Our team is often asked questions about tax, when actually social security is meant and vice-versa. This can be confusing – or it could even result in the person asking the question actually receiving the correct answer – without either person realising the question was incorrect, because the wrong terminology was used!
In this post, we lift the confusion on how taxes work in Switzerland and what the difference is between tax and social security.
Switzerland has 26 cantons or states, with tax levied at 3 levels. These are: Federal Level (same all over Switzerland), Cantonal Level (based on the laws and tax rates of each canton), and municipal level (these follow cantonal tax laws where they are located, but are allowed to set their own communal tax rates)
Fig 1: Cantonal Map of Switzerland
The residential address of an individual, determines the canton and with it, the individual’s tax system. Foreigners with permits: L, B, 90 or 120 pay what is referred to as – “source tax”. This is deducted directly from the salary by their employer, based on a tax table issued by each canton.
The level of income, personal status, number of dependents and whether an individual is registered for church tax or not, determines the amount. Tax bands are very close together and increase incrementally, for example: 6000-6050. 6051-6100, 6101-6150 per month and so on.
If you are a Swiss citizen, or are married to a Swiss national, or are a C-permit holder, or a property/company owner, then it is your obligation to declare your own tax as a household. Again, there are elements from the above 26 cantons which determine what you pay, in addition to Federal and Communal tax. Communal – as well as cantonal taxes vary greatly for the same incomes.
And if you a foreigner earning above a certain level of income and with a specific permit type, you might find yourself in both systems, i.e. having tax deducted at source by your employer using the first system, and then still having to do a declaration of income using the second system.
Generally speaking, the above is what we mean with regards to tax on income. Occasionally someone may mention “capital gains” – or “wealth tax”, but by and large the above is what we mean by tax. Clearly we can’t know it all (there are 2’300 communes across 26 cantons in Switzerland!), but our team does understand the system and its pitfalls.
Canton of Zurich – Social Security vs Tax Example
Below is a high level commune map of canton Zurich, which shows 169 separate communes. The areas directly to the south of the main city, and the areas to the west and east of the lake have considerably lower tax levels than an area such as Winterthur, the large singular block in the North East.
Fig 2: A Commune map of the Canton of Zurich
So far we have not mentioned social security. In fact it will not have crossed our mind, unless you actually specify “social security”. So, if we get a question about tax, we are talking about the areas mentioned so far.
When the subject of “social security” is mentioned, our radars hone in on national insurance “AHV/AVS” first of all, along with its linked elements – such as unemployment insurance and child benefit. Local social security offices have a host of different services specific to them. There are presently about 90 of those of which again, 26 are cantonal.
There are other parts of things that one may associate less directly with social security, which can also be considered as part of it – for instance sickness insurance, accident insurance and the 2nd pillar pension funds (but not the 3rd pillar). Sickness insurance is also not health insurance and health insurance is not part of the social security system.
Below is a table which lists the elements of social charges, which each worker will see on their payslip.
SOCIAL CHARGES AND TAXES EXPLAINED
|BVG||Obligatory – Pension obligation dependent on supplier + plan|
|GAV||Union Contribution (obligatory or voluntary contribution)|
|KTG||Sickness insurance (possible obligation, depending on GAV)|
|BU||Pension obligation dependent on supplier + branch|
|AHV Admin||National obligation but value depends on locality|
|FAK||National obligation– but value depends on locality|
|NBU||National obligation dependent on supplier and branch|
|GAV||Union Contribution (obligatory or voluntary)|
|BVG||Obligatory – Private Pension Pillar two, dependent on supplier + plan|
AHV – national insurance
ALV – unemployment insurance
FAK – child benefit pot
Admin – AHV administrative charge
(N)BU – (non) professional accident insurance
KTG – sickness insurance
BVG – employer pension plan
GAV – collective bargaining agreement
LAE – crêche subsidiary
FFPP – reintegration to work
LFFD – apprenticeship subsidiary
SALARY EXAMPLE – Gross Earnings of CHF6’500 per month
Below is an example of the social charges paid on the salary in the canton of Zurich. Above the term “Gross” on the table below are employer payment elements. Below the term “Gross” in the table below are the employee payment elements.
|Figures are an example and are always subject to change|
|C||Double Household Income|
|N||No Church Tax|
So there you have it folks! Tax is not Social Security and Social Security is not tax, but both are deducted from the salary payment each month. The way to understand this, is that your social security payments are also matched more or less equally, by the employer or the company engaging you as a contractor and they offer protection – social security – as the name implies.
Swissroll GmbH was founded over 20 years ago. During this time our team of experts has worked with hundreds of companies and literally thousands of contractors. Also cross border workers. Beyond our core function of payroll management, we offer advice to workers about which engagement model best suits theirs, and the clients needs. This includes giving advice in French, German and English and on social security and tax. Call or contact us now on: firstname.lastname@example.org