The calculation of the tax rates in Switzerland is based on the net income of the taxpayer. Like in most other countries, there are several tax deductions that can be made when a tax declaration is filed. These will reduce the taxable income and consequently the amount of tax that needs to be paid.
Deductions for the direct federal tax are the same throughout Switzerland, regardless of the canton, however deductions on cantonal and communal levels are regulated differently. With local tax rates, there are significant differences between communes and this is something that should be taken into consideration when deciding where to open a company in Switzerland. Each canton provides all the information regarding local tax rates and in most cases the information can be found online.
In order to claim any of the available tax deductions, the necessary supporting paperwork must be submitted together with the tax return.
Here are some of the most frequently used legal tax deductions, in compliance with the laws in order.
Work related expenses
Employees are allowed to deduct work – related expenses, such as the costs for commuting to work. Bus and train passes, up to a certain limit are included under commuting expenses, as well as a flat amount for bicycles, mopeds and scooters. In certain cases, the kilometers driven to and from the workplace can be deducted when a private vehicle is used, but usually there are limits in minimum and maximum distances.
Other expenses include the costs for meals during the workday. Provided that the employee is not able to go home for lunch, these expenses may be deducted form the income up to a certain amount, depending from canton to canton. Additional deductions are possible for shifts of night work.
For further work –related expenses, such as the costs for specific clothing, tools or other professional requirements, there is a flat rate deduction available. If the costs are higher than the flat rate deduction and these costs can be proven, the taxpayer may also deduct them. In this case, it is recommended to attach receipts to the tax declaration.
Interest, such as mortgages or interest on loans, may be deducted from the income. This deduction applies only to interest, and not for repayment of principal used to reduce a loan (for example, amortization of a mortgage). Leasing costs on cars may be deducted only if the taxpayer is classified as self – employed.
When bank or savings account interest is credited, under certain circumstances only 65% is credited. In this case, the banks automatically transfers 35% of the interest to the tax authorities. If the taxpayer provides the account numbers on the tax declaration, the withholding tax is reimbursed. The withholding tax is applied only to accounts for which the amount of interest is higher than 200 CHF.
In addition to interest from accounts, interest from other sources such as bounds, lottery winnings starting at 50 CHF and dividend payments are subject to the withholding tax, but they can often be adjusted to the individual’s marginal tax rate.
Other tax deductions
Donations to non – profit organizations can usually be deducted. Also, charitable donations may be deducted, if the charity is registered in Switzerland and the minimum donation is 200 CHF. Charitable donations may be as high as 20% of the income.
Deductions for taxes paid in advance
The tax authorities pay interest on tax payments made in advance. The interest is generally higher that the current low interest rates practiced by banks. Even if a partial sum is paid from the full – year taxes, it is possible to benefit from significant tax deductions.
Keep in mind that this information does not replace a solid tax planning strategy that can help any company or entrepreneur doing business in Switzerland benefit from tax deductions.