Accurity talks to Ron Rosenwasser, CEO and Partner at Taxolution Advisory about Double Taxation issues for people coming to Switzerland to work. Mr. Rosenwasser gives valuable insights into some of the Swiss income tax solutions he would recommend regarding Double Taxation.
- Accurity: How would you explain in simple terms what double taxation means for international workers coming to Switzerland?
Taxolution: Double taxation means that two countries levy taxes simultaneously on the same item of a tax subject. It typically occurs when two countries tax the same income or assets of a taxpayer. Since international workers often have international ties (e.g. second domicile, assets or income from abroad), they are often confronted with the issue of double taxation. Some will sooner or later have to deal with this to a certain extent in order to find out about their declaration obligations or to avoid being effectively double taxed.
- Accurity: What is a double taxation agreement? Which countries operate double taxation agreements with Switzerland and are any important changes on the horizon, for example as a result of Brexit?
Taxolution: A double taxation agreement (DTA) is a treaty between two states which regulates the tax jurisdictions more precisely. They mitigate the double taxation of private individuals and legal entities with international connections in the area of taxes on income and capital. Switzerland currently has DTAs with over 100 countries. Brexit does not bring about any major changes in the area of the double taxation agreement for the time being. In the area of social security, the situation is different for employees in Switzerland with employers abroad.
- Accurity: Which other persons or entities apart from international workers on assignment or project work to Switzerland can benefit from double taxation agreements with Switzerland?
Taxolution: Certainly people with Swiss residence with assets or sources of income abroad or vice versa. For example, foreign real estate is regularly subject to the application of a DTA. Rental income, for example, is allocated to the foreign country where the property is located, where the taxes are then also paid, and Switzerland only reserves the right to take the income into account for determining the tax rate.
- Accurity: What general observations have you made regarding recent trends with international workers coming to Switzerland and their taxation issues?
Taxolution: More and more often we receive inquiries from new residents to Switzerland, who previously worked independently abroad for one or a few clients. They are of the opinion that they can continue to manage existing clients from Switzerland as independent entrepreneurs. However, this is often not the case, as in Switzerland the legal distinction between self-employment and employment is narrow, depending on the case. Often it leads to one of the three alternatives: to run the business through a payroll company, to form a corporation (which requires capital) or to register as ANobAG, i.e. as employee with employer abroad.
- Accurity: What is the protocol with regard to taxing of pensions for an international worker’s pension fund?
Taxolution: This is a complex topic. In principle, foreign pension funds are treated like a Swiss pension fund if they are comparable. That means that contributions are tax deductible, distributions are subject to income tax. Furthermore, this does not only refer to the income from the drawn pension, but also to the (investment) income that the pension fund account generates and reinvests when the pension is not yet drawn. It is therefore key to define, whether a foreign pension fund is ‘comparable’. If this is not the case, the rules of taxation change and double taxation often cannot be avoided, which means that contributions are no longer deductible and distributions (e.g. pensions) or income become taxable.
- Accurity: Some other frequently asked questions regarding double taxation include the subjects listed below. Can you offer your view on possible issues and solutions:
- Taxation of any dividends granted?
Taxolution: Foreign dividends often include a foreign withholding tax. This can be reclaimed in Switzerland by using a specific form in the tax return.
- Taxes for example when renting out a property in home country while working in Switzerland?
Taxolution: As mentioned above, DTA is often used in this situation. (Note: this is also possible without a DTA, because according to Art. 6 para. 1 DBG Switzerland has no right to tax foreign property). The property is taxed abroad, but must still be declared in Switzerland. Switzerland only takes rental income into account to a limited extent, as the impact is restricted to the income that determines the rate while the taxable income remains untouched.
In a nutshell: it slightly increases the tax burden in Switzerland, despite full taxation abroad.
- Inheritance taxes?
Taxolution: Inheritance and gift taxes are levied at the place of the testator or giver. For expats, Swiss tax law is only rarely in application here.
For example, if one parent dies abroad, Swiss inheritance tax does not apply. However, the inheritance will of course be reported in the tax return as part of the assets.
Of much more concern is the other way around, I.e. if an Expat donates or dies while in Switzerland. As Switzerland only has a handful of DTA dealing with inheritance and gift taxes, double taxation is often difficult to avoid if the case is not properly structured before the event.
- Taxation of any dividends granted?
- Accurity: What can people do if they are taxed twice on their income i.e. in their home country and in Switzerland?
Taxolution: First of all it would be good to get clarity about their situation. In simpler cases you can get this by calling the tax office. However, it is often worthwhile to commission a third party to clarify the situation and to carry out any necessary actions. In any case, it is important to act fast. Often the deadlines to file an objection is limited to a few weeks.
- Accurity: Finally, what words of advice would you give to international workers planning to come to Switzerland to work?
Taxolution: Obviously, the person must consider whether working in Switzerland is financially worthwhile. There are various points to consider such as living and travel costs, taxes (choice of canton and municipality) and other living expenses. After arrival there are often uncertainties regarding the tax situation in Switzerland. This is especially the case if there is both withholding tax and the obligation to file a tax return or if even an international weekly stay is applicable. An exchange with a professional can quickly bring clarity here. If foreign workers set-up residency here, they should also think about the Swiss matrimonial regime and the estate and retirement planning.
Taxolution Advisory is a limited liability company founded in 2014 with offices in Zug and Schaffhausen. Taxolution provides professional tax and advisory services for individuals working in Switzerland. They also offer business owners looking to start a business in Switzerland a full assistance package
As Switzerland’s preferred payroll provider, Accurity GmbH has over 20 years’ experience providing contractors, freelancers, agencies and employers with the best advice about their payroll, pensions and social security and ensuring they make the right decisions. If you would like to speak with one of our team of experts, simply contact us now.