Reducing the Tax Burden with Pension Provision
The best way to reduce your tax burden in Switzerland is through pension provision. In fact, whether it's purchases made in your pension fund or payments to 3rd pillar, you can deduct all these amounts from your taxes.
Pillar 3a vs. Pillar 3b
Although the pillar 3a is tax-efficient, you will not be able to withdraw it freely (unlike the pillar 3b). The pillar 3a can only be withdrawn once you have reached retirementage. If you are an employee, you can deduct a maximum of CHF 7,258 or 36'288 CHF if you are self-employed.
Pillar 3b, on the other hand, can be used for any type of savings project, including retirement. However, Pillar 3b does not allow you to deduct contributions, nor does it allow you to reduce your tax burden.
Purchase of 2nd Pillar Contributions
In Switzerland, buying back LPP contributions is possible, while subject to certain conditions. Often, if your salary has changed and you've been able to save money, you'll be authorized to make a buy-back, which is fully tax-deductible. However, you'll first need to check with your compensation fund.
Carry Out Renovations
Necessary Repairs
Depending on the type of renovation you wish to carry out on a property, you may be able to deduct a certain amount from your taxes. The repairs in question will be deducted from the rental value.
You can reduce your tax burden by deducting renovation costs insofar as these are necessary to maintain the condition of the property, such as :
- Renovating a facade
- Roof renovation
- Renovation of a room such as a kitchen or bathroom (including replacement of appliances)
However, you won't be able to deduct expenses such as the construction of a garage or a swimming pool, since these are renovations that are not deemed to be requiredrenovations. Work that adds value to a house is therefore not accepted.
Investing in Energy Efficiency
In some cases, you can reduce your tax burden if you decide to renovate a property to make it more energy-efficient,you can deduct the cost from your income tax. The following renovations can be included:
- Alternative heating systems such as heat pumps
- Solar panels
- Better insulation for walls, floors and windows
Deduct Training Costs
In Switzerland, you can reduce your tax burden by taking a training course. This training cannot be just any training; it must be in a field similar to your current job, and help you to do it better.
You can deduct up to CHF 13,000 on your taxes for training or retraining costs. However, 2 conditions must be met:
- Secondary II diploma
- Be at least 20 years old
Deduct your Travel Expenses
Unless you telecommute, as an employee you can generally deduct your travel expenses (from home to work) from your taxes. The deductible amount depends on the length of your commute, but is capped at CHF 3,300.
Depending on the canton, you may be able to deduct other travel expenses from your taxes to reduce your tax burden. In Geneva, for example, travel expenses are deductible up to a maximum of 529 CHF per year.
Deduction of Business Expenses
The professional expenses you incur while working are deductible from your tax return. Generally speaking, the deduction is lump-sum and covers travel expenses, meals taken away from home, and any other expenses such as clothing and tools needed to carry out the professional activity.
Deductions for Dependants
To reduce the tax burden on employees, Switzerland allows workers to deduct certain expenses for any dependants from their taxes. For dependents and children, you can deduct up to CHF 6,800 per child or dependant.
Childcare costs are also deductible, up to a maximum of CHF 25,800 per child.
Dividend Payments
If you are a shareholder or owner of a company, you are usually entitled to receive dividends. These can take a variety of forms, including cash, stock or in-kind dividends.
In Switzerland, a withholding tax of 35 % is deducted at source from dividends. If you are a Swiss resident, you can reclaim this tax by declaring your gross dividends on your annual tax return. This allows you to convert the tax into a tax credit, or to reclaim it directly.
Deductions for Married Couples
Although being married in Switzerland has a number of tax disadvantages, there are also a number of benefits. If you are a married couple contributing to the 2nd and 3rd pillars, you can deduct CHF 3,700 to reduce your tax burden. Without contributions, you can deduct CHF 5,550.
Make a donation
Donations to charitable organizations can be deducted from your tax bill, reducing your tax burden. This deduction only applies if the donation(s) amount to at least CHF 100. The deduction is capped at 20% of net income.
Frequently Asked Questions
How can I reduce my tax bill with a pension plan?
The best way to reduce your tax burden is to take out a pension plan. You can deduct your pension fund contributions (2nd pillar) or 3rd pillar payments from your taxable income, thereby optimizing your tax situation.
What's the difference between Pillar 3a and Pillar 3b?
Pillar 3a is tax-efficient, but locked in until retirement. Pillar 3b is more flexible, but does not allow tax deductions.
How much can you deduct under Pillar 3a?
Employees: Up to CHF 7,258
Self-employed without 2nd pillar: Up to CHF 36,288
Is it possible to deduct the purchase of BVG contributions?
Yes, under certain conditions. Buying back BVG contributions is fully tax-deductible and helps to improve your pension cover.
What renovation work is deductible?
Necessary maintenance work (roofing, facade, kitchen, bathroom) is deductible, but not work that increases the value of the property (garage, swimming pool).
Are energy renovations tax-deductible?
Yes, investments in energy efficiency (heat pumps, solar panels, insulation) are tax-deductible.
