Tax treatment of expatriates in Switzerland

There is no generally applicable rule to the treatment of expatriates in Switzerland. Some cantons do not seem to offer expatriates any special treatment whereas others offer generous tax breaks and have formalized the concessions allowed.

Please find below a summary of the most significant concessions.

Aargau

Baselland

Basel-Stadt

Genève

Solothurn

St. Gallen

Vaud

Zurich

Basel-Stadt, Baselland, Aargau and Solothurn
 

On August 23, 1996, the Baselland and Basel-Stadt Tax Administrations issued the following set of guidelines relating to benefits received by expatriates. The Tax Administrations of Aargau and Solothurn have also agreed to these guidelines.

Unofficial Translation

Canton of Baselland Official Notice Nr. 279
 

Accommodation, car and school costs for expatriates of international companies in the Basel area.

International companies in the Basel area normally provide an apartment and car, or pay all associated costs, for their foreign employees working on assignments in Switzerland (expatriates). Many also have school fees paid for their children. In order to harmonise the tax treatment we, together with the Basel-Stadt Tax Administration have drawn up the following rules for taxation of these amounts.

1. Accommodation rental
 

During the first three years of their stay in Switzerland, housing costs paid for expatriates will be treated as expenses and not as part of the taxable salary.

Should the length of their stay be longer than three years, the following will apply:

From the fourth year onwards, the following portion of the rent will be included in the taxable salary:

• Single up to a maximum of CHF 1,000.- of the rent paid by the employer, per month;
• Married without children up to a maximum of CHF 1,500.- of the rent paid by the employer, per month;
• Married with children up to a maximum of CHF 1,500.- of the rent paid by the employer, per month; plus CHF 150.- monthly, per child.

The inclusion will begin on the first day of the calendar month after completion of the third year of residence by the expatriate concerned. (E.g. for someone arriving on 15.4.94, inclusion would begin on 1.5.1997.)

2. Company Car
 

Expatriates will not be taxed on company cars, provided by the employer, for their use during their stay in Switzerland, even after expiry of the three-year period.

3. School Fees
 

Employers often pay the school fees for expatriates children. These children attend private schools, which have the facilities necessary to provide an education to foreign language speakers. Such school fees are considered as taxable income for the employee.

Pre-determined deductions for these school fees are possible for the calculation of Baselland Cantonal and Community taxes.

Where the employer pays school fees to a private school and not to an individual employee for an individual child he thereby provides the expatriate's children who speak a foreign language with the possibility of a school place and so ensures that such children receive an appropriate education. Accordingly, such payments by the employer cannot be considered as part of the taxable salary of the employee as long as the Swiss community cannot offer suitable education. School fees, paid on a lump sum basis by the employer, i.e. not for an individual child to attend a particular school, are therefore to be treated as non taxable income for the expatriate.

4. Other payments or reimbursements to the expatriates, 
 

e.g. fitness club membership, reimbursements of annual return journeys with spouse etc., are considered as a taxable benefit and are to be included as other income.

5. These regulations
 

are applicable for the calculation of cantonal, community and direct federal taxes as well as for the tax at source.

Unofficial Comments
 

Though no other official guideline has been issued, the Basel-Stadt and Baselland Tax Administrations have since then agreed to consider annual home leave costs paid by the employer to be tax free benefits. 

In addition, schooling expenses paid for the taxpayer's children for a foreign language private school to the extent that the public schools do not offer adequate schooling, are considered to be tax deductible.

Geneva and Vaud
 

The Cantons of Geneva and Vaud do not have any formal ruling or official guidelines concerning the tax treatment of expatriates. However, and provided certain conditions are met, expatriates may receive a tax free allowance of up to 10% of base salary to cover housing costs, relocation costs, home leave, etc. In addition, and where school fees are paid on a lump sum basis by the employer to a private school as opposed to the individual employee for an individual child, these fees are not treated as taxable income for the employee.

St. Gallen
 

The Canton of St-Gall has also issued a set of guidelines relating to new tax deductible items of expenses incurred by temporary expatriates. Though no English translation of this circular is currently available, these can be summarized as follows:

Expatriates are here too defined as members of management or employees with special skills, sent by their employer to Switzerland for a temporary assignment, at most for a period of 5 years.

Housing costs paid to the expatriate by his employer are treated as deductible employment expenses, to the extent that the expatriate can establish that he has kept his house or apartment in his home country.

Similarly, home leave and relocation allowances can be deductible because considered to be employment-related expenses.

Schooling expenses for the expatriate's children for a foreign language private school are also to be considered as employment-related expenses because incurred as a result of the international assignment.

unofficial English translation

Zurich Tax Code Part I
 

Nr. 17/300
Expatriates
Deductions
Special Professional Expenses

Cantonal Tax Authority Guidelines on the recognition of special professional expenses incurred by executives and specialists on temporary assignment in Switzerland.

(from December 23, 1999)
(effective as from the 1999 tax period)

Preliminary Notes
 

These guidelines are based on Articles 25 and 26 of the Zurich tax law (StG). They regulate the deductibility of special professional expenses incurred by executives or specialists who have been sent to Switzerland by a foreign employer on temporary assignment or by non self-employed executives or specialists temporarily in Switzerland to complete a special project during a limited period of time. The overall conditions of Article 17 of the Zurich tax law (StG) are also applicable in determining the taxable wage income for such employees. All employer provided benefits including supplements, payments in kind, and all other cash benefits are taxable.

A. Individual applicability
 

These guidelines are applicable to the following individuals: 1) Executives who have been sent by their foreign employer on temporary assignment to Switzerland. Such individuals are typically sent to a subsidiary or affiliated company and are commonly referred to as "expatriates". 2) Non self-employed specialists who are in Switzerland to complete a project within a limited period of time and who have incurred additional professional expenses as a result of their limited stay in Switzerland.

For the purpose of these guidelines, executives are defined as members of management, members of the executive board, or any individual holding a similar function.

For the purpose of these guidelines specialists are defined as employees who are sent on international assignments because of their special professional qualifications as well as individuals who are self-employed in their country of domicile but who are employed as a contractor for the specific purpose of completing a specific project in Switzerland within a specific period of time. This is particularly applicable to programmers, information technology professionals and telecommunications specialists.

A "temporary" or "limited" period is defined as a period of no more than 5 years. If the limited period of employment is replaced by permanent employment prior to the expiration of the 5 year period, these guidelines are no longer applicable.

Special professional expenses as per these guidelines may only be claimed by taxpayers maintaining a relationship to a country other than Switzerland (domicile or permanent residence relationship). The following situations are applicable.

1. Foreign domiciled executives and specialists holding a short term working permit.
   
   This applies to all taxpaying executives and specialists who are working in Switzerland on a short-term working permit (Permit L) for an effective period of time of under one year and who maintain their domicile (center of vital interests) in a foreign country.

2. Foreign domiciled executives and specialists holding a working permit of at least one year.
   
   This applies to all taxpaying executives and specialists who hold an annual working permit (Permit B) in order to complete a project of limited duration in Switzerland and who maintain their domicile (center of vital interests) in a foreign country.
   
3. Swiss domiciled executives and specialists having a working permit of at least one year.
   
   These guidelines apply to executives and specialists holding a working permit with a duration of one year or more (as per paragraph 8 above) and who have their residence (center of vital interests) in Switzerland if they maintain a permanent residence in their home country or if they have the intention of returning to their home country within the forseable future.

B. Deductible professional expenses
 

Executives and specialists as defined in paragraph 2 following above are to apply standard rules for deducting professional expenses. In particular, claims can be made to deduct professional expenses as per Article 26 of the Zurich tax laws (paragraph 1, points a and b), as well as other expenses, that are needed to perform the respective profession (Article 26, paragraph 1, point c). The latter includes expenses for professional clothing, professional tools, and specialist literature. Representation expenses that are in line with an approved expense regulation are not covered by the regulations in the following paragraphs.

Further, in accordance with Article 26 (paragraph 1, point c) of the Zurich tax laws, professional expenses of executives and specialists may include all costs that are directly attributed to maintaining the relationship to the foreign domicile or home country during the limited period of employment in Switzerland and where it would be unreasonable to avoid such costs. As detailed below, deductible expenses may differ depending on the taxpayer's status.

1. Foreign domiciled executives and specialists holding a short term working permit.
   The following items are deductible (similar to the tax treatment of weekly employees who maintain their residence in a Canton other than the Canton where they are employed).
   
   - The necessary cost of accommodations in Switzerland
   
   - Travel costs between the foreign country of residence and Switzerland during the
      employment in Switzerland.
   
   - Additional expenses incurred for external meals (Refer to the lump-sum amounts
      in the attachment to the direct federal tax regulations on professional expense
      deductions for non self-employed individuals)
   
2. Foreign domiciled executives and specialists holding a working permit of at least one year.
   
   The following expenses are deductible:
   
   - The cost of the residence in Switzerland (as long as such costs do not exceed a
      reasonable amount). The taxpayer must prove that he has retained his foreign
      residence (apartment, house) during the period of his stay in Switzerland.
   
   - Travel costs between the foreign country of residence and Switzerland. The
      taxpayer must be able to prove that in his free time he returns regularly to his
      foreign place of domicile.
   
3. Swiss domiciled executives and specialists having a working permit of at least one year.
   
   The following costs are deductible:
   
   - The cost of the residence in Switzerland (as long as such costs do not exceed a
      reasonable amount). The taxpayer must prove that he has retained his foreign
      residence (apartment, house) during the period of his stay in Switzerland.
   
   - Moving costs to Switzerland as well as the moving costs upon return to the
      individual's home country.
   
   - Travel expenses for the taxpayer and his family for the both the entry to Switzerland
      at the beginning of the period of employment as well as at the conclusion of the
      employment period.
   
   - Expenses incurred to send school aged children to foreign language private
      schools where the public schools do not provide adequate instruction.
   
   
   The following expenses are not deductible:
   
   - Additional expenses resulting from the higher general cost of living in Switzerland
      vis-à-vis the home country.
   
   - Expenses incurred for furnishing an apartment or house
   
   - Additional usage based living expenses such as the cost of electricity, water,
      television fees etc.
   
   - Additional expenses incurred as a result of higher direct taxes in Switzerland
      vis-à-vis the home country
   
   - Legal and tax advisory fees

C. Obligation to present receipts
 

When an employer reimburses an executive or specialist (defined in paragraph 2 following) for special professional expenses (defined in paragraph 11 following), disclosure of the effectively paid expenses as well as any lump-sum payments and payments in kind must be made in the wage payment slip. Payments in kind include items that are paid for by the employer such as apartment preparation expenses and school expenses. For further information, please refer to the instructions on the preparation of wage payment slips which can be obtained by the Federal Tax Authorities.

D. Claims for special professional expenses
 

I. Normal procedure
 

Special professional expenses as defined in paragraph 11 following are to be included irrespective of whether or not the taxpayer himself paid the expenses or whether the employer has paid the expenses up-front and thereafter remunerated the employee in kind.

If, the taxpayer has paid for the special professional expenses (defined in paragraph 11 following) and if, he has been reimbursed by his employer after presenting the latter with the original receipts, then such expenses are to be considered as business expenses. These are not to be included in the employee's taxable gross wage income.

If, the taxpayer has paid for the special professional expenses (defined in paragraph 11 following) and if, the employer does not thereafter reimburse him, the taxpayer can make a deduction from his gross wage income for such professional costs in an amount of SFr 1,500 pro month. This lump sum deduction may be taken as long as the taxpayer can present receipts (e.g., a rental agreement, confirmation of domicile, etc.) certifying that he maintains a foreign place of residence. If the taxpayer claims that his actual expenses exceed the lump-sum amount, then complete proof of the actually incurred special professional expenses (defined in paragraph 11) which are being claimed must be disclosed. The taxpayer is obligated to attach a listing of the actual expenses incurred to his tax declaration.

If the taxpayer has paid for the special professional expenses (defined in paragraph 11 following) and if, his employer reimburses him for such expenses with a lump sum, the taxpayer can make a deduction from his gross wage income (including the lump sum reimbursement) for such special professional expenses (as defined in paragraph 11 following) in an amount up to SFr 1,500 pro month. This lump sum deduction may be taken as long as the taxpayer can present receipts (e.g., a rental agreement, confirmation of domicile, etc.) certifying that he maintains a foreign place of residence. If the taxpayer claims that his actual expenses exceed the lump-sum amount, then complete proof of the actually incurred special professional expenses (defined in paragraph 11 following) which are being claimed must be disclosed. The taxpayer is obligated to attach a listing of the actual expenses incurred to his tax declaration.

II. Wage withholding tax procedure
 

Similar to the distinction made above, the following differentiation must be made when calculating wage withholding taxes. Different rules are to be applied when the employer reimburses the employee for the special professional expenses in the form of a lump sum payment vis-à-vis where the employee is reimbursed for the special professional expenses upon presentation of receipts.

If the employer reimburses the executives or specialists for the actual special professional expenses incurred (defined in paragraph 11 following) upon presentation of receipts, no wage withholding tax is to be deducted from the reimbursement. For further details, please refer to paragraph 10 of the Finance Department directive on the implementation of wage withholding taxes for foreign employees. The employer is required to keep a file of all original receipts.

If, in accordance with their contractual work agreements, the executives or specialists do not receive expense reimbursements in addition to their monthly wages, a monthly lump sum of SFr 1,500 should be considered as reimbursement for the special professional expenses defined in paragraph 11 following. This amount should be applied irrespective of the taxpayers' marital status. The employer should calculate wage withholding taxes only on the net amount, e.g., on the total monthly wages minus the SFr 1,500 lump sum payment.

If, the executives or specialists are reimbursed by their employers with a lump sum payment for the special professional expenses defined in paragraph 11 following, a monthly lump sum of SFr 1,500 should be considered as reimbursement for the special professional expenses irrespective of the taxpayers' marital status. The employer should calculate wage withholding taxes only on the net amount, e.g., on the total monthly wages paid (including lump sum reimbursement) minus the SFr 1,500.

If the monthly lump sum amount of SFr 1,500 is deducted from the executives or specialists gross wages, there is neither the duty nor the possibility to claim actual business expenses (defined in paragraph 11 following) by presenting the receipts. Taxpayers as defined in paragraph 2 must provide their employers with proof that they have retained their foreign place of residence. The respective documentation must be disclosed (e.g., rental contracts, confirmation of domicile etc.). The employer is to keep such documentation on file in case of a wage withholding tax audit.

E. Effective date
 

These guidelines are to be used for all open proceedings beginning with the 1999 tax period.

F. Information
 

Further information on the issues raised in these guidelines can be requested from the following:

a) With respect to normal (subsequent) tax assessments for Cantonal, Communal, and Federal taxes: contact the Head of the Assessment Department 6 (Telephone: 01 259 37 01)

b) With respect to wage withholding taxes, contact the Head of the department for wage withholding taxes (Telephone: 01 259 34 91)


Zurich, December 23, 1999 
Zurich Cantonal Tax Authority
Head
F. Fessler