At Swissential, our consultants are often faced with the early disappointments of foreigners settling in Switzerland. Before moving in, like many internationals, their thought process is as follows:
- The average salary is CHF 6’500 per month (EUR 5’500), Swiss people must be very happy and comfortable, life is good.
- I have been offered a position with a starting salary of CHF 120’000, and considering taxes are low in Switzerland, this is a great opportunity.
This thought process is unfortunately misleading and creates a lot of initial disillusions.
Let’s start with some facts and figures:
- Swiss Population: 8.5 million
- % of foreigners: 25%
- Unemployment rate – around 4%
- Active population: app. 4.5 million
- % of employees earning more than CHF 125’000 per year: 10% (or 450’000 people)
Let’s now focus on a few key topics:
1. COST OF LIFE: let’s keep it simple. Go shop in Migros or COOP, and then drive 15 min over the French or German border, then compare the cost of groceries. You will notice most items are for some twice cheaper, but at least 50% cheaper. In general, cost of living in Switzerland compared to neighbouring countries is 50% more expensive.
2. SOCIAL CONTRIBUTIONS – AVS: any employee earning an income above CHF 85’000 approximately is paying what some consider a 5% extra tax on their income. Indeed, the benefits derived from the state pension system are similar to employees earning CHF 300’000 CHF a year, rather than the one earning CHF 85’000 a year.
3. INCOME TAX: Swiss residents pay taxes on their income, like anywhere else in Europe. Unfortunately, there is no flat tax like in many other European countries. Unlike any other country, Switzerland also taxes the fictitious rental income from property owners, who are unlucky enough to live in their own home. Taxes very quickly exceed the 40% marginal income tax rate for couples earning above CHF 250’000 a year.
4. WEALTH TAX: Switzerland is one of the very few countries in the world still taxing wealth. Such tax has been wildly considered inefficient and therefore cancelled or amended by many countries, including France and Sweden. Geneva has the highest rate, with a 1% tax levied.
5. CAPITAL GAINS TAX = 0: on this front, Switzerland is doing very well, hence the reason many wealthy individuals have decided to settle down in Switzerland. All things considered; this does not really make a difference for the common man.
To summarize, if you consider yourself part of the upper Swiss middle class, with a comfortable lifestyle and regular monthly saving potential, the main difference between Switzerland and other European countries is that whilst it is hard to save EUR 1’000 per month when working in France or Germany, it is very easy to do so in Switzerland. Any monies saved consistently in Switzerland over the mid-term can get you a long way when back in your home country. It is not uncommon to see a couple working in Switzerland for 5-10 years, save money and buy a big house outright (without mortgage) when returning back to their country of origin.
Food for thought.