Tax changes in force from 01.01.2023

Written by Fidinam News | 1/05/23

Introduction

Every year, tax legislation is updated in relation to current developments and also according to the rulings of the Federal Supreme Court and the Tax Appeals Commission.

Expenditure-based taxation

The tax is calculated on the basis of the annual expenses corresponding to the taxpayer's standard of living and that of the persons he supports, expenses incurred during the calculation period in Switzerland and abroad, with the higher of the following amounts as the starting point:

CHF 400,000;
For taxpayers who have their own household: an amount corresponding to seven times the annual rent or rental value;
For other taxpayers: an amount corresponding to three times the annual pension price for room and board at the place of residence;

or as a control calculation, the sum of the following incomes:

Income from immovable assets located in Switzerland;
Income from movable property located in Switzerland;
Income from securities placed in Switzerland, including loans secured by real estate pledges;
Income from copyrights, patents and similar rights exercised in Switzerland;
Swiss retirement allowances, source annuities and pensions;
Income for which the taxpayer claims full or partial relief from foreign taxes under a double taxation agreement concluded with Switzerland.

For the determination of expenditure, the cantonal authority, aligning itself with cantons where expenditure-based taxation is present, obliges the taxpayer to submit a form to determine whether the last year's value is still current or whether adjustments, both in favour of and against the taxpayer, should be applied.

It should also be noted that, for the time being only at the federal level (FDTA Art. 14 para. 3 lett. a), the minimum taxation has increased from CHF 400,000 to CHF 421,700.

There is no further news regarding expenditure-based taxation.

New share right

As of 1 January 2023, the new share law came into force.

Mention should be made here of the implementation of the 'Capital Band' (CB), which allows the company to undertake capital creations and repayments over a period of five years. Only after this period must the calculation be made to see what the taxation of such transactions might be.

In general, the following formula should be taken into account:

- If the contributions to the reserves during the CB period is greater than the repayments of capital from reserves, then we are in the presence of a withdrawal of the 'Capital Contribution Reserve' (CCR), which will benefit from the exemption upon payment. We advise you to consult Circular No. 29c of 23.12.2022 for a more detailed picture of the specifics.

Increased deductions for children and needy dependents

The increase is due to the deduction on payments, premiums and contributions for life, health and accident insurance as well as interest on savings capital.

The taxpayer or the person whose support he provides pursuant to Art. 34 para. 1 lit. a) and b) of the Federal Direct Tax Act (FDTA) is allowed to deduct the actual costs up to a maximum amount for each child who is a minor, in training or studying up to the age of 28 and for each person residing in Switzerland who is totally or partially incapable of gainful employment and whose support the taxpayer provides:

- CHF 10,500 for spouses living in a common household;
- CHF 5,200 for other taxpayers:
- CHF 14,800 for spouses living in a common household but who do not pay any contributions to pension institutions;
- CHF 7,400 for other contributors who do not, however, pay any contributions to pension institutions.

These categories mentioned above will be able to deduct an additional CHF 1,200 for each additional child and person in need.
It should be noted that we will be called to the polls on this deduction next June. If the outcome of the vote is positive, this option will come into force on 1 January 2024.

Taxation of frontier teleworkers

On 1 February 2023, the agreement with Italy on teleworking fell through.
This means that if the worker makes use of the possibility of teleworking, the condition of daily return lapses and consequently so does the 1974 taxation agreement between Switzerland and Italy whereby taxation takes place in both states, the place where the activity is carried out and the state of residence.
If an Italian resident teleworks for one day a week, as described above, and does not return daily, the status of a frontier worker for the purposes of the 1974 Agreement on Frontier Workers lapses and therefore the salary must be levied at 100% in Italy.

The general rule of Art. 15 DTA CH-IT states that such income must be imposed:
- 80% of the salary, 4 days a week, is taxed in Switzerland
- 100% of the salary is taxed in Italy, which under Art. 24 para. 2 DTA CH-IT must grant a tax credit for the taxes paid in Switzerland.

The company that employs the frontier worker must still subject the salary to 100% withholding tax.
By and no later than 31 March of the following year, the employee may request a refund of the withholding tax withheld by the employer in respect of the day on which he worked in Italy by teleworking through the online portal on the website (www.ti.ch/fonte) by selecting the 'Request for correction of withholding tax' menu.

To obtain such a refund, proof must be provided that the income has been taxed in Italy.
In order not to incur tax problems, the employee must inform the employer about teleworking days.
As far as teleworking is concerned, there are other states that have ratified friendly agreements with Switzerland.

For example, with France, teleworking is permitted up to 40% of working time. So up to this maximum, daily return is not necessary and without risk of losing status as a frontier worker.

Conclusion

As can be seen from the above, taxation is constantly evolving an so, if someone is unfamiliar with the regulations, they may seek the support of our tax advisors, who are always up-to-date and have the expertise to avoid tax problems for both individuals and legal entities.

Fidinam & Partners

This article, published also in the April 2023 Newsletter by Fidinam & Partners, is edited by Rudy Summerer, Head of the Swiss Tax Consulting Competence Center.

Read all the other articles Fidinam & Partners' April 2023 Newsletter.

Click here to ask specific questions on the subject or to request an advice.

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