According to OECD research, a single worker in Switzerland paid an average tax rate of 18.5% in 2022, compared to 24.6% for the OECD average. This equates to take home pay for the average worker in Switzerland after tax and benefits, at around 81.5% of the gross wage. For the OECD worker, the average was 75.4%.
It is well documented that the cost of living in Switzerland is high compared to other countries and despite higher salaries, this could make any tax advantages gained disappear. So how does the tax system actually in Switzerland work? And are workers better off living in Switzerland than elsewhere? In this post we take a closer look.
Switzerland is a federal republic split into 26 individual cantons or states. There are four official languages and taxes are levied at three levels: The federal level, the cantonal level, and the communal level. Every Canton is permitted to set their own tax rates. Up until now, this has applied for both individuals as well as companies. A comparison list of tax rates by canton can be found here.
(However, for companies this is about to change soon and on 01 January 2024 Switzerland will introduce the OECD/G20 minimum tax ruling. This means that profits of Swiss companies as well as the permanent establishments of multinational enterprises (“MNE’s”) will in future, be taxed uniformly across all cantons at an effective tax rate of 15%.)
Private individual tax collection is completed in the following ways:
- Deduction of tax at source
- All foreign workers who are resident in Switzerland pay source tax, except for:
- workers who hold a C permit and those with a Swiss spouse, or whose spouse holds a C permit.
- a worker who is resident outside of Switzerland and who receives income from an activity carried out in Switzerland (e.g. cross-border commuters).
- File Tax Return
- All other taxpayers (Swiss citizens and foreign employees with resident permit) must file a tax return at the end of each year and are taxed according to the standard taxation procedure.
- Withholding Tax
- Foreign employees who do not have a permit, but who are employed are subject to ‘withholding tax’. This is deducted from the monthly salary by the employer.
- Those married to a Swiss national, or foreigners with a residence permit, are exempt from the withholding tax.
Tax Brackets, statutory payments & the cost of living
Because taxes are levied at three levels: Federal, cantonal, and municipal level, with every Canton setting their own tax rates for individual taxes, huge variants can occur. Some of these variant factors include:
- marital status
- the number and age of dependents
- whether a church goer or not
Each circumstance presents an individual tax rate, making the Swiss Tax system quite complex.
There are several counter arguments regarding Swiss tax rates versus the cost of living and although tax rates in Switzerland appear to be lower in comparison to other countries, they do not include statutory deductibles (akin to taxes) taken from the gross salary of the employee such as:
- state pension – 5.3%
- unemployment insurance – 1.1%
- private pension – variable to be agreed with employer
- accident insurance – 0.35%
- collective contribution (labour agreements) – variable
(The employer also pays similar costs on behalf of the employee).
Cost of Living
Switzerland is a country of tenants. Nearly 60% of the Swiss population rent their homes. Such a high percentage is unusual and almost the exact opposite to the EU where 70% of the population lives in their own home, while the remaining 30% live in rented accommodation (2021).
While most people think that richer countries such as Switzerland should have a higher percentage of home ownership, the opposite is actually the case. Less-well-off countries have a higher proportion of homeowners. The lesson here is that in countries with lower pension participation and less stable economies, home ownership is seen as being more important for long term financial security.
Rental accommodation in Switzerland is not cheap however, with city centres being more expensive than many country locations. The ‘rule of thumb’ in Switzerland is that accommodation should not cost more than 30% of the net salary. This often rules out the newest and best accommodation for single family earners or means that commuting to the work place for many is the norm.
According to Eurostat, food costs in Switzerland are also significantly higher than in the neighbouring EU countries at 1.64 times more than the EU average. Meat costs 2.3 times more in Switzerland than in the EU.
Relocate to Switzerland?
The average salaries in Switzerland are significantly higher than in other European countries. Within Switzerland, average wages and costs including tax rates vary as well, so is a move to Switzerland worthwhile?
Relocating anywhere is a big decision, and moving to Switzerland can seem daunting given the fact there are four official languages and each of the 26 cantons operates in a slightly different way. But there can be several advantages.
Some of these include:
- Work Opportunities – There are plenty of job opportunities for permanent placements and contract specialist across several sectors including ICT, Finance, Pharma. Unemployment is low at 1.9% (July 2023). For open positions visit one of the many job boards such as www.jobs.ch
- Education – There is a wide choice of public and international schools. There are 12 universities and 7 higher educational institutions of applied sciences including the highly world-ranked EPFL in Lausanne and the ETH in Zurich.
- Environment & Sport – Switzerland is famous for its mountains and lakes. Temperatures vary from different locations and it is warmer in the south (where palm trees are found!) and cooler in the north. Summers are normally mediterranean and the winters are cool with snow common. The country has a plethora of sports possibilities such as skiing, snowboarding, mountaineering and with over 15’000 KM of bike trails, it is well known for being bike friendly.
- Transport Services – Swiss trains and connecting transport services are amongst the finest in the world. Careful planning allows for good prices to be found. There is hardly a town or village in Switzerland not accessible by some form of public transport.
- Safety, Stability & Cleanliness – Switzerland is often voted one of the safest countries to live and raise a family in in Europe. Switzerland is not only a safe country, but also has one of the most stable democracies in the world. Switzerland also tops the list as the cleanest country in the world. The country has a reputation for its cleanliness and hygiene standards, as well as its care of the environment, which is sure to be attractive for those who care about living in an environmentally conscious country
Accurity is SECO licensed with a 20+ year enviable reputation as a trustworthy, reliable and transparent partner for companies of all sizes including SMEs, contractors and recruitment agents. Our core services include Employer of Record or EOR for contractors and international and domestic clients wishing to engage contractors. We also supporter our contractors and clients with advice on state and private pensions and on housing and other cost of living services such as insurances. Our pricing system is fair and transparent. We are based in Switzerland and have excellent local knowledge and connections. Contact our team to see how we can help you.