Special Tax Rules for Expats from EU vs. Non-EU Countries

Switzerland is an attractive destination for expats from around the world. Professional opportunities and quality of life are important factors, but so are the tax regulations. A critical factor is the origin of the expat: Are they from an EU/EFTA country or from a third country?

There are significant differences between these two groups – both in terms of residence permits and tax rules. This article explains the differences for expats from EU and non-EU countries and how they specifically affect tax liability.

Legal Framework: EU/EFTA vs. Third Countries

Free Movement of Persons Agreement (FZA)

Expats from EU and EFTA countries benefit from the Free Movement of Persons Agreement. This provides easier access to the Swiss labor market and largely equal treatment compared to Swiss citizens.

Third Countries

Expats from non-EU/non-EFTA countries require a permit under the Swiss Foreign Nationals and Integration Act (AuG). The conditions are stricter, especially regarding self-employment and the duration of the residence permit.

Residence Permits and Tax Consequences

EU/EFTA Citizens

• Generally receive a B-permit for employment contracts over 12 months or an L-permit for fixed-term contracts under 12 months.
• For tax purposes, they are treated like Swiss citizens: withholding tax on wages and ordinary assessment for certain income or wealth thresholds.

Non-EU Citizens

• Often need to apply for a quota, as the number of permits is limited.
• Usually receive an L-permit for temporary assignments.
• Also subject to withholding tax, but often with fewer opportunities for subsequent ordinary assessment if the permit is very short-term.

Withholding Tax for EU and Non-EU Expats

Common Rules

For both groups:

• Withholding tax is deducted directly by the employer.
• Marital status and children affect the tax rates.
• Income above CHF 120,000 or additional earnings can trigger an ordinary assessment.

Differences in Practice

• EU expats often have better opportunities to claim deductions and request ordinary assessment due to the free movement agreement.
• Non-EU expats with short-term permits are often limited to withholding tax only.

Social Security

EU/EFTA Citizens

Thanks to the FZA, social security periods in Switzerland and the EU are combined. This means Swiss AHV contribution years are credited toward retirement in the home country.

Non-EU Citizens

Switzerland has bilateral social security agreements with certain third countries (e.g., USA, Canada, India). Without such agreements, expats may be able to reclaim their AHV contributions upon leaving Switzerland.

Double Taxation Agreements

EU/EFTA Countries

Switzerland has double taxation agreements with almost all EU and EFTA countries. These simplify tax coordination and prevent income from being taxed twice.

Third Countries

Switzerland also has agreements with many non-EU countries (e.g., USA, China, Australia). However, some countries have no agreement – in these cases, double taxation may occur.

Practical Examples

Example 1: EU Expat in Zurich

A German expat works in Zurich with a B-permit. Their salary is subject to withholding tax. Thanks to the free movement agreement, pension entitlements can be coordinated between Germany and Switzerland.

Example 2: Non-EU Expat in Geneva

A Canadian expat works in Geneva for nine months with an L-permit. They pay withholding tax without the possibility of ordinary assessment. Upon returning to Canada, they can reclaim AHV contributions based on the bilateral agreement.

Common Mistakes and Tips

Common Mistakes

• Assuming all expats are treated the same regardless of origin.
• Forgetting to claim AHV contributions when leaving Switzerland.
• Being unaware of existing or missing double taxation agreements.

Tips for Expats

• Check early if a social security agreement exists with your home country.
• For EU expats, ordinary assessment may be beneficial to claim deductions.
• For non-EU expats, clarify in advance whether AHV contributions can be reclaimed.

Conclusion

Tax regulations for expats in Switzerland depend heavily on their country of origin. EU and EFTA citizens benefit from free movement and easier tax rules, while non-EU citizens are often subject to stricter limitations.

Those who understand the differences and make use of double taxation and social security agreements can optimize their tax situation and avoid unpleasant surprises.