Switzerland To Modify Income Withholding Tax Regime

By ExpatBriefing.com Editorial 18 December, 2013

The Swiss Federal Council has launched a consultation on plans to revise the levying of withholding tax at source on income derived from "lucrative" activity. As a result, the number of taxpayers currently taxed at source, and then subject to a subsequent ordinary tax assessment, is due to increase significantly.

Plans to revise the federal laws governing the withholding of tax at source are intended to eliminate existing inequalities vis-à-vis the tax treatment of individuals taxed at source and those subject to ordinary taxation, as well as to ensure compliance with international treaties.

Currently, the income from the lucrative activity of foreign workers living in Switzerland although without a permanent residence permit C (residents), and the income from the lucrative activity of persons neither domiciled nor resident in Switzerland (quasi-residents), are subject to withholding tax at source, with the fiscal amount deducted directly by the employer. Non-residents working internationally are also subjected to withholding tax.

In January 2010, the Swiss Federal Court ruled that although the withholding tax regime is "justified," the provisions nevertheless contravene the agreement on the free circulation of persons, concluded with the European Union. Specifically, the Court insisted that individuals taxed at source and not domiciled in Switzerland, although who realize most of their global income in the Confederation (quasi-residents), are entitled to the same tax deductions as those subject to ordinary taxation in Switzerland. The Federal Council deemed that modifications to Swiss federal law are therefore necessary.

Consequently, the Federal Council has proposed significantly lowering the gross income threshold above which resident taxpayers taxed at source are required to submit a subsequent ordinary tax assessment. The current threshold for direct federal tax and for cantonal and communal tax (with the exception of the canton of Geneva) is CHF120,000 (USD135,287) a year.

In addition, residents taxed at source and whose gross revenue is below the future fixed threshold will also be able to request a subsequent ordinary tax assessment.

Similarly, foreign employees not residing or domiciled in Switzerland will be able to request a subsequent ordinary tax assessment under the plans, provided that most of their universal income is generated in Switzerland (quasi-residents).

Withholding tax at source is nevertheless maintained for all categories of persons concerned. For non-residents, it replaces individual income tax.

By guaranteeing that both residents and quasi-residents are able to request a subsequent ordinary tax assessment, the Federal Council believes that this will guarantee entitlement to the same deductions as those already subject to ordinary taxation.

The consultation is due to end on March 27, 2014.

Tags: Individuals | Compliance | Tax | Law | Employees | Tax Thresholds | Withholding Tax | Switzerland | Tax Breaks | Individual Income Tax | Expats | Europe |


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