Deadline to Save on Swiss Taxes Approaching

Insight | by Trudi Hayes
Switzerland mountains

We’re approaching the end of the tax year and we thought it would be useful to recap on the Swiss Pension System so you can determine whether you can save on Swiss taxes this year. If you want to save on your taxes, generous 2nd and 3rd Pillar tax benefits are only available on contributions received by 31 December.

1st Pillar Scheme

Everyone who lives and works in Switzerland makes compulsory social security contributions to AVH/AVS, the 1st Pillar scheme. This was designed to at least cover basic living expenses on retirement. In order to receive the full Swiss state pension, you need to contribute for 44 years. Dependent on this and on earnings, the maximum is CHF 28,200 per individual/year and maximum of CHF42,660 per Married couple/year,. For example 20 years of contributions would equal 20/44 x CHF 28,200 = CHF 12,800 per year at age 64 for women and at age 65 for men. A pension may be paid after one year’s worth of contributions. In reality, many expats will not receive a full state pension simply because they have not worked for long enough in Switzerland.

The 2nd Pillar

This is the Company Occupational Pension scheme, which is compulsory. Contributions are dependent on age and salary and between the employer and employee. As with AHV contributions, the employer must pay at least half of the contributions for occupational benefits insurance(2nd pillar). The pension fund is divided between mandatory and non-mandatory portions and each is treated differently. There are opportunities to buy back years,(qualifying factors apply) and the full amount is tax deductible for that year. If someone changes jobs the pension must move to an arrangement with the new employer or to a personal vested account.

If changing jobs or leaving Switzerland a Personal Vested Account can have advantages.

3rd Pillar account

It was intended that the combination of the 1st and 2nd Pillar would provide 60% of a retirees salary, however in many cases people fall far short. In order to close the gap, generous tax incentives are offered to invest in a personal 3rd Pillar account. The 3rd Pillar has two parts, 3a and 3b.

If an employed person contributes up to CHF 6,826 per year in the 3a Pillar, the amount invested would provide a tax deduction, dependent on salary and canton, of around CHF 2,000. If self-declaring, this can be deducted immediately, or if tax is deducted at source, a form can be completed to reclaim from the canton. What is less well known is that the self-employed can contribute up to CHF 34,128.per year, (max 20% of insured income as declared to AVS/AVH). Contributions can be made via a bank or an insurance company. With interest rates still very low an insurance company can provide attractive benefits such as:

  • Participation in an index for growth, that may be guaranteed
  • Guaranteed pay-out on maturity
  • Guaranteed death benefit – valuable for a family
  • Exempt from withholding tax or wealth tax during the term
  • Disability cover and premium waiver
  • May be pledged for property purchase and possibly a favourable mortgage rate
  • Entitlements are protected by tied assets set aside by law

The 3b has no contribution limits, however tax relief is only available to residents of the Cantons of Geneva and Fribourg. This is a flexible savings with a tax deduction at the marginal rate of CHF 2,200 for a single person, CHF 3,300 if married, plus CHF 900 per child up to a maximum of 3 children (a maximum of CHF 6,000). The benefit is available to those filing a tax return, or married to a person filing a tax return.

Contact us now to set up a discussion or call +41 22 311 1441.

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