Are you prepared for the deadline to save on your Swiss taxes?

Nov 27, 2018 1:24:00 PM

If you are hoping to save money on your 2018 taxes, then know that generous 3rd and 2nd pillar tax benefits may be available on contributions made/received by the 31st of December. Time is of the essence, as you may be able to save money on Swiss taxes if your Swiss Pension scheme contributions are made before a certain date.

Date-Related Savings Are Part Of An Already Complex Tax System

Did you know that the US tax code is over one billion words long, and is so complex that Money.com ran a test to see how confusing it was. They hired 46 named-brand professional tax preparers to create tax estimates for a family, and they received 46 different estimates, and all of them were legally correct (which is frightening). The Swiss system is more complex rather than confusing because of the federalist structure of Switzerland. There are 26 cantons with 2,250 municipalities, and each has their own taxes. Wealth tax in one location may differ wildly from wealth tax 10 miles down the road, and the same goes for inheritance tax, income tax, etc. The fact that Switzerland offers date-related savings is hardly a surprise in this case.

December 31st Is The End Of The Tax Year

Your tax return needs to be filed between January the 1st and March the 31st, and you get one deadline extension for free. As an expat, you are unlikely to receive a full state pension under the 1st pillar scheme because most people only receive a full pension after contributing for 44yrs, and few expats have lived in Switzerland long enough to contribute enough to receive the pension.

The 2nd Pillar Swiss Pension Scheme

As you know, your 2nd Pillar Swiss pension scheme is linked to your work, and your contributions are split 50/50 with your employers. Your fund is divided between non-mandatory and mandatory portions. As an expat living in Switzerland, you may buy back years and whatever amount was tax deductible for that year. In other words, you can save on taxes by buying back your previous years and saving on taxes. A person born in Switzerland and had a full-time job after leaving school cannot take advantage of this buy-back system.

3a and 3b Third Pillar Swiss Pension Scheme

Here is where most tax incentives sit because Pillar 1 and 2 often provides around 60% of a retired person's salary, and that is often not enough, so tax incentives were put in place to encourage people to invest in 3rd pillar Swiss pension schemes. Invest up to CHF 6768 for a tax deduction of up to CHF 2000. Self-employed people can invest CHF 33,840 per year for a suitably smooth tax deduction. If you invest in 3b, then there is no tax relief unless you live in Fribourg or Geneva.

So make sure you're taking every step to make the most of this incredibly beneficial pension system, and don't forget that Belgravia Wealth Management are always here to help.