US Expatriate Taxes Explained: Filing Taxes as an American Living in Switzerland

US Expat Taxes Explained: Switzerland Guide

Even though expats live abroad, the American tax system still requires American citizens to declare their worldwide income no matter where they live. If you are a US expatriate, you are required to file US income taxes (federal and, if needed, state returns) as well as file an informational return on your assets held in foreign bank accounts through FinCen Form 114 (also known as the FBAR: Foreign Bank Account Report). Below, we’ve summarized the tax policies for Americans living in Switzerland!

Who is a Resident of Switzerland?

Under Swiss tax law, if you are considered to be a tax resident then you will be taxed on worldwide income. That is, you would be taxed on earnings originating not only within the country, but also anywhere in the world. You are considered a resident of Switzerland if you meet the following conditions:

  • You intend to permanently establish your usual abode in Switzerland. This means the country is the “center of vital interest,” and you are registered with a Swiss municipality.
  • You stay in Switzerland with the intention to exercise profitable activities for an uninterrupted period of at least 30 days.
  • You stay in Switzerland with no intention to exercise profitable activities, but for a consecutive period of at least 90 days.

On the other hand, a non-tax resident is only taxed on Swiss sources of income. Examples of income sources include employment while physically working in Switzerland, real estate within the country, dividends, interest, and pensions from Swiss sources, and other specific activities related to the country.

Swiss Income Tax Rates

Switzerland has three different levels of income taxes: federal level (same all over the country), cantonal level (e.g., Zurich or Geneva – based on canton’s own tax law and rates), and municipal level. The country has progressive income tax rates at the federal level and in most cantons, while others adopted a flat rate of taxation.

The tax rates are based on tables with taxable income ranges, and a basic tax assigned to each bracket. Each level of taxation has several tables. The federal tables have a maximum taxable income of CHF 755,200 for individuals (CHF 898,900 for married or single with minor children), for which the overall tax rate will be 11.5%. Each cantonal tax then has its own overall table and rates.

In addition to the rates mentioned above are the communal taxes. Each communal tax varies considerably. The highest rate is 51% of the basic cantonal tax, and the lowest is 25%.

Furthermore, interest and dividend income is subject to a 35% withholding tax directly deducted from the gross total paid to the recipient.

The Tax Due Date in Switzerland

Switzerland has a calendar year tax year. The tax returns and tax payments have to be submitted by March 31st of the following year in the canton where the taxpayer was a resident at the end of the tax period. US expatriates can request an extension until September or November.

Social Security in Switzerland

All social security taxes, with the exception of medical insurance, are the responsibility of the employer. The employer must withhold and remit the total deduction and the employee’s share from their gross pay. Self-employed individuals must cover both shares.

Social security contribution rates vary based on the insurance categories in which it falls. There are several types, including old age, survivors, and disability insurance (5.125% for each employer and employee) and unemployment insurance (1.1% each employer and employee).

Other Important Points

Switzerland has a very complex tax system. Taxes are imposed not only at federal levels but also on cantons and municipalities. Each canton then has its own set of tax laws and rules. For instance, all cantons levy a net wealth tax based on the balance of the worldwide gross assets (bank accounts, life insurance, cars, boats, real estate, etc.) minus debts. Each canton has its own table to assess the wealth tax on its residents. Moreover, all cantons impose a progressive inheritance and gift tax if the deceased or donor had been a resident or if real estate located in the canton is relocated. Some cantons also impose property taxes.

Ways to Save on Your US Expatriate Taxes

Americans living abroad do have special provisions to help avoid double taxation:

  • Foreign Earned Income Exclusion – an exclusion of up to $102,100 for 2017 or $104,100 for 2018 of your foreign earned income from US taxation via Form 2555.
  • Foreign Tax Credit – a dollar for dollar offset of taxes paid in the residence country from the US tax liability.
  • Foreign Housing Exclusion – an exclusion of household expenses that occur as a result of living abroad.

Still Have Questions?

If you have a situation that you find complicated, consulting with a Greenback accountant is a great idea! We can help with your questions about living in Switzerland and how your US expatriate taxes are affected.