securities. To set up a company in Switzerland takes about three to four weeks.

Business Banking in Switzerland

It is not mandatory to make payments to both employees and the authorities from an in-country bank account. Salary payments and 3rd party payments can be made on behalf of the client. Payments are usually made using bank transfers. If transfers are being made within the same bank payment is usually within the same day, for any other bank within Switzerland transfers will usually complete within 2 days. International transfers will take between 1 and 3 working days.

What Are the Working Days and Working Hours in Switzerland?

The working week in Switzerland is Monday to Friday. Maximum working hours vary between 45 and 50 hours per week and depend on the industry e.g. 45 hour limit is applied to industrial workers and office staff.

Basic Facts about Switzerland

General Information

The existence of a sovereign state in the territory known as Switzerland dates back to the medieval period, but modern Sweden was established in 1848, with the adoption of the Swiss Federal Constitution. Switzerland’s well-known status as a militarily-neutral country is also historically-established: the country hasn’t been in an armed conflict since 1815, but instead engages in international diplomacy as a way to influence world events. Since it is not a member of the EU, Switzerland is broadly unrestricted by the associated financial and political regulations, but has bilateral trade agreements with the bloc and other global trading partners. The geography of Switzerland is varied, and takes in the Alps, the Swiss Plateau, and the Jura Mountains. The country’s temperate European climate and abundant natural beauty spots means it is a popular international tourist destination throughout the year.

Full Name: Swiss Confederation

Population: 8.637 million (World Bank, 2020)

Capital: Bern Primary Language: German, French, Italian, Romansch

Main Religion: Christianity

Monetary Unit: 1 Swiss Franc (CHF) = 100 Rappen

Main Exports: Machinery and electronics, chemicals, precision instruments, watches

GNI per Capita: US $73,620 (World Bank, 2019)

Internet Domain: .ch

International Dialing Code: +41

The tax year in Switzerland runs from 1st January to 31st December.

There is no requirement for a third party to be licensed in order to make any tax and/or social security filings on the behalf of a client, instead the Power of Attorney must be signed, which grants the right to the third party to act on the behalf of a Client.

Every person who is Swiss or has a Residence Permit C has to pay income and wealth tax based on instalments determined by the relevant tax authority according to previous yearly declared income. At the beginning of the following year a reconciliation is done by tax authority when previous tax return is submitted (deadline for tax return of previous year = 31st March). If in the current year the income has significantly changed it is recommended to contact tax authority to change the instalment amount accordingly. The income tax is a direct tax which has to be paid based on the individual tax return which has to be filed annually.

The amount of tax depends (but is not limited to) on the following:

• Place of residence (tax tariffs vary strongly within Switzerland)
• Civilian status
• Religion
• Income/wealth.

Foreign individuals who have no residence permit C or are not married to a Swiss national are taxed at source. The employer is obliged to deduct the withholding tax monthly from the salary and report as well as transfer monthly or quarterly to the authorities.

The payment dates vary by Canton. The percentage (rate) of the deduction depends – among others - on the following 5 items: canton, civilian status, employment level of marriage partner (if married), religion and income.

AHV (old-age and survivor’s insurance): 10.6% from gross salary (5.3% employee, 5.3% employer). The employer has to deduct 5.3% from the gross salary and has to pay 10.6% to the authority.

FAK (family compensation fund): 1.2%-3.6% (depending on sum of salary of the company and social security office) from gross salary which is payable by the employer

VK (administrative costs): 0.1% - 5% from the AHV-contributions (payable by employer)

ALV (unemployment): 2.2% from gross salary (until CHF 148’200) and additional 1.0% from gross salary over CHF 148’200 (50% employee, 50% employer). The employer has to deduct 1.1% resp. 0.5% from the gross salary and has to pay 2.2, resp. 3.2% to the authority

KTG (in case of illness: salary compensation payment insurance): This insurance is optional. The contributions are calculated from gross salary and depend on various factors (insurance company, gender, branch of the company, contractual dispositions, such as waiting period and salary limitations etc.). A maximum of 50% of the contribution for the illness insurance may be deducted from the salary of the employee. The employer may optionally pay an amount for the employee. Usually, a split of 50/50 is made or the employer pays the whole premium.

UVG (accident insurance): contribution depends on individual contracts and will be calculated from the gross salary (until CHF 148’200 per year). The premium for UVG during working hours (professional accident insurance) has to be paid at the cost of the employer. For the compulsory, non-professional accident insurance (during non-working hours, weekends etc.), contributions can be deducted solely from the employees’ salary. Regular practice is that the cost is either split equally between employee and employer or fully covered by employer. The scheme follows the guidelines set out in the contracts as well as internal regulations.

UVG-Z (additional non-obligatory accident insurance): contributions depend on individual contract’s and will be calculated from the gross salary. This insurance is not compulsory.

In addition to the governmental AHV pension scheme, employers have to set up a pension scheme (BVG) for their employees, which represents a 2nd Pillar of the pension system in Switzerland. Typically (yet not for IFRS reporting) these are mostly defined contribution schemes. There are legal minimum requirements regarding salary limits and insured benefits). The cost of the pension funds may be split, with a minimum coverage of 50% by the employer.

Switzerland’s Pension System

There are various different governmental social securities (AHV) and private insurances (pension, illness, accident) in Switzerland. Tax at source registrations depends on the canton in which the (foreign) employees are domiciled. Corporations are registered at the register of commerce.

Income Tax in Switzerland

The contributions for tax at source have to be submitted to the authority monthly or quarterly.

The payment date for tax at source is different among the cantons and depends on the authority. Mostly, the tax at source has to be paid 30 days after receipt of the invoice from the authority. Filing deadlines are usually within less than thirty days after end of reporting period.

For the canton of Geneva additional forms have to be submitted at the end of the year for every employee who is underlying tax at source.

The penalty for late payment is up to 5% of the outstanding/due amount.

Social Security in Switzerland

AHV

Provisional salaries have to be submitted at beginning of the year and definitive salaries have to be submitted at the end of the year (January of the following year). Payments are usually due monthly (for small amounts there may be different invoicing schemes). There is also the possibility to submit the real figures of monthly payroll. This has to be previously announced to the relevant authority.

UVG/KTG

Definitive salaries have to be submitted at the end of the year (January of the following year) Payment of the account is usually due at beginning of the year. Final payment after filing and receipt of invoice is done in the subsequent year.

Pension fund

Salaries have to be submitted at the beginning of the year. If salaries change or if there are joiners/leavers or new salaries, these have to be submitted during the year and corresponding invoices are issued by the carrier of the pension fund (BVG).

The penalty for late payment is up to 5% of the outstanding/due amount.

Reporting in Switzerland

The 26 tax authorities and approximately 100 governmental social security carriers (AHV) have their own forms and some variations in the specific data requirements.

Returns of tax at source have to be filed to the tax authorities on a monthly or quarterly basis depending on the number of employees and canton. The data (income, tax code, tax deducted, and social security number) is usually required by individual employee. The deadline for this data is usually 10th of the next month.

At year end, the AHV needs two returns:

1. A return of the total salary subject to the contributions (described in paragraph 3), to be filed by 31 January of the subsequent year.

2. An estimate for the next year of total salaries subject to the contributions to be filed by year-end. (To avoid late interest, it is important to amend the total annual salaries amount during the year if this amount is over 20% compared with the amount at the beginning of the year)

Required reporting data also includes employment start date, employment end data (for leavers) and social security number to be filed by 31 January of the subsequent year or within 30 days for joiners respectively.

The documents have to be signed by the client (or a payroll provider where Power Of Attorney is available). After the return of the signed documents, the payroll company will submit them to the respective authority.

All of the above mentioned documents require the client’s signature (in case Power Of Attorney is not available). All filing is then performed by the service provider.

New Employees in Switzerland

Employees have to register on their own with the cantonal authority in their resident city when they move into Switzerland from abroad or if they move to a different canton. Nonetheless the employer has to file specific forms for tax at source as well as for social security including pension fund.

The employees have to be registered at the place of residence as soon as possible (e. g. in Zurich new starts must be registered within 14 days after moving to Zurich).

The documents/information required for setting up a new start is as followed

• completed joiner sheet
• copy of working contract

Tasks by Payroll Provider (depending on contractual organization):

• registration AHV (governmental social security)
• starting procedure for registration for child allowance (Please note the questionnaire has to be sent to and completed by the employee)
• for foreigners without permanent permit of domicile ( without permit "C") an additional form has to be completed for registration of tax at source
• Registration pension (BVG)

Leavers in Switzerland

There is no time scale for leavers receiving their final payment. However the employee normally receives any final payments with their last salary.

Notification of leaver to the pension fund carrier (BVG) must be made when an employee leaves the company.

Tax laws in Switzerland require employers to withhold tax and social security contributions from employee wages. Swiss income taxes are levied at the federal, canton, and municipal levels, meaning taxation rates can vary significantly and payroll departments should ensure they understand the applicable regulations.

• Generally, the progressive federal tax rate can range from 0%-11.5%, but with the application of cantonal and municipal taxes, the effective maximum, at the highest income threshold, is around 40%.
• Social security rates also differ by canton, but employer and employee contributions are equal, and range from around 0.5% to 5%.

To navigate the Swiss tax landscape, expat companies often engage a global payroll provider in order to ensure compliance, and deliver pay accurately and on time. Payslips may be distributed by mail, or email (in observance with data security standards), and Swiss payroll reports must be kept for a minimum of 10 years.