What entrepreneurs need to know about withholding tax in Switzerland

The gross income of the employee subject to withholding tax is used to calculate the monthly withholding tax amount. Cash benefits and benefits in kind are added when calculating gross salary. These include, among other things:

• Basic salary
• Overtime, bonuses, commissions
• Benefits in kind (car, apartment, etc.)
• Tips
• Royalties

Any salary or monetary benefit arising directly or indirectly from the employment relationship is considered taxable income for withholding tax purposes.

Determination of withholding tax rates

Withholding tax is deducted from each paycheck according to a specific tax rate. The tax rate is based on each individual's personal circumstances at the time of payment of taxable salary, bonuses or other employment income.

A change in personal circumstances may affect your tax situation.

There are different tariff codes (A-U) with different rates. Lower withholding tax rates generally apply to people with several family members. Here is a list of the most common tariff groups:

Rate A: Single people without children or dependants in the same household
Rate B: Married couples with one income earner
Rate C: Married couples with two income earners
Rate E: Assessment using the simplified procedure
Rate G: Benefits paid directly by an insurance company
Rate H: Single people with children or dependants in the same household
Rate L - Q: People who commute from Germany to work in Switzerland

It is also important to note that the specific percentage rates for withholding tax vary from canton to canton. Therefore, your Canton of residence in Switzerland also plays a role in determining your withholding tax rate.

Employers are assigned important tasks under the withholding tax system:

• Calculate the withholding tax and deduct it monthly from the gross salaries of the employees concerned by applying the correct rate.
• Register with the relevant cantonal tax administration where your company is based or where foreign employees live.
• Transfer thewithheld amounts within the payment period of 30 days.

Checklist for employers

Nexova Treuhand AG has compiled this simple checklist for the most important requirements:

1. Determination of the employee's withholding tax liability:

• Check whether each employee meets the criteria for the deduction of withholding tax from their salary.

2. Registration and notification:

• Register with the cantonal tax authorities as a withholding tax office.
• Register new employees within 8 days.
• Determine the correct tax rate for each employee.
• Immediately notify of status changes of employees within 8 days.

3. Monthly deduction:

• Use the tax guidelines to calculate the correct tax amount to be deducted.
• Deduct the withholding tax due directly from the employee's taxable cash benefit upon payment/transfer or claim it from other benefits, e.g. benefits in kind.
• Report the tax withheld at source transparently, both in each payslip and in item 12 of the salary statement.

4. Withholding tax settlement and payment:

• Report the withholding tax withheld to the relevant tax authorities within 30 days of your accounting period.
• The statement can be made electronically or in writing. It is also required if the gross salary is temporarily CHF 0.
• Transfer the invoiced withholding tax within this period.

5. Record keeping and other duties:

• Correct differences immediately (refund if too much withholding tax was withheld, claim the additional amount if too little withholding tax was withheld).
• Keep relevant documents, particularly monthly payslips, for 10 years and allow the tax authorities to inspect them on request.
• Submit certificates of residence and report gross payrolls for French (MB Q10) and German (MB Q12) cross-border commuters.

Incentives to comply with the regulations

Employers receive the following commissions for their cooperation:

• 2% of the withholding tax amount for electronic settlement via the cantonal logins or the standardized salary reporting procedure (ELM withholding tax)
• 1% of the withholding tax for amounts settled on paper statements.
• 1% of the withholding tax amount for lump-sum benefits from the occupational benefit scheme, with a maximum amount of CHF 50 per lump-sum benefit.

Payroll period for employers (example based on the Canton of Berne):

The accounting period is determined by the total amount of withholding tax withheld per month:

• The withholding tax amount is regularly over CHF 3,000 → Monthly statement
• The withholding tax amount is regularly less than CHF 3,000 → Quarterly settlement
• The withholding tax amount is regularly less than CHF 50 → Annual settlement

Remember: If you pay withholding tax via ELM, it must be done monthly.