Which Double Taxation Agreements Are Especially Relevant for Expats?

Expats in Switzerland often face a complex tax situation: income or assets in multiple countries, differing tax years, and the risk that the same income is taxed twice. To prevent such double taxation, Switzerland has concluded double taxation agreements (DTAs) with many countries.

For expats, it is crucial to know which agreements are relevant for their personal situation, how they work, and what benefits they provide. This article provides a comprehensive overview of the key double taxation agreements and their impact on expats.

Basic Concept of Double Taxation Agreements

Purpose of DTAs

A double taxation agreement is an international treaty between two countries that determines which country has the taxing right over specific income or assets. The main goal is to avoid or reduce double taxation.

Principles of Tax Allocation

DTAs define:

• Where income from employment is taxed
• How self-employment income is treated
• In which country dividends, interest, and royalties are taxed
• How real estate is taxed
• Rules for pensions and retirement income

Methods to Avoid Double Taxation

Exemption Method

Under this method, foreign income is declared in Switzerland but exempted from Swiss tax, affecting only the progression rate (progression proviso).

Credit Method

Foreign taxes paid are credited against Swiss tax liability, effectively preventing double taxation.

Mixed Methods

Some agreements use a combination depending on the type of income (e.g., exemption for employment income, credit for capital income).

Relevant Countries for Expats

Germany

Germany is a major source country for expats in Switzerland. The DTA covers:

• Taxation of cross-border commuters
• Treatment of pensions and retirement benefits
• Allocation of tax liability when living in one country and working in another

France

The agreement with France is especially relevant for cross-border commuters. Key provisions include:

• Taxation of employment income
• Taxation of real estate in France when resident in Switzerland
• Treatment of pensions and social benefits

USA

The DTA with the USA is complex, as US citizens remain taxable worldwide regardless of residence. The agreement helps avoid double taxation, particularly through:

• Rules on interest and dividends
• Credit method for taxes already paid
• Protection against excessive taxation of pensions

Italy

The agreement with Italy regulates taxation of cross-border workers and considers the specifics of the Italian social security system.

United Kingdom

The DTA with the UK mainly concerns expats receiving pensions or capital income from the UK. Post-Brexit, some provisions have changed slightly but largely remain in effect.

Impact on Different Types of Income

Employment Income

Employment income is generally taxed where the work is performed. For expats, this means Swiss-sourced income is primarily taxed in Switzerland. DTAs prevent the home country from taxing the same income again.

Self-Employment Income

Taxation depends on whether a permanent establishment exists in the other country. Expats with international consultancy work should verify this carefully.

Capital Income

Dividends, interest, and royalties are often subject to withholding tax in the source country. DTAs regulate reduced withholding rates and allow crediting in Switzerland.

Real Estate

Real estate is always taxed in the country where it is located. DTAs ensure that Swiss taxation only considers foreign property for progression purposes, without actual double taxation.

Pensions and Retirement Income

Taxation of pensions is often contentious. Depending on the agreement, either the residence country or the source country has the primary taxing right. Expats should verify which DTA applies to avoid double taxation.

Practical Examples for Expats

Example 1: German Expat in Zurich

• A German expat works in Zurich but owns a rental property in Munich.
• The DTA stipulates that rental income is taxed in Germany, while employment income is taxed in Switzerland.

Example 2: American Expat in Geneva

• A US citizen works in Geneva and also receives dividends from US stocks.
• The DTA ensures the US applies a reduced withholding tax on dividends, while Switzerland considers worldwide income for tax purposes.

Example 3: British Pensioner in Switzerland

• A British retiree moves to Switzerland.
• The UK pension is taxed according to the DTA, either in the UK or in Switzerland, depending on the type of benefit.

Risks and Common Mistakes

Lack of Knowledge

• Many expats rely on general information without reviewing the specific DTA for their country, which can lead to incorrect declarations.

Missing Documentation

• To benefit from DTAs, proof is often required (e.g., residency certificates). Missing documents can result in double taxation.

Different Tax Years

• Some countries have tax years different from Switzerland (e.g., USA: until April 15).
• Careful planning is needed to comply with deadlines and credits.

Tips for Expats

• Verify whether a DTA exists between Switzerland and your home country, and which types of income it covers.
• Collect all relevant documents early, such as residency certificates or tax assessments.
• Pay attention to the method applied (exemption vs. credit).
• Seek professional tax advice for complex income or asset situations.

Conclusion

Double taxation agreements are a critical component of tax planning for expats. They ensure that income and assets are not taxed twice and provide clarity on which country has the taxing right. Agreements with Germany, France, USA, Italy, and the UK are particularly important.

Expats who understand the rules, correctly declare income, and submit the necessary documentation in time can benefit from significant tax advantages and avoid costly mistakes.