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Withholding taxation as of 2021

The desire to harmonize the approach to calculating withholding tax has been longstanding. Payroll and HR experts around the country were looking forward to these changes with high expectations. The Federal Tax Administration and the Swiss Tax Conference have, via Circular No.45, provided the details around the new regulation. In this short article, we would like to highlight the most important changes as well as what remains unchanged.

Highlights of the upcoming change

Generally, the changes are not as revolutionary as some of us may have expected. The two models, annual basis and monthly basis remain. As a reminder, the annual model concerns the cantons of Fribourg, Geneva, Ticino, Vaud and Valais while all the other cantons are applying a monthly model.

There is a long list of changes that will have to be applied as of January 1, 2021. Hereafter, we highlight what we consider the most seen topics that may have an impact on your payroll. This overview is very high level, please do not hesitate to approach us for more details on any of these topics

    The major highlights to taxation at source as of 2021 are:

    •  The Circulaire n°45 contains the new withholding tax regulation and not only what is new
    • The people subjected to tax at source must pay their taxes in their canton of residence
    • The withholding tax calculation within cantons on a monthly or annual model is now uniformed
    • Harmonization of tariff in all cantons and tariff D has been removed
    • Tariff G is new, and will be used for people who receive compensation income directly from their insurance (not to be used by employer)
    • Tariff Q is new, and will be used for cross-border who receive compensation income directly from their insurance (not to be used by employer)
    • The change of tariff following a change of personal situation is always made from the month following the event
    • The principle of recurring and non-recurring pay element is relevant for both monthly and annual model
    • The salary must be extrapolated at 100% in case of calculation over an incomplete month
    • For part-time employees, any income from other employers must be considered to determine the rate
    • In the case of an hourly salary, it must be specified whether the salary is paid regularly (monthly) or irregularly in the event of a one-off activity
    • People that are swiss tax residents and people that have the quazi resident status can fill in a tax return if they want to. In case they have fill in a tax return once, they must continue. Pleasenote that they will still be subjected to tax at source.

      For a detailed look at what contain the regulation, see Circulaire 1-045-D-2019 de l’Administration fédérale des contributions AFC. The language of the Circulaire can be adjusted in the top right corner, unfortunately, no English version is available.

      Be prepared

      To be prepared for the new regulation regarding the withholding tax, additional information needs to be provided to the tax authorities, and consequently need to be collected from employees before January payroll in 2021. Make sure no information is missing in your HR system or look for support in obtaining this information. This will primarily concern information about any additional activities of employees. Please note that information must be provided in due course in order to guarantee an accurate tax calculation as of January 2021. 

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