Managing withholding tax in Switzerland

Taxation at source (withholding tax) is an unavoidable obligation for employers, particularly when it comes to foreign workers and cross-border commuters, for whom international agreements are in force.
Beware of the administrative follow-up if you change residence or status! This practical guide is designed to help you understand and apply withholding tax correctly for your employees, because mistakes can be costly!

1. Taxation of Swiss residents subject to withholding tax
   Foreign workers resident in Switzerland who do not have a permanent residence permit (C permit) are taxed at source. This applies to employees holding a B, L or Ci permit.

• Tax calculation: You must apply the cantonal tax rates according to the employee’s personal situation (single, married, with or without children, etc.).
• Payment to the cantonal tax authorities: The amount of tax deducted from the employee’s gross salary must be paid to the cantonal tax authorities each month or quarter.
• Managing changes : If your situation changes (marriage, children, change of canton), you must adjust the deductions accordingly, in the month following the change.

2. Taxation of cross-border commuters
   A cross-border commuter is a national of an EU/EFTA state who resides in the territory of an EU/EFTA state but works in Switzerland (as an employee or self-employed) and whose company is based in Switzerland.

How they are taxed depends on the canton in which they work.

Tax system by canton :

• Geneva: Cross-border commuters working in Geneva are taxed at source in Switzerland. The employer deducts the tax directly from the salary and remits it to the Geneva tax authorities.
• Vaud and other cantons: In the cantons of Vaud, Bern, Solothurn, Basel-Stadt, Basel-Landschaft, Valais, Neuchâtel and Jura, cross-border commuters are taxed in France. They must therefore declare their income to the French tax authorities, and the employer is not obliged to deduct tax at source (subject to the conditions below).

Procedure for the employer :

• Attestation of tax residence: To avoid double taxation for the employee, and to justify not deducting tax at source, the employer must obtain a tax residence certificate and send it to the cantonal tax authorities by the deadline.
• Correct declaration of income: It is crucial to ensure that the amounts declared correspond to reality, to avoid tax adjustments at the end of the year.
• Please note: in the event of non-deduction of tax at source without attestation of tax residence, the employer may be required to reimburse the cantonal tax authorities the equivalent of what should have been deducted.

Practical example:
A cross-border commuter working in Geneva with a gross salary of CHF 8,000 is subject to withholding tax in accordance with the Geneva rates. However, if he moves to another canton such as Vaud, he will have to declare his income in France, and will no longer be taxed at source in Switzerland, from the month following his official change of address, according to the attestation of tax residence. (Anyone who does not send the attestation will still be taxed at source and will have to take steps to rectify the situation as soon as they submit it).

3. Managing taxation when moving house
   Moving from one Swiss canton to another:
   If an employee (e.g. with a B permit) moves to another canton, the general rule is that taxation (in this case at source) applies in the canton where the employee is resident on 31 December of the tax year. This means that even if the employee moves in November, he or she will be taxed in the new canton for the whole year (in this case, remains under source tax).

• Steps to be taken by the employer: You must inform the tax authorities of the host canton as soon as you are aware of the change of address, and apply the new rates from the month following the move.
• Submit the withholding tax declaration form to the authorities as soon as possible.

Moving from Switzerland to France and vice versa
Steps for the employer :
o If you manage multi-site employees, check the tax rules of the canton where you work and follow up the required documents
o Do not change anything until you have received the official documents, even if it means doing so retrospectively.

4. Risks and penalties in the event of error
   Incorrectly calculating withholding tax can have serious consequences for both the employer and the employee.

• Penalties for the employer: Failure to meet payment deadlines or miscalculate the amounts due may result in financial penalties. In the event of fraud or deliberate non-compliance with tax obligations, fines or refunds may be imposed.
• Risks for the employee: An employee who fails to report a change in circumstances or who does not request a rectification within the deadline may find themselves facing a substantial retroactive adjustment and interest on arrears.

5. Practical advice for employers

• Use payroll management software: Use software that is capable of handling the cantonal specificities of withholding tax and keeping track of changes in residence or status.
• Regularly check tax scales: Make sure you are applying up-to-date cantonal tax scales and check for changes in legislation that could affect tax calculations.
• Work with a tax expert: If you are in any doubt or have a complex situation, it may be a good idea to consult a tax adviser to ensure that all your obligations are met.

Conclusion
Adopt the right reflexes! Managing withholding tax in Switzerland demands rigour and attention, particularly when it comes to changes in status or residence. Employers not only have to calculate and deduct tax correctly, they also have to be responsive to changing circumstances.
Call on Ekspert, specialists in payroll management and Abacus partners, to ensure you are surrounded by experienced professionals and avoid any unpleasant surprises!