US expat guide to residency and taxes in Switzerland
Switzerland is a beautiful, mountainous country that has been attracting American expats for centuries, with many drawn to the country's diversity, wealth, and world-class skiing. However, as David McKeegan from Greenback Expat Tax Services explains, tax agreements between the US and Switzerland need to be understood in order to make living in the country as an American as stress-free as possible.
One thing that's often overlooked about living in Switzerland is how easy it is to live and work in the alpine nation as an American expat. Not only are tax rates lower than in the US, but Americans also have access to many tax benefits as well - at least on paper.
Introduction to Swiss taxes
The Swiss tax system is composed of direct taxes (personal income tax, wealth tax, and inheritance tax), indirect taxes (VAT), and other levies (fees for services rendered by public authorities). In Switzerland, taxes are levied at the federal, cantonal, and municipal levels.
As a American citizen, you may have tax obligations in the US and Switzerland.
The Federal Council uses national taxation to fund inter-cantonal services and subsidise cantons based on their population and income ratio from cantonal taxes. Cantons and municipalities can set their own tax rates, leading to huge differences between different regions and even towns in the same canton.
Switzerland’s taxes for US expats
While Switzerland is praised for its high standard of living, rich culture, stunning landscapes and world-beating safety, Swiss taxes can be particularly complex. Switzerland is divided into 26 cantons, each of which manages taxes a little differently. As a result, Americans living abroad in Switzerland find it challenging to keep track of their tax obligations.
So, what are Switzerland’s taxes like for US expats? Should expats living in Switzerland file a tax return with the US government or the Swiss?
In most cases, the answer is both. To begin with, virtually all US citizens must file an annual US Federal Tax Return, regardless of where they live. In addition to this, many Americans living in Switzerland will also need to file a Swiss tax return.
Who has to file taxes in Switzerland?
Switzerland uses a residency-based taxation system. All tax-resident individuals are taxed on worldwide income, not just Switzerland-sourced income. In the case of foreign nationals who do business in Switzerland but do not hold a permanent residence permit, this tax is generally collected through a withholding system - the tax is taken from salary payments and withheld by an employer.
Residency in Switzerland for tax purposes
In Switzerland, you are considered a tax resident If you move with the intention of staying permanently or if you are performing a business-related activity for more than 30 days. You are also considered a resident if you remain in Switzerland for more than 90 days in a 180-day cycle, regardless of purpose.
If an expat does not meet the criteria for residency, they are generally considered a non-resident. However, Switzerland has another category: quasi-residents - those who have 90 percent or more of their income coming from Swiss sources. Those sources may include:
- Income from a Swiss employer
- Compensation for being a member of the board of directors of a Swiss company
- Interest from Swiss bank accounts
- Dividends obtained from a Swiss company
- Income from real estate located in Switzerland
- Pensions and other passive income
- Income distributed to a fixed place of business in Switzerland
Along with permanent residents, quasi-residents must file a Swiss tax return.
Tax treaties between the US and Switzerland
Tax treaties are agreements between two countries that prevent double taxation and prevent tax evasion. These treaties may be bilateral (between two countries) or multilateral (between multiple countries). The United States has tax treaties with more than 60 nations, including Switzerland.
The US-Swiss treaty applies to individuals classified as non-resident aliens for tax purposes, meaning they have an income source outside of the United States or they spend most of their time outside the country. This includes expatriates and retired individuals who live in Switzerland but retain their US citizenship or green card status. This treaty helps prevent an individual from paying double taxes in both countries based on their income.
Need help with US Taxes while living in Switzerland?
As a citizen of the United States, you have tax obligations at home and in your host country. We hope that this article was able to clear up some of the confusion surrounding expat taxes and give you some helpful tips on how to make sure you're compliant.
Remember that every situation is different. If you have any questions, don’t hesitate to contact Greenback Expat Tax Services so that you won’t have to worry about your US tax obligations again! If you'd like to discuss your specific tax situation or need advice, don't hesitate to sign up for a consultation or create an account to get started. They are happy to help!