Background

The following persons are subject to taxation at source on income from employment:

  • Foreign persons who are resident in Switzerland for tax purposes if they do not have a permanent residence permit (C permit);
  • Persons who are not resident in Switzerland for tax purposes if they carry out an employment in Switzerland.

In December 2016, the Swiss Parliament approved a comprehensive revision of the legislation relating to the taxation of employment income at source. The Federal Law on the Revision of the Withholding Tax and the
corresponding revised ordinance enter into force on 1 January 2021.

The background of the revision is a decision of the Federal Supreme Court dating from 2010 (BGE 136 II 241), according to which the existing taxation at source system was, in certain cases, in violation of the Agreement on the
Free Movement of Persons between Switzerland and the EU. Persons subject to tax at source who are not resident in Switzerland for tax purposes should be entitled to the same deductions as persons resident in Switzerland,
provided that they earn more than 90 per cent of their worldwide income in Switzerland (“quasi-residents”).

The revision aims to remove the unequal treatment between persons taxed at source and persons subject to ordinary taxation. At the same time, the opportunity was taken to standardise taxation at source from a procedural
point of view.

Key changes

Extended scope of application of the subsequent ordinary tax assessment

Under the current law, persons taxed at source who are resident in Switzerland and have an annual gross income exceeding a certain limit (CHF 120,000) are required to file a subsequent tax return. This principle remains
unchanged under the new law.

The following adjustments, however, require a distinction between persons who are and those who are not resident in Switzerland for tax purposes:

a. Persons who are resident in Switzerland for tax purposes

The existing request for a reassessment of the tax at source (“tariff correction”) is being abolished and replaced with the option to file a subsequent ordinary tax assessment on request. As is currently the case for the
tariff correction, the request must be submitted no later than 31 March of the following year. The tax authorities will then provide the tax declaration forms.

The subsequent ordinary assessment will also be required for taxpayers who do not exceed the annual gross income limit but that do earn income that is not taxed at source. This was previously covered by a supplementary ordinary tax assessment, which will be abolished.

b. Persons who are not resident in Switzerland for tax purposes

Persons who are not resident in Switzerland for tax purposes (e.g. international weekly commuters and short term residents) will also be able to file a tax declaration through a subsequent ordinary tax assessment on
request. To do so, one of the following requirements must be met:

  • the applicant is a quasi-resident, i.e. a person who is subject to taxation in Switzerland for a majority (usually 90%) of his or her gross worldwide income, or
  • the situation is comparable to that of a taxpayer resident in Switzerland, or
  • a subsequent ordinary assessment is required in order to claim deductions provided for in a double taxation agreement.

The request must be submitted by 31 March of the following year.

Other changes

  • Employers are now required to settle the tax at source with the employee’s canton of domicile. They are, therefore, no longer able to exercise the option to settle the tax at source exclusively in their own canton of domicile.
  • It is clarified that in case an employee moves to another canton, the canton of residence at the end of the tax period is responsible for the assessment of the entire calendar year, as is already the case for persons subject to ordinary taxation.
  • For international weekly commuters, the canton of the weekday residence and not the employer’s canton of domicile is responsible.

Summary

The basic principles of taxation at source remain unchanged. The revision clarifies some procedural matters, thereby essentially creating transparency and legal security. However, due to the abolition of the tariff correction, claiming deductions such as contributions to pillar 3a, alimony or education costs will tend to be a more tedious process. In such cases, a request for a subsequent ordinary tax assessment followed by a tax return will need
to be submitted.

A person submitting a request for a subsequent ordinary tax assessment must be aware that this will require an annual submission. The following principle applies: once assessed through a subsequent ordinary tax assessment,
always assessed through a subsequent ordinary tax assessment.

Contributed by
Sonja Trinca, sonja.trinca@adbtax.ch
Pascal Taddei, pascal.taddei@adbtax.ch
ADB Altorfer Duss & Beilstein AG