Simple guide to save taxes in Switzerland

This article was written in collaboration with our financial blogger Eric von Schwiizerfranke. On his blog, he shares his extensive financial knowledge as a certified wealth advisor with his community.

The basis: Spending money to save taxes

If you've just taken your first salary and don't have much money on the side yet, you don't have to worry much about tax optimisation. In Switzerland, we have relatively low taxes compared to other countries. The more income and assets you have, the more you can optimise your taxes.

However, it is a mistake to buy a new SBB abonnement just to save taxes. If you don't really need it, your money is definitely better off elsewhere.

Ask yourself where you can really put your money to good use so that it serves you financially in the long term and you can save tax in the process. The following points are simple ways to save tax that anyone can apply.

Cantonal differences: Know your deductions 

There are different ways to optimise your taxes in each canton. It is therefore worthwhile to research tax optimisation tips for your canton.

4 rarely used tips for tax optimisation:

• In many cantons, a lump sum of CHF 700 can be deducted for a bicycle.
• If you have underage children, you can deduct an amount for them. 
• In the canton of Zurich and in many other cantons, a lump sum of up to CHF 500 can be deducted for further education without proof.
• You can deduct the Selma fee from your taxes as asset management costs.

Probably the most popular option: Pillar 3a

With voluntary pension provision in Pillar 3a, you can address many more financial goals than just your pension provision. In Pillar 3a you can build up tax-optimised assets and even withdraw them for purposes other than pension provision.

Pillar 3a assets can be withdrawn:

• 5 years before the normal retirement age
• To promote home ownership in Switzerland (WEF - promotion of home ownership)
• When setting up a self-employed business
• When permanently moving out of Switzerland 
• In the event of disability or death
• For a tax-optimised purchase into the pension fund

Within Pillar 3a, you are free to choose whether you want to proceed with an account solution (interest), a custody account (securities) or insurance (policy).

My tip: It is better to choose insurance outside of pillar 3a in order to remain flexible at all times. Depending on the investment period and your personal circumstances, a securities custody account or an interest solution may be the most exciting option for you.

Pro tip: Avoid tax peaks

Since higher taxes are due as your income increases, you should avoid spikes in your income. Peaks occur especially when you earn additional income or when you draw on your pension funds. In order to avoid such tax peaks, you should already pay attention to a few things at a young age.

This way you can reduce your taxable income in a targeted manner:

• Pillar 3a: Accumulation of assets in pillar 3a can become a tax trap if you do not build it up in stages. You should therefore build up several pots (ideally 5) during the payment years. You can then draw on these 5 pots in stages over 5 years before you retire and thus spread out income peaks.
• Pension fund: Voluntary purchases into the pension fund are most profitable in the last years before retirement. Purchases improve your retirement capital and reduce your taxable income. Instead of buying in in one year, you can spread the purchases over several years. Just bear in mind the 3-year lock-up period if you plan to make a lump-sum withdrawal.
• Real estate: For homeowners, there is the possibility of claiming value-preserving work against taxes. There are some lump sums that you can use cleverly. Either you spread your expenses for maintenance over several years in order to use the lump sums, or you collect and accumulate them in order to specifically go over the lump sum.

Conclusion

The possibilities for tax optimisation in Switzerland are much broader than those described in the article above. But with a little effort and the above tips, you can already save several thousand francs in taxes per year!

If you have any further questions, please feel free to contact the Selma Finance team or leave me a comment on my Swiss finance blog!