Axe your tax: with 2008 quickly drawing to a close, it is time to take advantage of the available opportunities to save on your taxes in Switzerland. In this article we'll take a look at the primary ways to reduce your income taxes.
| Auteur | Donnellon, Brien |
| Fonction | MONEY |
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The Swiss tax system may seem daunting to someone from abroad, since the country is comprised of 26 cantons and 2,889 communities. And, while the federal tax rate is the same for everyone, there are huge differences between cantonal and community tax rates.
Under the Federal Constitution, the cantons are free to determine their own tax systems and tax rates, which results in a wide variance of tax regulations and burdens from canton to canton. For example, the cantons of Zug, Schwyz and Obwalden have the lowest cantonal tax rates, but the community rates can still differ greatly. So, one good way to save money on taxes is to invest in the country's three-pillar pension system.
The three-pillar system
The Swiss pension system is based on three pillars: pillar 1--the state pension provision; pillar 2--the occupational/ company benefit plan; and pillar 3--the private pension provision.
Collectively referred to as the three-pillar system, it aims to maintain an insured person's standard of living during retirement or in the event of disability, as well as the standard of living for surviving dependants upon the death of the insured. The Swiss believe in the three-pillar system and support it further by providing tax incentives for contributions. In this article, we will explore the two pillars that can help you save on taxes.
Pillar 2 (company pension)
Ask your employer if you can make a voluntary contribution to your company's pension fund, because the contributions are tax deductible from your income tax. The objective of this allowance is to improve insurance coverage and ensure you have sufficient capital at retirement.
The voluntary contribution can be paid in a lump sum or spread out over a number of years. Opportunities for voluntary contributions can also arise following a significant pay increase or a divorce because the pension fund savings are split between the divorcees, which would create a deficit that you might want to replenish.
It is worth noting that tax is not charged on the accrued interest from a pillar 2 account. Rather, taxes are levied at a preferential tax rate when the money is withdrawn. The downside is that your pension fund savings can only be withdrawn under certain circumstances, which include:
* Deregistration when leaving Switzerland permanently
* When buying a primary residence in Switzerland (not a vacation home)
* Giving up your employee status to become self-employed
* Retirement or...
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