A question on pro-rata taxation I would appreciate if someone could share their experience with me.

I moved to CH (canton Schwyz) and started working in October. Having received my first payment, it seems that I am being taxed at the tax rate equivalent to me working the full year. Obviously during this Oct-Dec tax year I will only receive 3/12 of my annual salary and therefore the tax rate would have to be significantly lower.

What should I do in this situation?
a) Do I file a tax return - despite earning less than CHF 120k during these 3 months?
b) Do I just inform my canton and if so which authority would be responsible for that?

I think many will have been in this situation.

Many thanks!

It doesn‘t work like the UK. When you are taxed at source you get taxed on the monthly amount, not the annual amount.

That's not correct on either count.

In order to know your tax rate you need to know your total income for the year.

Companies assume that your annual income matches your salary for the full year, and base the tax band on that. Even if you move companies during the year this is typically a decent assumption.

The same applies to the UK, you also get taxed on the monthly amount, except there when you hand over your P45 it shows tax-to-date and the calculation can be corrected.

OP - if your tax return would give you a better result, you can do that.

Been discussed several times. Indeed in CH they apply the tax rate assuming full year income on the amount you actually earned. They do not want people to benefit by having 2 half years of taxation.

Incidentally the same is true when you leave - they assume same income for the whole year to decide the tax rate.

If you do a tax declaration they will ask you for income for the full year also to determine the tax rate.

K

Thank you for your responses guys - much appreciated!

@eyebeebe - for high earners and considering progressive nature of taxation it would be unfair for that to be the case. Of course, not saying not possible, I have come across other irrationalities here! It would just be massively annoying.

@newtoswitz - thank you. You are right indeed, this is how it is done in the UK. Only difference is that HMRC after a couple of months send you a check in the post with excess taxes you have paid, without needing to file a tax return. Should they not, you just give them a call and within a week you get the check.

@kri - does it mean that even if I file a tax return I would not receive the amount I have "overpaid"? I would declare the income I have actually received (3/12 of salary).

You have not "overpaid" - as explained - if you earn 5K taxable income a month for 3 months, the Swiss system assumes that is 60k a year and applies the tax rate of 60K taxable income to 5K a month.

The only way to avoid this would be to contest and prove you were not working the rest of the year - for example if you were studying (was the case of my husband who finished his studies in Nov and started working in Dec). But it's a hard battle.

If you did work the rest of the year and file a tax declaration then the tax authorities will consider your previous income for the purpose of calculating the tax rate.

K

@kri - I was working in a different country and paid taxes there. Does it count or last battle?

I think you are actually agreeing with what I wrote regarding the UK.

Regarding Switzerland, there are multiple threads which cover this topic. It‘s why all the Quellensteuer tables are based on a monthly number, not an annual one. I remember it happening when I moved here. I moved in the summer, was paid a relocation grant which meant that my tax for that month was 1000s higher than it should have been and I paid 10s of thousands of MBA course fees. In a full year, I‘d have been able to complete a tax return and pay the „correct“ amount of tax. PwC sent multiple letters to the tax office on my behalf, but gave up in the end.

If you have evidence that it is as you say and not as kri and I have said, please post the links.

It counts as you will not pay tax on that earned money but it
The money earned abroad will count towards establishing your taxation rate in CH. You cannot simply declare the 3/12, they will ask you about worldwide income and lying to the tax authorities is not a good idea

Again, the Swiss want to avoid that you benefit from "2 half years" and paying less taxes than you should, hence this system.

What you can do if you do a tax declaration is then ask to extrapolate all deductions for example, like transport and food etc.

Up to you how much time and will you have but it will never come to a tax rate considering only the income generated in CH.

Sorry, I see what you are saying now.

Yes, the Quellensteuer calculation is based on monthly tables - that is also what I meant about them assuming your annual salary for the whole year, the monthly tables just divide the bands by twelve so that is the result.

But I don't understand what you mean about "in a full year" you could complete a tax return; you can do a tax return even if you haven't been resident here for a full year. I had a similar situation to you and just did the return to get a nice refund.

Sorry that wasn’t clear - If I‘d been living here for the full year and hence had earned over 120k and had the obligation to fill in a tax return. At the time ZH tax office wouldn‘t let me submit a tax return, as my Swiss earnings for the year, from August when I arrived, were under CHF 120k. Instead we tried to plead special circumstances, but they weren‘t interested - probably because by the time we‘d deducted my MBA expenses, my tax would have been close to zero.

I didn't realise that they could refuse to accept a tax return!

Nothing to do with being taxed at source, it is also pro-rated for Swiss and others who pay normal taxes.

Tom

Sorry if this is super obvious - but what if you are only here part of the year but earn over 120k in the part you are here?

In my case im guessing I have to file a tax return but don't get any discount on my monthly tax bill? (I guess I should get at least a bit as I paid Basel tax early in the year).

Why a discount? You get that back hopefully when you file your tax return.

There is no discount because you came in later in the year.

Sorry I was being unclear. What I meant is will I get money back when I file my tax return (ie will my earnings be assessed over a 12 month period and tax calculated accordingly)?

When you leave say 1st of July, the tax authorities extrapolate your salary to the full year to calculate the tax rate and then apply it to the amount earned in CH. All deductions also extrapolated. When you file your tax return all gets settled. But your tax rate stays "as if" you had earned the full year, again to avoid that you "beenfit" from 2 half years and a lower tax rate.

I would assume the same happens when you arrive in CH.

It does

The earnings in CH will be extrapolated to 12 months and the resulting tax rate applied to what you earned whilst being resident in CH.

Thanks very much Kri and Roegner 👍