Switzerland offers three structured income tax system-Federal, Cantonal and City taxes, where the rates vary between the Cantons, Family status and the gross salary of an individual. Payroll administration for Contractors is relatively complicated as there is no fixed income, fixed hours and has to bear the costs of overheads and other official expenses by themselves. However, Swiss employment laws and Tax laws provide a number of options for efficient payroll management of contractors that are aimed at increasing their net takeaway salaries.
Contribution towards pension is mandatory for all employees employed in Swiss companies for three months or more. Pension can be categorized under two heads, the “Risk element” and “Savings element”. While the “risk element” contributions cannot be recovered, it covers insurance for death or disability caused during work. “Savings element” on the other hand, can be recovered where (i) the employee lives outside EU, (ii) leaves the Swiss Company or (iii) for buying a primary residence home.
While calculating the “basis salary” the following parameters are adopted:
The Employer Cost and Employee Contribution provides an overview of necessary withholdings and contributions from the basis salary. Net salary is the result of amount after all such deductions. The following table explains those contributions and costs:
|Contribution||Employer Cost||Employee Contribution|
|AHV||Swiss Employer’s Social Security paid at the rate of 5.15%||Swiss Employee’s Social Security paid at the rate of 5.15%|
|Solidarity Fund||0.5%, if income over 10,500 CHF per month (or 126,000 CHF annually)||-------------------------------------------|
|ALV||Unemployment insurance payable at 1.1% with upper limit of 10,500 CHF p.m.||Unemployment Insurance payable at a rate of 1.1% with upper limit of CHF 10,500 per month|
|Accident Insurance||Contribution as professional income of 0.652% on income up to 10,500 CHF per month||Contribution of 1.88% “ Non Professional insurance” on income up to 10,500 CHF per month|
|Social Security||Social Security administration is 2% of total security contributions|
|BVG||Pension contribution (BVG) are made up of both savings and risk (if applicable)|
|Administration Costs||In case the contractor incurs such costs|
|Tax||Tax deductible at source|
Permits whether Type L, B, C or G are granted on the basis of contract period or type; whether open or closed. On the expiration of employment term, the contractor can extend his stay for another three months, during which time he can search for suitable employment.
The common type of permits is listed below:
|L||Contract specifying termination date||Expenses allowances are allowed||Lower scope for car and phone rentals|
|B||Open ended contract agreement||Easier to obtain lease/rentals||More controls on tax free allowances|
|C||5 yrs from the date of entry (for EU citizens) and 10 yrs for non EU||Status equal to what is Swiss citizens enjoy||Does not give the right to vote|
|G||Living outside Switzerland under Swiss work contract||Dependent on personal circumstances||Tax and social insurances may apply|
Quality of Life Index*