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EXPLAINED: How where you live in Switzerland impacts how much income tax you pay

Income tax in Switzerland is a complicated affair and how much you pay can depend on what you earn, your family status but also where you live. Here's an explanation of how it works.

A person does some important paperwork in front of their computer
Swiss tax can be complicated. Hopefully this clarifies a few of the more complex matters. Photo by Firmbee.com on Unsplash

In Switzerland, tax is levied by the federal government as well as by cantonal and municipal authorities (subject to a few exceptions). 

Cantonal tax will usually make up a higher percentage of your tax burden than federal taxes, reflecting the independence of the cantons and the amount of services which remain the obligation of cantonal governments rather than the federal administration. 

The amount you pay, even for municipal taxes, is dependent on your income as well as your family status.

This can be difficult to understand at first, particularly for some foreigners who are used to municipal taxes being set at a uniform rate, or determined according to the type of property one owns or lives in. 

Please note this report only takes into account income tax rates. Further tax types are also subject to considerable variation depending on geographic and other factors. 

How varied can tax burdens be in different parts of Switzerland? 

Cantons and municipalities have the power to set their own income tax rates. 

This can lead to large differences in the effective rate depending on where you live. 

In some cases the difference in the tax rate is negligible, whereas in others it is so significant that it acts as an incentive to move – particularly for the uber-wealthy. 

In the vast majority of cases, the differences will be larger from canton to canton than from municipality to municipality within the same canton, although there can also be significant variation within cantons themselves. 

What are the differences from canton to canton? 

To highlight the differences between cantons we have just looked at the highest tax rates in each canton. While this may not be the rate paid by you, it provides an indication as to each canton’s tax rates. 

It’s important to note that as well as these figures being for the highest tax bracket they also incorporate the 11.5 percent federal tax rate. 

Generally speaking, the lowest cantonal tax rates in Switzerland can be found in the smaller, less urbanised, German-speaking cantons in the centre of the country. 

The canton of Zug, for instance, has one of the lowest income tax burdens at a cantonal level.

As a result, it has attracted wealthy individuals, with one in eight Zug residents having a net worth of over one million francs. 

READ MORE: Which Swiss canton has the most millionaires?

As noted by KPMG in relation to income tax rates in 2021, including federal taxes of 11.5 percent, Zug had a maximum income tax rate of 22.4 percent, which is followed by 24.1 in Appenzeller-Innerhoden and 24.3 percent in Obwalden.

This is lower than the Swiss average of 33.73 percent (for all federal, cantonal and communal income taxes). 

Income tax rates are much higher in urbanised cantons and those in the French-speaking parts of the country. 

Including federal taxes of 11.5 percent, Geneva has the highest tax rate in the country of 44.8 percent. This is followed by Basel Country (42.17%), Vaud (41.5%) and Bern (41%).

While this is clearly significantly higher than those in place in other parts of the country, KPMG points out they are still lower than the highest tax rates found in Sweden (57.3%), Denmark (56.3%) and Austria (55%).

What about at a municipal level? 

Within a canton, there can also be significant differences depending on the municipality. 

Municipal tax or communal tax refers to income tax charged at the municipal level.

This does not take into account other taxes that can be levied as a consequence of living in a particular municipality, like property taxes. 

A report from January 2022 showed that the difference in Zurich can be several thousands of francs per year depending on which municipality you live in. 

REVEALED: These parts of Zurich have the highest taxes

While the calculation of municipal taxes is complex (see below), in Zurich this could result in an effective income tax rate of as high as 46 percent or as low as 35 percent (including federal taxes), depending on which part of the canton you live in. 

How are municipal taxes calculated and levied? 

Somewhat confusingly, cantonal and municipal taxes are levied together and are often expressed in a single amount (although in some cantons this will be broken down into two line items: municipal and cantonal taxes). 

The way in which municipal taxes are levied can be complicated. 

Municipal taxes are levied at the municipal level according to the applicable municipal tax quota (German: Gemeindesteuerfuss, French: coefficient de l’impôt communal).

In most cantons the municipal tax quota is expressed as a two or three-digit percentage (or as a decimal). 

Reader question: Can I deduct working-from-home costs from my Swiss taxes?

For argument’s sake, consider that your municipal tax quota is 115 percent (or 1.15 in decimal form). 

Fortunately, this does not mean you need to pay 115 percent of your income to the municipality. 

Instead, it means in that municipality, you need to pay 115 percent of the cantonal tax. 

For argument’s sake, let’s say the cantonal tax is ten percent. With an annual salary of CHF50,000 you are liable for CHF5,000 per year to your canton on the basis of your income.

Note that this figure does not include federal tax, but only takes into account cantonal and communal taxes.

For municipalities with a 115 percent tax rate, you will need to pay CHF5750 in total (as both your cantonal and municipal tax) for the year. This will generally be itemised as one amount on your tax bill. 

This percentage can often be lower than 100, for instance 85 percent (or 0.85). 

In this case, you would need to pay CHF4250. 

What are the exceptions? 

Some municipalities do not charge tax at all, with the necessary money coming out of cantonal taxes. 

In the tiny canton of Basel City, for instance, no municipal taxes are charged and these are all worked into the cantonal tax. This of course makes sense in Basel City, which is a completely urban canton smaller than many Swiss municipalities. 

In effect though, this does not mean that the money paid as part of your cantonal tax in Basel City does not go to the municipality.

Instead, these taxes are paid to the canton, who then apportion part of it for municipal expenses. 

This report is intended as a guide only and should not take the place of financial advice from a qualified advisor. Got any questions? Get in touch at [email protected]

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COST OF LIVING

Switzerland: How to get money back when cross-border shopping in Germany

Crossing into Germany to go shopping is usually cheaper - and that’s before you add the tax savings. Here’s how you can claim back tax when shopping in Germany.

Switzerland: How to get money back when cross-border shopping in Germany

There are a range of reasons why most things are cheaper in Germany than in Switzerland. 

While there are some exceptions to this – the most notable one being petrol – generally speaking you pay a premium on goods purchased in Switzerland. 

EXPLAINED: Why is Switzerland so expensive?

If you shop in Germany, you can also save on VAT, which is generally 19 percent and added to most goods. 

Here’s what you need to know. 

What are the tax rules for shopping in Germany? 

Residents of Switzerland, as a non-EU country, do not need to pay VAT in Germany on purchases over 50 euros. 

Your country of residence rather than nationality is important here. 

Therefore, a German living in Switzerland and shopping in Germany does not need to pay the tax. 

A Swiss living in Germany however would need to pay the amount. 

Importantly, you need to physically be in Germany when you make the purchase. 

In order to qualify for the tax exemption, you must bring the goods back to Switzerland with you. 

The specific rules for this are laid out by German Customs here, but they need to be either in your carry on or checked baggage, or in a car that you are travelling in personally. 

These rules are to ensure people are buying the goods for themselves rather than intending to sell them on. 

What kind of goods? 

Goods bought in Germany and taken back to Switzerland are exempt from VAT. 

You will generally however be required to pay tax on services rendered or completed in Germany. 

For instance, bus or train tickets in Germany, restaurant bills, hotel stays, massages etc. 

There are also a range of rules which apply to vehicles. 

If you are getting your car repaired, filling up with petrol, affixing bumpers, mirrors or other additions or even getting a car wash, you will need to pay VAT. 

How do I get the money back? 

Unfortunately, you do not get a discount at the place of purchase.

Instead, you need to claim the money back after you have purchased the product on which you paid the tax. 

In most large stores or shopping centres, you will be able to do this on site. 

You need to have a copy of the receipt and fill in the VAT refund form (Ausfuhrschein) with your name, address and Swiss residency permit number. 

You can get one of these forms at larger stores or you can download it and print it here. 

You will need to do one for each invoice. 

Once you have done that, you can take the completed form to the German customs office (Zoll), which you can find at most border crossings and get the paper stamped. 

Then, you need to return the paper to the place of purchase, where they will issue with a refund of the VAT. 

Some stores require you to return after three months, some six and some 12, so be sure to check the store policy. 

Note that some online stores will automatically deduct the VAT if you have a Swiss delivery address. 

Cost of living in Switzerland: How to save money if you live in Zurich

One thing to keep in mind however is that Switzerland charges its own VAT, which is either 2.5 percent or 8 percent. More on that below. 

What’s with all this paper? 

For anyone who’s spent even a few hours in Germany, the country’s reluctance to embrace digital methods of payment and record keeping is clear. 

While cash remains king in many stores and restaurants, claiming back money from shopping in Germany is also a paper-heavy endeavour. 

Fortunately for people not so keen on paperwork, a change is afoot – although exactly when it will take place remains unclear. 

In February 2022, the German government announced it had kicked off a project to make a digital export certificate possible. 

In addition to saving time and paper, the government indicated it expected to save around 6.2 million euros in personnel expenses as around 100 customs officers are currently assigned to the Swiss border alone. 

No deadline has been given for when the change will come into effect. 

Cost of living: How to save on groceries in Switzerland

Swiss customs rules

When bringing goods into Switzerland, you will need to pay VAT if the amount exceeds 300 francs. 

While border patrols are rare, those who make a habit of exceeding this amount – even if it is for goods for personal use – run the risk of falling foul of the authorities. 

There are several different rules in place for bringing in different items, including meats, cheeses and alcohol. 

The limits for each of these items can be found here. 

Keep in mind that while the CHF300 applies now, Switzerland is set to reduce this to CHF50 in the future – although final approval of this has not yet been secured. 

Tax change: Switzerland to introduce 50 franc limit on cross-border shopping

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