Payment of withholding tax does not always relieve you of the obligation to pay tax in Switzerland itself. In this article, we explain in which situations you should also file a tax return in Switzerland despite having paid withholding tax first. In addition, we will explain how a voluntary declaration can have a positive effect on the tax rate in Switzerland.
Our "Private Clients" department constantly supports both people living in Switzerland and clients who are planning to move to Switzerland for professional or private reasons. Our practice and experience show that many of these people, when trying to obtain the basic tax information on their own, come across the term "withholding tax" (which is also called "withholding tax" or "payroll tax"). This tax is deducted from the employee's salary by the employer, who then pays it to the tax administration. However, this is only half the problem. On the one hand, persons who voluntarily submit a tax declaration may benefit from a more favorable tax rate, and on the other hand, the tax report must be submitted despite the prior payment of withholding tax. In the article below, we attempt to present the relationship between withholding tax and ordinary taxation, i.e. taxation on the basis of a filed tax return.
This topic should begin with the fact that every person who lives in Switzerland is obliged by law to submit an annual tax report. The general rule is that employees who are subject to withholding tax are exempt from this obligation.
Married or registered people generally file a joint tax return. In the indicated tax declaration, the spouses or persons remaining in the partnership as indicated above declare joint income and property. Parents of their minor children declare in their tax return assets that belong to their children, such as bank accounts and some other income, such as bank interest, but not the income obtained by the children themselves. The latter income received by minors is taxed at the level of the children themselves. Upon reaching the age of majority (18 years), the young individual becomes fully liable to pay taxes himself / herself and must file his / her own tax return.
When the Municipal Tax Office knows the amount of the tax liability, it sends the person liable to pay the tax a ready-to-sign form. In any other case, all persons are required to submit an application for a tax return to the city tax office. The deadlines for submitting tax returns vary from canton to canton, but can be found on tax return forms as well as on dedicated websites.
As a rule, persons who are subject to withholding tax are not required to file a Swiss tax return (exceptions to this are described in section 3 below). Any foreign person who does not have a type C resident permit (i.e. a permanent residence permit) but lives in Switzerland (for example with a type B permit) is subject to withholding tax. Any employee who works in Switzerland but lives abroad is also subject to withholding tax on income derived from such employment. Agreements concluded by Switzerland under the provisions on the avoidance of double taxation introduce different rules in this respect.
Anyone who lives with their spouse or registered partner who has Swiss nationality or a C permit is exempt from paying withholding tax. In the above-mentioned situation, such persons should submit a joint tax return.
Under Swiss tax law, it may happen that a person subject to withholding tax may or even have to file a tax return. This is done under the so-called "Next Ordinary Assessment Procedure" - 'NOV'. The above procedure consists in the fact that the due income and property taxes are determined and valued based on the information contained in the submitted tax return. Source taxes already paid are credited against the ordinary taxes without interest. Spouses and people in a registered partnership are jointly assessed if one of them meets the NOV requirements.
There are 3 situations in Swiss tax law where the NOV framework applies. There are mandatory NOV, NOV on request and NOV ex officio.
3.1 Mandatory NOV
Persons subject to withholding tax who are resident in Switzerland are subject to compulsory NOV if:
3.2 NOV on request
Withholding taxpayers who are Swiss residents and who are not required to file a tax return (see 3.1 above in Mandatory NOV) may request forms and submit a tax return voluntarily.
In doing so, additional deductions can be made which are not or not fully taken into account in the source tax tariff. No reason must be given when filing the request.
A tax return may be worth filing if the following expenses occurred during the tax year:
To submit a voluntary tax return, the application must be submitted by March 31 of the calendar year following the tax year at the latest. This deadline cannot be extended, therefore, in the event of failure to meet it, you cannot apply for additional deductions (or the tax authority does not take action on request).
In subsequent years, it is not necessary to submit a new request to file a tax return. As long as a person subject to source tax is resident in Switzerland, the tax authority will continue to make the assessment until the end of the source tax obligation. In other words: Anyone who voluntarily applies for a NOV is obliged to file a tax return until the end of the source tax obligation, e.g. until he/she leaves Switzerland.
Withholding taxable persons who are resident abroad can only apply for NOV under certain conditions. These people must submit an application annually.
3.3 NOV ex officio
Individuals resident abroad who are subject to source tax are subject to the NOV ex officio if there are extraordinary circumstances. Such circumstances include, for example, a combination of income subject to source tax - such as income from employment - and income not subject to source tax - such as income from real estate - in Switzerland.
In practice, without a detailed calculation, it is often difficult to determine whether a voluntarily filing of a tax return is beneficial. This is due to the fact that the tax rates that are applied in the ordinary assessment are not identical to the source tax rate. The assessment basis is also different. The source tax is levied on the gross salary while the ordinary tax is calculated on the net salary, taking into account other income as well as a number of deductions. It is to be noted, however, that such a voluntary NOV also applies to subsequent years and there is no possibility to file a tax return only for years with extraordinary deductions. The NOV can therefore be particularly attractive if larger deductions can be claimed on a regular basis. However, the tax savings should always be compared with the the size of effort involved in completing a tax return.
