Withholding tax in Switzerland: Who pays, how is it calculated and what employers need to know
Withholding tax in Switzerland is an income tax that the employer deducts directly from the gross salary of foreign employees and periodically transfers to the competent cantonal tax administration. The deduction is made monthly with the salary payment, and the settlement with the tax administration takes place monthly or quarterly, depending on the canton and the number of employees.
The most important information at a glance
What is source tax: Source tax is an income tax for certain foreign employees and is deducted directly from their salary.
Who is affected by source tax: Foreign employees with a B or L permit, as well as cross-border commuters without a C permit
Who remits the tax: Employers, monthly or quarterly to the cantonal tax administration
What is the rate: Varies by canton; for cross-border commuters from Germany with a certificate of residence, maximum 4.5%
From when is a tax return mandatory: From a gross salary of CHF 120,000 per year (subsequent ordinary assessment)
What is withholding tax: Source tax on capital income (35%), separate system from the salary deduction
Where can the rates be found: On the website of the FTA and the responsible cantonal tax administration
What is source tax, and who does it affect?
Source tax is not an additional tax, but rather the regular income tax for certain groups of people, which the employer withholds directly from the salary on a monthly basis. The legal basis is the Federal Act on Direct Federal Taxation (DFTA), which legally obliges employers to make the deduction and forward the amounts to the cantonal tax administration.
Who is subject to source tax and who is not depends on residence status and domicile.
Affected by source tax:
Foreign employees with a B permit (residence permit) or L permit (short-term residence permit) domiciled in Switzerland
Cross-border commuters and weekly residents domiciled abroad
Artists and athletes with short-term engagements, as well as board members domiciled abroad
Not affected:
Swiss citizens
Persons with a settlement permit C
Persons domiciled in Switzerland who live in an undivided marriage with a person who holds a C permit or a Swiss passport (this exception does not apply to cross-border commuters domiciled abroad)
The deductions for AHV/IV/EO appear on the same payslip as the source tax, which keeps the process clear for employers.
Employers hiring foreign staff for the first time are faced with a clearly regulated but administratively demanding obligation: they must know the correct rate code, calculate the deduction correctly, and transfer the amounts on time. A mistake in any of these steps can lead to back-taxes demanded by the cantonal tax administration. To compensate for the effort, employers retain a collection commission of usually 1 to 2% of the remitted tax amount.
How do source tax rates work in Switzerland?
Which source tax rate applies does not depend on the employer, but on the employee's personal circumstances: civil status, number of children, church affiliation, and income determine whether code A, B, C, H or another letter is applied. The source tax rate codes in Switzerland are designated with the letters A to U. They are fundamentally defined in Circular No. 45 of the FTA; the cantons base their rate tables on the calculation parameters of the FTA.
The most important rate codes for employers:
Rate code | Group of persons | Special feature |
|---|---|---|
A | Single, no children | Standard case |
B | Married, one person employed | Single-earner household |
C | Married, both employed | Dual-earner household |
H | Single with children | Single-parent household |
L, M, N, P | Cross-border commuters from Germany (analogous to A, B, C, H) | With certificate of residence, maximum 4.5% of gross salary |
G | Substitute income (e.g. daily allowances) not paid out via the employer | Billing by the insurer, not the employer |
Each canton publishes its own rate tables, usually as a TXT or ZIP file on the FTA website and the respective cantonal tax administration. Church tax is factored into the rate code: those who do not belong to a national church pay a lower rate.
If an employee's civil status, number of children, or church affiliation changes, the new rate code only applies from the first day of the month following the event, not retroactively.
For employers, this means in practice: if an employee reports her marriage on 15 March, the new rate code (B for a single-earner household, C if both are employed) only applies from 1 April. Anyone who forgets the adjustment or makes it too early risks incorrect accounting that must be corrected during the year-end closing.
How do employers calculate source tax?
Employers are responsible for correct rate assignment and timely transfer. An incorrect rate code leads to back-taxes during the year-end closing. Because the rate code and gross salary are fixed, the calculation follows a five-step process.
Step 1: Determine the rate code
To-Do: Define the rate code based on the employee's civil status, number of children, canton of residence, and church affiliation and enter it in the payroll accounting system.
Common error: A change in rate after marriage or birth is not adjusted in the following month, even though the Zurich Cantonal Tax Office and other cantons explicitly require this.
Step 2: Determine the taxable gross salary
To-Do: Calculate the total taxable salary for the month, including bonuses, overtime, and benefits in kind.
Common error: One-off allowances such as annual bonuses are forgotten, even though they factor into the taxable gross salary.
Step 3: Read the tax amount from the cantonal rate table
To-Do: Take the tax amount from the valid cantonal rate table of the FTA for the corresponding rate code and salary amount.
Common error: Using an outdated rate table from the previous year, even though rates are adjusted annually.
Step 4: Deduct the amount from the salary and book it
To-Do: Deduct source tax from the gross salary, pay out the net salary, and correctly book the deduction in the payroll accounting.
Common error: Booking source tax to the wrong account, which complicates the year-end closing and the compensation office accounting.
Step 5: Submit the declaration to the cantonal tax administration and transfer the amount
To-Do: Submit the declaration on time to the responsible cantonal tax administration and transfer the amount. Depending on the canton and the number of employees subject to source tax, billing is done monthly or quarterly; payment is usually due within 30 days after the end of the billing period.
Common error: Choosing the wrong cantonal authority. For employees domiciled in Switzerland, the canton of residence is responsible, whereas for cross-border commuters domiciled abroad, the canton of the employer's registered office is responsible.
Source tax for cross-border commuters and employees domiciled abroad
Whether and how much source tax cross-border commuters pay depends on their country of residence and the applicable double taxation agreement (DTA). The regulations differ significantly.
Germany: The Germany-Switzerland cross-border commuter agreement (Art. 15a DTA Germany-Switzerland) limits the Swiss source tax for cross-border commuters to 4.5% of the gross salary. The prerequisite is that the employee presents a certificate of residence from the German tax authorities; without this certificate, the ordinary rate applies. The rate is withheld directly by the employer in Switzerland and transferred to the responsible cantonal tax administration. The taxation right thus lies proportionally with Switzerland.
France: A special arrangement applies to cross-border commuters from France: in the cantons of Bern, Solothurn, Basel-Stadt, Basel-Landschaft, Vaud, Valais, Neuchâtel, and Jura, the right of taxation basically lies with the state of residence, France, according to the 1983 agreement. The Swiss employer issues a certificate so that no double taxation occurs. Geneva is the most important exception: the canton has not joined this agreement and continues to tax cross-border commuters from France ordinarily at source.
Italy: A new source tax regime has applied to cross-border commuters from Italy since 1 January 2024. The new cross-border commuter agreement between Switzerland and Italy affects employees in the border cantons of Ticino, Graubünden, and Valais. Among other things, whether the residential municipality lies within the 20-kilometre border zone is decisive.
For artists, athletes, and board members domiciled abroad, the event organiser or the debtor of the performance takes on the role of source tax deduction. The FTA publishes the DTA overview for all partner countries in annually updated leaflets and summaries (currently in Circular No. 217, status 1.1.2026). Employers who hire staff from several countries should check for each nationality which DTA applies and whether jurisdiction lies with Switzerland or the country of residence.
When is a subsequent ordinary assessment worthwhile?
Anyone who earns less than CHF 120,000 and has no other taxable income or assets does not have to file a tax return, but can voluntarily request a subsequent ordinary assessment (SOA) if deductions would lower the tax burden. The threshold of CHF 120,000 gross salary per year is the most important dividing line.
When the SOA is compulsory:
Gross salary exceeds CHF 120,000 per year: The subsequent ordinary assessment is then mandatory. The source tax already paid is credited against the regular tax liability. Depending on the situation, a refund or a back-payment results.
Additional income or assets: Anyone who has other non-source-taxed income (e.g. securities income or property income) or taxable assets in addition to the source-taxed salary is also subject to mandatory subsequent ordinary assessment, regardless of the level of salary.
When a voluntary SOA is worthwhile:
High payments into Pillar 3a: The deduction reduces taxable income below the source tax level.
Further education costs or medical expenses that exceed the source tax deduction allowance.
Professional expenses that are covered at a flat rate in the source tax but are higher in individual cases.
Deadline and process:
The application must be submitted by 31 March of the following year. This deadline applies uniformly throughout Switzerland; it is a forfeiture deadline and cannot be extended.
Anyone residing in Switzerland who voluntarily requests an SOA will remain ordinarily assessed in subsequent years until the end of their source tax liability. The application cannot be revoked.
Anyone requesting a voluntary SOA should carefully compile their deductions before submitting the application. Pillar 3a contributions, training receipts, and medical expense receipts must be complete before the application is submitted. If documents are missing, the application cannot be corrected once the deadline has passed.
Withholding tax on capital income: interest and dividends
The source tax on capital income in Switzerland is regulated as withholding tax and operates under a different system than the salary source tax. The withholding tax on capital income and the salary source tax are two different systems operating under different laws: the basis for the salary source tax is the DFTA, while the withholding tax is based on the Withholding Tax Act (WTA).
Feature | Salary source tax | Withholding tax |
|---|---|---|
Law | DFTA | WTA |
Tax rate | Cantonal, rate-dependent | 35% |
Debtor of the tax | Employers | Paying entity (bank, AG) |
Affected income | Salary and earned income | Interest, dividends from Swiss sources |
Refund | Via SOA or year-end closing | Via tax return or application to FTA |
The FTA does not collect the withholding tax directly; instead, the bank or the public limited company (AG) paying out the interest or dividends retains 35% and forwards the amount to the FTA.
Persons domiciled in Switzerland can reclaim the withholding tax in full via their tax return. Persons domiciled abroad only receive a refund or partial refund via the respective applicable double taxation agreement (DTA).
For employees who draw both salary and capital income from Swiss sources, this creates two separate tax flows: the employer deducts the salary source tax, while the bank retains the withholding tax on interest and dividends. Both amounts can be offset via the tax return or the SOA, provided the conditions are met.
Process source tax directly in the payslip
Entering source tax directly in the payroll accounting software reduces manual calculation steps and lowers the risk of using an incorrect rate code. Employers enter the rate code once per employee. In the event of changes in status, the code must be adjusted in the following month.
Payroll accounting software with Swiss compliance coverage calculates this automatically based on the stored code and gross salary, including AHV/IV/EO deductions on the same payslip. nextesy features source tax accounting as part of payroll with nextesy, so that rate changes and periodic transfers converge in a single process.
