Tax at source: what changes will occur in 2021 for employees and employers?
The Federal law on the revision of taxation at source, adopted in December 2016, takes effect at the beginning of 2021. Its goal is to reduce unequal treatment between those subject to taxation at source and those taxed in the ordinary way; and also to render the calculation of tax at source uniform throughout Switzerland. The following is a clarification of the consequences for taxpayers and employers.
New for taxpayers
The law introduces ordinary ulterior taxation (taxation ordinaire ultérieure - TOU) for all resident taxpayers currently taxed at source and, under certain conditions, for non-residents.
Ordinary ulterior taxation is mandatory for taxpayers whose gross revenues subject to taxation at source are over CHF 120,000 at the Federal level (the threshold is currently CHF 500,000 in Geneva for a couple), or who receive revenues that are not subject to taxation at source, or who possess taxable assets.
It is optional for other resident taxpayers, and a specific request must be made before 31 March of the year following the fiscal year in question. Once a resident has been taxed under the ordinary ulterior taxation system, they remain subject to this system for the following years, in parallel with tax at source which is withheld.
For all taxpayers who are not Swiss nationals, married to a Swiss national or C Permit holders, tax at source will continue to be withheld for guarantee purposes, but final taxation will be decided at a later date according to the ordinary rules and rates. The amount of the tax withheld will be applied without interest. This means that certain B Permit holders who were not longer subject to taxation at source will once again be taxed at source (this is the case, for example, of people who own real estate and have a B permit, which will again be taxed at source).
Ordinary ulterior taxation (TOU) has also been introduced for non-residents, but only for requests made before 31 March of the year following the fiscal year in question. A non-resident taxpayer may take advantage of this if 90% of their world-wide income is taxable in Switzerland. As ordinary taxation for non-residents is optional, a request must be submitted every year.
As is the case for those resident/domiciled in Switzerland, cross-border workers will no longer be able to deduct contributions to 3rd pillar a, the repurchase of 2nd pillar premiums, maintenance payments, childcare costs or the costs of continuing professional development.
Reduction of supplementary deductions
Taxpayers who are subject to taxation at source will no longer be able to claim deductions other than those included in the tax rate scales on a flat-rate basis.
If a taxpayer wishes to deduct contributions to a 3rd pillar a, repurchases of 2nd pillar pension fund contributions, maintenance payments, continuing professional development costs or childcare costs, they must request an ordinary ulterior taxation and, if they are non-resident, fulfil the required conditions.
New for employers
As of 1 January 2021, employers of workers taxed at source (taxable benefit debtors, débiteurs de la prestation imposable (DPI)) must file directly with the canton entitled to the taxes and not with the canton where their company headquarters are located.
Unified territorial competencies regarding taxation at source
The canton that has the right to tax at source is the one to whom taxes are paid throughout the year.
1 Domiciled or residing in regards to tax law or at headquarters or registered office.
2 Henceforth employers must also withhold taxes at source on a monthly basis for employees residing outside the country and who are not holders of a residence permit, even if the latter are in possession of taxable assets or own property in Geneva.
An application for the exchange of electronic data, named ELM-QST, has been developed in collaboration with the Confederation to facilitate the task of employers. It will allow them to process accounts with the correct canton and to automatically register new hires and personnel changes using a monthly statement. To take advantage of this application, employers must first ensure that their payroll software is compatible with ELM v5.
Harmonisation of the way the family situation is considered
As of 1 January 2021, the employer must apply the scales that correspond to the family situation at the end of the month preceding the payment of the taxable benefit and not at the end of the year in question.
An example for an employee who gets married on 15 June and whose first child is born on 20 September:
Caps on collection commissions
The employer is compensated by a collection commission whose rate remains set at 2%. The commission for capital benefits is 1%, with a limit of CHF 50 per benefit.
Elimination of scale D, creation of scale G
Revenues acquired as compensation and paid directly by an insurer will be subject to the new scale G (progressive scale) which replaces the current scale D.
Revenues arising from an ancillary activity must be extrapolated on a revenue at 100% to decide the taxation rate and are subject to the same ordinary scales.
Entry into force of the new law
Total conformity at Swiss Risk & Care
The necessary technological updates have been fully integrated into the payroll management tools
developed by Swiss Risk & Care in order to conform completely with the new requirements. We are always there for our clients and are at the disposal of HR services and their employees
to provide any help they may need in setting up the new regulations.