Income from foreign sources: how do you declare it in Switzerland?

Declaring salary income from a foreign source

Although most of the income earned abroad by Swiss expatriates is taxable under Swiss law, numerous provisions exist to ease the impact of double taxation.

Because every Swiss worker carrying out a gainful activity abroad is first taxed at source in the host country, double taxation agreements (DTAs) aim to protect Swiss nationals in 122 countries and territories.

In concrete terms, these DTAs may grant recipients of income earned abroad a partial or full relief from double taxation, depending on the terms agreed in the treaty.

Several groups of people are affected by DTAs, namely:

• people who are tax resident in two states (including Switzerland);
• people carrying out temporary paid assignments abroad;
• people working for a subsidiary based abroad.

Please note: These agreements can apply to both individuals and legal entities.

At the start of each year, the employer of a Swiss citizen working abroad must complete the salary certificate in full compliance, as it is a key document required for the tax return. Accordingly, a separate salary certificate must be issued for each of the employee’s jobs.

It is worth noting that some cantons require the employer to send the salary certificate directly to the relevant cantonal tax authority, without the employee having access to it.
Also read: How can individuals get the best exchange rate?

Declaring foreign-source dividends

Declaring dividends, interest and licence fees from a foreign source is also subject to a high risk of double taxation. However, Swiss law allows, in certain cases, the amount already taxed at source by the third country to be deducted from the local tax; this is known as a flat-rate tax credit.

To benefit from the numerous double taxation agreements signed by Switzerland covering the taxation of dividends and interest, three criteria must be met, namely:

• be an individual;
• be tax resident in Switzerland;
• be liable for tax in Switzerland.

Furthermore, the application for a flat-rate tax credit must be filed by the eligible person after the end of the tax period in which the foreign income fell due, and no later than three years after that date.

Please note: Naturally, applying for a flat-rate tax credit is not permitted where it would otherwise be possible to obtain a full refund of the tax paid in the third country.

In practice, the portion refundable by the Swiss state corresponds to the amount exceeding the maximum tax rate set out in the applicable double taxation agreement.

Depending on whether the amount of non-recoverable withholding tax exceeds CHF 100 or not, two different procedures apply:

• if the amount exceeds CHF 100, the credit must be claimed through the online tax return (for paper returns, you must first complete form DA-1 beforehand);
• if the amount is below CHF 100, your dividends and interest must be declared as Swiss securities in your tax return, after deducting the tax withheld at source (abroad).

If you are not an individual, please note that form DA-2 is intended for legal entities. Lastly, form DA-3 concerns tax on licence fees.

Declaring property income from a foreign source

Although your property income earned abroad is not subject to tax in Switzerland, keep in mind that it must still be declared, as it can affect your tax rate, both for wealth tax and for income tax.

Indeed, any property you own abroad increases the value of your assets and may consequently push your income above the threshold of one million Swiss francs, beyond which wealth tax applies.

In concrete terms, income from property that is not taxable at municipal, cantonal and federal level is calculated as follows:

Property income = (rental income + imputed rental value) – (maintenance costs + mortgage interest)

Here again, the rules vary depending on the Swiss canton where you are tax resident. While some cantons may treat the maintenance costs of your property as negative income from abroad, most will simply apply a reduction to your tax rate.

Please note: Because your total property debt is spread across all your residences, a certain percentage of your debt abroad will be attributed to your residence on Swiss soil.

Declaring gains from a foreign source

More marginal sources of income, such as gambling or lottery winnings, are generally left out of most double taxation agreements.

That said, Swiss law deducts the tax withheld at source on your gains abroad before applying any taxation. As a result, your gains are only taxed on their net amount.

Furthermore, Swiss withholding tax does not apply to this type of income, and taxpayers can claim a flat-rate deduction of 5% calculated on the gross amount of the gain (i.e. before tax is withheld at source in the third country), to cover the costs of earning that income.

Declaring income from foreign sources very often involves the use of double taxation agreements to apply a balanced tax treatment for the taxpayer.

That said, some steps remain complex, and to help you find your way around when filing your tax return, it is best to equip yourself with a foreign exchange solution suited to your international transactions, such as the b-sharpe bank accounts.