Filing US expatriate tax returns for American expats Switzerland

By ZM Ishmurzina

Switzerland has always attracted many English-speaking expats due to its diversified market economy, political stability and proliferation of small and medium-sized companies. American expats in Switzerland mostly reside in Geneva, Zurich, Bern and Lugano. Proper expatriate tax preparation and planning is required to file US expatriate tax returns on overseas taxes. Many expats Switzerland don’t realize a complexity of Swiss tax return due to the multi-layered Swiss tax system and Swiss federal (Direkte Bundessteuer or imposta federale) and cantonal (Kantonssteuer) laws.

We get a lot of questions from our clients. What are foreign income tax rates in Switzerland? How should expats report my Pillar accounts? Do you offer US expatriate tax services for American expats Switzerland? Let’s review some common expatriate tax issues affecting expats in Switzerland.

Expatriate Tax Rules for Expats Switzerland

The worldwide taxation of US citizens and green card holders is the foundation of the US tax system. Tax treaty between Switzerland and the USA as well as IRC section 911 can be utilized to avoid double taxation.

  • Foreign earned income exclusion. If American expats Switzerland earn foreign income and meet a physical presence or bona fide residence test, they can exclude up to $95,100 for 2012  and up to $97,600 on US expatriate tax returns.
  • Foreign housing exclusion. Additionally, American expats Switzerland may be able to reduce US expat tax liability by deducting foreign housing expenses. Switzerland is famous for its high housing costs.
  • Foreign tax credit. American expats Switzerland can take a foreign tax credit too on US expatriate tax returns.

Additionally, American expats Switzerland may be required to file the FBARs if they have foreign financial accounts with an aggregate balance over $10K.

Tax system in Switzerland – FAQ

Are expats Switzerland subject to the worldwide taxation in Switzerland?

American expats Switzerland who are considered residents are subject to Swiss income and wealth tax on worldwide income and tax. Non-residents are subject to tax only on certain categories of income from Swiss sources.

Who is considered a tax resident in Switzerland?

As a general rule, American expat in Switzerland is considered a resident in one of the following cases:

  • s/he intends to stay permanently in Switzerland.
  • s/he has employment in Switzerland for more than 30 consecutive days.
  • Switzerland is a center of her/his personal and economic interests.

What is the tax year in Switzerland?

Switzerland has a calendar tax year. This is similar to the US tax system.

What are foreign income tax rates in Switzerland?

Switzerland has federal, cantonal and communal income taxes. The maximum federal tax rate is 11.5% and starts at a taxable income of CHF 14,000 (single) and 27,000 (married). However, cantonal and communal tax rates vary substantially. Maximum combined income tax rate is within a range of 18%-45%.

Which income is taxable in Switzerland?

Generally, all types of remuneration and benefits are subject to income tax: salary, bonuses, commission, foreign service allowance, housing allowance, private use of a company car etc. Additionally, taxable income includes lottery gains, real estate income, interests, dividends, royalties, capital gains realized by a commercial security trader and self-employment income.

Can an American expat in Switzerland file an expatriate tax return on overseas taxes with a spouse?

Spouses living together are required to file a joint return. A couple living apart might file separate returns only in certain circumstances.

Is it a requirement to file a Swiss tax return every year?

Most tax returns in Switzerland have to be filed within three months after the end of the tax year.

Does Switzerland have a tax treaty or social security agreement with the USA?

The USA and Switzerland signed a revised double tax treaty agreement in 2009. The latest amendment was issued in 2012 to process the requests in cases of suspected tax evasion. Also, due to a totalization agreement between the USA and Switzerland, expats can claim social security credits for a job in a corresponding country. On February 14, 2013 the USA signed a FATCA agreement with Switzerland. American expats Switzerland are advised to consult an expatriate tax professional to review expat tax issues in more details.

Conclusion

The Swiss tax system is complex so additional guidance is required before moving to Switzerland and filing US expatriate tax returns.

American expats Switzerland with additional questions about US expatriate tax preparation, FBARs, FATCA, PFIC or any other overseas tax issue, please seek help of  expatriate tax  CPAs that have extensive experience with international tax issues. International tax experts at Artio Partners will be pleased to assist you.