Let’s pick Lauren as an example. She is 35, married and is currently earning 100,000 CHF per year. She is pregnant and wants to understand how the 60% contract when she returns to work after maternity leave is going to impact her pension provision and associated benefits.

Current Situation:

She earns 100,000 CHF per year. The coordination deduction is currently 25,095 CHF (this reduction is to coordinate the first and second pillars) therefore the coordinated salary is:

• 100,000- 25,095 = 74,905 CHF

As she is 35, a minimum of 10% is paid into her second pillar therefore 7,490 CHF is being contributed on an annual basis.

60% Contract:

60,000 CHF earnings per year. Lets assume the coordination deduction hasn’t increased since she returned to work, therefore the coordinated salary is:

• 60,000 – 25,095 = 34,905 CHF

She is now 36 and still in the 10% category so 3,490 CHF is being contributed to her second pillar on an annual basis.

Impact:

Lauren’s Second Pillar Retirement Savings

Although Lauren has reduced her contract by 40%, her annual second pillar contributions have decreased by 53%.

Lauren’s Second Pillar Insurable Benefits:

Children’s disability pension, children’s orphans’ pension, Lauren’s disability pension and the survivor’s pension in place for her husband will all also decrease as these are based on the new coordinated salary.

What does this mean for her and her family?

Lauren will be the main carer for their child and if Lauren was to become sick or die the family would have less protection in place as this is calculated on the new lower figure under the new contract.

At a time when they need more protection in place, they will have less.

What can be done?

In Lauren’s case she started a third pillar with insurance to protect her family on her death. Now if she dies before retirement the family will receive a 200,000 CHF lump sum and she is using the savings provision to save for her own retirement in line with her attitude to risk.

Of course, if Lauren’s circumstances were different my recommendations could have also been different – but that’s the benefit of a financial review

Pay bills, make dentist appointment, take cat to vet, help kids with homework, cook dinner, do washing, sort out finances……the list of daily tasks for any parent can be never-ending so add the pressure of work into the mix and it’s not surprising that sorting out those finances is all too often at the bottom of the list, waiting for a day when you’ll have more time.

But……will you ever have more time and when you do will it be a bit too late – a bit late to plan for your children’s education, a bit late to plan for meeting your aspirations in retirement? In reality there’s always something you can do but the earlier you think about putting a plan in place the more options will be available to you.

If you speak to a financial adviser, they’ll take you through the essentials of financial planning for people living and/or working in Switzerland. Your adviser will consider your personal circumstances – family situation, employment history and future plans before providing recommendations to suit your individual needs.

Parents have many of the same questions as everyone else but there are obviously areas of particular interest such as saving for children’s education, how to make the most of tax advantages related to childcare and how to deal with inheritance issues. Key questions parents often ask include:

• How much should I be saving for my children’s higher education?
• Will I have saved enough for when I reach retirement?
• How can I maximize the tax advantages available to me in Switzerland?
• Should I consolidate the pension plans I’ve accumulated abroad?
• How can I pass wealth on to my children in a tax-efficient manner?

Depending on your individual situation the adviser will answer your questions and propose savings and investment solutions to suit your requirements. What action you decide to take based on this advice is up to you but whatever happens it’s one more thing you can cross off your list!

As cohabitation is not recognised in law, you and your partner are to a large extent treated as individuals – and not as a married couple or as a couple in a registered partnership.

Cohabitation has no effect on the surname of either partner. Children from previous relationships keep would keep their original surnames. Children you have together take the mother’s surname. Joint custody of the children means they can be given their father’s name (the parents must submit a joint application to the civil register office).

Cohabiting has no effect on citizenship applications nor Old-age and survivor’s insurance and occupational pensions. The old-age and survivor’s insurance of each partner would be calculated separately. A partner who does not work can make minimal payments to retain their right to old-age and survivor’s insurance in Switzerland. If there is a dissolution of the relationship with your partner, you have no right to claim half of the contributions paid into pension funds and old-age insurance.

Property ownership in Switzerland can be complicated at the best of times. There are various types of property ownership: individual ownership, ownership of part of a multi-floor building and shared ownership. The financial participation of both parties is recorded in the land register. It is advisable bbefore you buy a property together; a written agreement should be signed. This agreement will confirm from the outset who will move out if you decide to terminate the relationship.

Taxes in Switzerland are to be completed individually when you and your partner live together as an unmarried couple. You each are required to complete your own tax return.

When the parents are unmarried, they must make a joint declaration in order to establish joint parental authority. The parents must declare that they:

• agree to share responsibility for the childd or children
• have agreed on residence for the child, on personal relations or each parent’s share of childcare duties and on child maintenance contributions.

When the parents are unmarried, they must make a joint declaration in order to establish joint parental authority. The parents must declare that they:

• agree to share responsibility for the childd or children
• have agreed on residence for the child, on personal relations or each parent’s share of childcare duties and on child maintenance contributions.

The declaration can be made at the civil register office at the time of recognition of the child, or later at the Child Protection Authority.The death of a partner is always tragic and during this time only made more difficult if things are stalled in probate.

• Inheritance: When your partner dies, you do not automatically inherit anything. There are limits on the provisions your partner can make for you in their will because Swiss inheritance law reserves certain proportions of an individual’s estate for close family members such as children and parents.
• Inheritance tax: If your deceased partner leaves you something in their will, you do not have access to the beneficial tax rates offered to close relations in most cantons.
• Widow/widower’s pension: Unmarried partners do not receive any widow/widower’s pension from the old-age and survivor’s insurance or accident insurance.
• Many pension schemes only offer a limited right to a survivor’s pension to unmarried partners.

The cohabitation agreement can be a preferred option as opposed to a Registered partnership. A registered partnership is only open to same-sex couples. Heterosexual couples who do not want to get married and same-sex couples who do not want to enter a registered partnership, but who still want to ensure legal rights for their partner can draw up a cohabitation agreement.

The cohabitation agreement is not regulated in law therefore it is advisable to draw up a written agreement. This does not need to be witnessed by a notary if it does not contain any provisions relating to inheritance.

Contents of the agreement can vary, below is a basic outline. The agreement should include the following points:

• What belongs to whom (make an inventory).
• Property purchases: Are you buying the property together as a joint purchase?
• Who gets to stay in the home you shared as a couple if you break up, and what is the notice period?
• How are you going to split the costs of running the household?
• How high are the monthly maintenance contributions that the higher earner will pay to the other person if you split up?
• How will you split your assets and how will you divide up contributions paid into old-age and survivor’s insurance and pensions schemes?
• Death: Are you going to take out a life insurance policy that will benefit the surviving partner if the other partner dies?
• Children: Decide

Living together as an unmarried couple does not automatically give the partner rights but given some prior planning and information can provide a level safety and comfort in these circumstances. It is always advised to consult with an expert.

The dream is becoming a reality. But taking the time to plan is important.

There are additional costs to consider. Moving expenses, time off to prepare, storage facilities, rental contracts, mortgages, household bills, tax bills, extra winter clothes (The weather in Zurich is somewhat different than Lisbon during winter).

Bills and expenses don’t stop when you move to a new country. In most cases they’ll increase before your move. Make sure you’re saving some cash each month before you move to cover these additional costs. If you need to take on debt, take a low-cost loan or use interest free periods on credit cards in your home country – you don’t want to take on debt as soon as you land. We would all like to believe we will be successful, and everything will work out, but always have a plan B and short-term savings will help you achieve this.

2. Just Arrived

You may find that whist acclimatizing you eat into your savings – generating a social circle will be important to help you feel comfortable in your new surroundings. Social spending may increase in the short term and there are a few key areas that you need to be address.

Understand your new tax environment. Low taxes are great, but what help will I get from the state? What if I’m ill? What if I can’t work? What happens when I die? What will happen to my family?

It is more than likely that without addressing these issues you run the risk of financial ruin. Policies that you previously had in place may now be invalid. For example, most Life Insurances taken out in the UK will not cover you for prolonged periods abroad. Health insurance is a big one. Switzerland has a relatively complex Healthcare system, for any newcomer. A review of what you have and what you need immediately is essential. Don’t let your loved ones suffer, make the future safe and protect what you can and what’s most important to you.

Understand what you are entitled to from your old tax environment. Not sure if you’ll be staying long? You have a 3 to 5-year plan and you’re going to return home? Want to spend more than 3 months back ‘home’ each year?

Generally speaking, if you call the UK ‘home’ and you spend more than 90 days there you could be deemed a resident and therefore taxed as such. In many cases, the time frame could be shorter depending on how many ties you have with the UK. Understanding your position is key to avoiding expensive mistakes. If you are deemed a UK tax resident your income could be liable to UK tax.

As an expat, you can also still contribute to the UK tax system through National Insurance contributions and benefit from accruing things like the State Pension. You can also contribute into a UK pension scheme up to £3,600 gross per year. Many pension schemes will give you basic rate tax relief at source and therefore it will only cost you £2,880 each year. There is a time limit on this ability and you can only do this for 5 years after you’ve left the UK.

Knowing what you don’t know, is a skill we ignore all too often. Speak to those that do.

3. One Year In…

You’ve survived the first year! By now you should have a good idea about what’s coming in and what’s going out every month. If you don’t you should do. Budgeting is key to understanding where your money is going and how much extra you have at the end of the month. Expats enjoy a healthy salary and have the opportunity to secure their financail future. Don’t waste it.

Make the most of what you have where you live. In Switzerland you have access to very tax efficient savings vehicles. Planning early enables you to take advantage of tax savings earlier, and you’ll benefit from compound growth, the eighth wonder of the world! You don’t need to save a lot each month if you start early enough.

Start to set goals for what you want to achieve. The kids’ future, your retirement. We’re more likely to get to where we want to go if we have a map. Split the goals into short term, midterm and long-term goals. Remember to stay liquid and have enough cash for an emergency.

Where are you going to invest? Think about your currency exposure. This will be a new risk to consider if this is your first time working abroad. Reduce the risks you can. And save in a currency that you will likely spend in the future. This might be spread across different currencies in different jurisdictions.

4. Three Years In…

By now you’ll have your routine set. You know all the good places in town and the career is going from strength to strength. You may have more disposable income and re-budgeting and keeping on track is key to realising those goals you set yourself. All too often wage increases coincide with lifestyle changes and we tend to forget the longer term objectives.

New life events are a common theme for seasoned international workers, whether this be a new child, children starting school, marriage, family death, divorce… life goes on and your ability to withstand and build after these events will largely depend on the planning you have made previously. Reviews and readjustments are a part of life and yours goals may alter. You might be starting to think about that magic number? What is yours? What do you need to leave, to start a new life somewhere?

You might be thinking about disposing or selling assets down in your home country. In the UK for example, after three full tax years, certain assets can be sold capital gains tax free in the UK for non-residents. That stock holding from a previous employment, your investment account with the bank – now is the time to consider your options.

What about that UK Pension? How’s that getting on? Do you know what you’ll get from it? What if you die before taking it? When looking at your assets based in different countries, don’t forget about your pension. It can be one of the most valuable assets that you own and if you don’t look after it, it may not be able to look after you!

5. Ten Years In…

A seasoned veteran expat. Your advice to new comers is essential and you will have learnt from your experiences. But how long are you planning on staying? What’s the exit plan? Have you saved enough, or do you need to do more?

By now you need to know what income level you need in retirement and how far you are away. Funding any shortfall whilst you can will be invaluable for your financial future.

You might be in a position where you’ve built up assets in a rather random fashion and need to reorganise what you have. Making use of the right tax wrappers and ensuring you put these in place well before you leave will only benefit you financially in the future. For example, international investment bonds offer savers time apportionment relief from tax – i.e. the longer you’ve held the policy internationally, the lower the tax burden will be if you return to the UK. Even if you top the policy up at a later date, the date of the relief is given from the day you took out the policy. Couple this with other tax advantages, such as tax deferred withdrawals and optimising the use of international trusts and you might just have saved thousands, if not hundreds of thousands in tax.

6. Leaving and Heading Home

Your time has come but it’s not too late to make some small changes that will have a big impact. Whether you’re leaving to enter retirement, you’re home sick or just finished one step in your career to take another, there are certain things you can do.

Depending on where you are heading next, make sure the assets you hold are in the most tax efficient vehicles. Forgot about any stock holdings with large capital gains? Think about crystallising those gains and rebasing the assets. Use the right tax wrappers to protect your capital from any taxes on growth or income. Think about how your investments are structured, do you need an income from them? How much do you need? Much the same as when you first arrived, there are factors to consider around increased short-term costs and any debts should be paid off before you get on that plane.

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.

Too often in people’s mind: Taxed at source = Nothing else to worry about. This is simply wrong.

The main reasons for this we have encountered throughout our daily work and interactions with international professionals are, in order:

1. Real ignorance of how the system works (the individual has no concept he/she is doing something wrong)
2. Faked Ignorance – due to a lack of interest or a potential loss from doing things right by the authorities (ex: increase in taxes when declaring a foreign property)

Switzerland is one of the very few countries that levy a wealth tax on its tax residents. To be precise, the cantons levy such taxes. You will therefore pay more wealth tax depending on the canton in which you live, and also the municipality where you live within that canton.

We thought we would draw your attention to a few things, so you cannot say you did not know. When you are taxed at source you should be declaring your wealth by filing a separate form when above a certain threshold …. so that you can unfortunately be taxed on your wealth if it is appropriate:

1. CHF82’839 for a single person living in Geneva
2. CHF165’678 for a married couple living in Geneva
3. CHF112’000 for a married couple living in the canton of Vaud

Your wealth is composed of all your bank deposits, investments and properties, in Switzerland or outside. The main problem of doing something wrong without knowing is that you then do it wrong all subsequent years increasing the likelihood of getting caught. Considering taxes can be backdated for 10 years and penalties applied, the price of one single repeated mistake can be dear.

In a new world, with automatic exchange of information and increased transparency, ignorance is no longer a medicine of choice.

Sorry to be the bearer of bad news, but it is for your own good.

The answer is of course YES – but, we are not tax advisors and only recommend established professionals as a service to our clients. The real question is in fact this: How much should you be paying for a tax return?

Let us give you some pointers so you can make the right decision for your circumstances. There are 3 main scenarios to consider.

A. You have recently moved to Switzerland & your company uses the services of KMPG, PWC or E&Y – grace period up to three years.

You therefore have a free pass for two to three years, before you actually have to pay for it yourself. In this case, we have several pieces of advice for you:

DON’T:

1. Not pay attention to how the system works for 2 to 3 years.
2. Start wondering towards March of year 2 or 3 (when it is your duty to file a tax return) “How does it work? How should I deal with this?

DO:

1. Try to understand, if possible, what KPMG, PWC or E&Y do for you whilst it is a “free” service provided by your employer.
2. The last year your tax return is covered by your company, start asking colleagues and trusted friends who they use for their tax return and roughly how much they pay. You would be surprised at the difference in price, from CHF100 to CHF2’000 for a simple tax return.

B. You are taxed at source – grace period up to five years.

Your employer collects your taxes straight form your salary on a monthly basis. This is simple and straightforward, but again, this will not last forever. This system only works until:

• your household income (you and your wife or registered partner) exceeds CHF500’000 (Geneva canton) or CHF120’000 (all other cantons) in general
• you purchase a property in Switzerland
• you get a C permit
• you get married to a Swiss person (a career opportunity can turn into a beautiful love story!)

Whilst you are taxed at source, you do not need the services of a tax advisor to help you file your “Rectification of Holding Tax document” at year end. A simple chat with your Swissential adviser will suffice – it is part of our service. This said, you should pay attention to the income thresholds described above to make sure you are starting to file a normal tax return when you ought to. If this is the case, please review the below:

C. You have a fiscal duty to file a normal tax return – no more grace period.

Whether you must file a normal tax return straight form your first year of arrival in Switzerland, or your grace period has expired (i.e. your company no longer pays for the service for you, or your tax at source status no longer applies), you should consider the comments below. Please also bear in mind if you were taxed at source and must now file a tax return, the taxes already paid will be deducted from the remaining taxes due to the fiscal authorities (or you might even get a tax credit, which is always a pleasant surprise).

DO:

1. Use the services of companies tested by a trusted friend or colleague
2. Pay the right amount for the service you need. Most people do not need to pay more than: – CHF250 to CHF300 for a simple tax return (single person, no children, on a C permit, with one property abroad).CHF500 to CHF600 for a more complex tax return (i.e. married with kids, two incomes, a property abroad and several bank accounts and investment accounts held abroad)
3. Should you feel thrifty and up to the task, depending on whether your situation has not changed from one year to another, file your tax return yourself. You can use the work previously completed by your tax advisor last year. Speaking French, German or Italian certainly help depending on where you live in Switzerland.

DON’T:

1. Be cheap and try to do it yourself because you think “it won’t be that difficult”. If anything goes wrong, you can waste a lot of your time and energy trying to fix it with the authorities.
2. Don’t always think that the cheapest quote is the best. Paying too little can be as grave a mistake as paying too much. Make sure that everything you need is covered – half a job done is no compensation for the additional time you’ll need to spend on this.

At Swissential we advise pragmatism. Filing a tax return when using a professional means:

• you speak to a professional for 30 min to explain your situation and to get acquainted
• you send them the relevant documentation they have requested
• you speak another 30 min to confirm nothing is missing and that you understand the tax return that has been prepared for you – remember, once you sign, you engage your responsibility so please only sign what you understand everything
• your tax advisor will do a standard follow-up with you.

For something to be simple, you need to understand it first. We hope we managed to make this matter a little bit simpler. If not, let us know and we are happy to help.

The whole process can take two to three hours and therefore justifies paying CHF250 to CHF600.

Setting aside love and feelings (we are a financial advisory firm after all), our consultants usually get the same question from our clients, “I have heard I will pay more taxes if I get married, is it true?”.

There are 5 parts to that questions: Administration, 1st pillar, 2nd pillar, your global income tax rate & Inheritance tax. As expected, the answer is both yes and no, depending on how restrictive you are with your answer and the structure of your earnings. Let’s look at why.

1. Administration: Married = 1 point
   Being married simplifies a lot of the day to day life. Consider just filing your taxes. Married couples file one tax return, unmarried couples have to file separate returns. This advantage, in case of divorce can also become a real Pandora’s box.
2. 1st Pillar: Unmarried couples = 1 point
   A full annuity for a couple after 43/44 years of contribution will never exceed 150% of a standard annuity for one person. Therefore, there is certainly a disadvantage for married couples in this regard.
3. 2nd Pillar: Married = 1 point
   Many pension foundations require at least 5 years of proven common living to offer the same benefits unmarried couples have than married ones. Often, too many foundations offer no benefits at all to unmarried couples, resulting in a significant loss should the worst happen to one of the members of the couple.
4. Global Income tax rate: We have a tie
   Depending on your canton of residence, the splitting of your income (50-50 or 70-30) and your total common revenue, you might pay more taxes should you get married. In general, the more you earn, the less beneficial it is to be married. For a combined income above CHF300’000, it is often better to not be married.
5. Inheritance Tax: Married = 1 point
   Forced heirship exist in Switzerland, it is therefore more difficult to protect a partner than a wife. Also, whilst there is virtually no taxes between spouses (up to 6% in Geneva above CHF500’000), taxes amount to 26% above CHF100’000 for partners.

All in all, if you are ready to pop the question, don’t let taxes prevent you from doing so as it is not a good enough excuse!