Would you like to pay into pillar 3a as a cross-border commuter or foreigner? We use many case studies to show when and how much cross-border commuters, foreigners subject to withholding tax and Swiss nationals with earned income abroad can claim as a pillar 3a tax deduction.
Pillar 3a briefly explained
Pillar 3a is a private, tax-privileged form of pension provision in Switzerland. It enables employees with an earned income subject to AHV contributions to save for their pension. You can voluntarily pay in up to a certain maximum amount per calendar year. The contributions are 100% tax-deductible in Switzerland. You can find out more about pillar 3a in this article.
What are cross-border commuters and weekly residents and what applies to them with regard to Swiss taxes?
Cross-border commuters to Switzerland are persons who work here in Switzerland but live in another country (e.g. Germany, Austria, Liechtenstein) and return to their place of residence on a daily or weekly basis. As a recognized cross-border commuter, you will receive a G permit for foreign nationals (the so-called “cross-border commuter permit”).
Weekly residents are persons who live near their place of work “during the week” but have their center of life elsewhere – at their main place of residence. As a rule, weekly residents return to their place of residence on non-working days.
As a genuine cross-border commuter, a comparatively low withholding tax (4.5%) is deducted from your salary in Switzerland (also known as cross-border commuter tax). You remain liable for tax at your place of residence in Germany and file your income tax return there. The withholding tax already paid in Switzerland will be credited to you. Swiss taxes done!
If you live in Switzerland as a weekly cross-border commuter, you also pay cantonal withholding tax and do not have to submit a tax return.
Ordinary taxation in Switzerland only occurs in the following cases: your annual income exceeds CHF 120,000, you receive a type C permanent residence permit (on application) or you submit an application for ordinary tax assessment.
Our tip: understand more details
Can I pay into pillar 3a as a cross-border commuter?
The double taxation agreement between Switzerland and the country of residence of the cross-border commuter regulates what applies for tax purposes. The answer is therefore: it depends on what the double taxation agreement says. You may be able to open and pay into a third pillar, but you will not be able to claim the payments as a tax deduction. Where you pay tax depends on the neighboring country in which you have your main residence as a genuine cross-border commuter or cross-border commuter weekly resident.
Let’s take a look at pillar 3a as a cross-border commuter from Germany, Austria, Italy and France and when you can pay into pillar 3a as a foreigner in Switzerland, if you are resident in Switzerland and earn a salary abroad and if you move away from Switzerland.
Pillar 3a as a cross-border commuter from Germany
Nicolas commutes daily from his home in Constance on the German side of the border to his employer in Switzerland. Under the Swiss-German double taxation agreement, he is taxed at his place of residence in Germany, even though he works in Switzerland. He has heard about the pillar 3a tax deduction and wonders: can I also pay in?
As a “genuine cross-border commuter”, Nicolas has an income subject to AHV contributions in Switzerland and is allowed to pay into pillar 3a. But he is NOT allowed to deduct the deposit from his taxes because his income is already deducted as a lump sum with the cross-border commuter tax. He is also not entitled to a correction calculation, even if he has paid into pillar 3a. It is therefore better to take out a private pension outside of pillar 3a. For this purpose, so-called frontier worker direct insurance is offered in Germany. These are based on the decree B 2 17 of May 24, 2018 of the Karlsruhe Regional Tax Office that cross-border commuters have access to tax-subsidized direct insurance (Section 3 No. 63 EStG).
There is the following exception to this principle (“no 3a tax deduction for genuine cross-border commuters”) in the double taxation agreement: you are a cross-border commuter from Germany AND a weekly resident who does NOT return to Germany on 60 or more working days for professional reasons (keyword: “the journey home is more than 1.5 hours away”). The right of taxation then reverts to Switzerland, which does not subject you to cross-border commuter tax, but to ordinary withholding tax (comparable to foreigners with a B permit). You can then apply for retrospective ordinary taxation and claim the 3a deduction. Ask your cantonal tax administration beforehand about the applicable regulations and what applies in Germany with regard to progression proviso (i.e. offsetting your Swiss income against the rate assessment in Germany).
Pillar 3a as a cross-border commuter from Austria
Luisa lives in Austria as a cross-border commuter and regularly comes to St. Gallen to work for a banking software company. She does not have a C residence permit. Can she claim the pillar 3a deduction?
Yes. This is because the double taxation agreement between Austria and Switzerland has abolished cross-border commuter status. Accordingly, all those who work here in Switzerland but have their main residence in Austria are considered weekly cross-border commuters. Luisa is fully taxable in Switzerland on her Swiss earned income and is subject to withholding tax in Switzerland due to her main residence in Austria. She is taxed in the canton in which her employer is based – in her case, the canton of St. Gallen.
As a weekly resident, she can therefore pay into pillar 3a like her Swiss colleague and deduct the payment from her tax bill. However, as she is subject to withholding tax – unlike her Swiss colleague – she must apply for a retrospective correction of the withholding tax already paid so that the deduction for pillar 3a is actually taken into account. The application can be found on the Internet or obtained from the cantonal tax administration. The withholding tax is then recalculated by the cantonal tax administration on the basis of the 3a deduction made and the excess tax paid is refunded.
Pillar 3a as a cross-border commuter from Italy
Matteo regularly commutes to Bellinzona in Ticino for work. He works there as a permanent employee in a Swiss craft business. Can he pay into pillar 3a?
As Matteo has his main residence in Italy and works in Switzerland, he pays tax on his income in Switzerland in accordance with the CH-IT double taxation agreement. As a foreigner, he is subject to ordinary withholding tax in Switzerland. If he wishes to claim his pillar 3a payments as a tax deduction, he must submit an application for subsequent ordinary assessment.
Pillar 3a as a cross-border commuter from France
Arnaud commutes daily from his main residence in France to work in Geneva. He works there in the finance department of a commodities company. His brother Pierre works for a food company in Vaud. Her cousin Chantal works in Fribourg. Everyone would like to pay into pillar 3a, but are they allowed to do so as cross-border commuters from France?
A special regulation applies to Arnaud because he works in Geneva. The canton of Geneva taxes the income of cross-border commuters itself within the framework of ordinary withholding tax.
Pierre works in Vaud, another border canton. He and all cross-border commuters from France who work in the border cantons of Bern, Solothurn, Basel-Stadt, Basel-Landschaft, Vaud, Valais, Neuchâtel or Jura pay tax on their income in France. For this purpose, cross-border commuters in France receive a so-called certificate of residence, which they must present to their Swiss employer before their salary is paid and renew periodically.
Chantal works in Fribourg and therefore neither in Geneva nor in one of the other border cantons. Their income is therefore subject to ordinary withholding tax in the canton in which their employer is based.
This means that Arnaud can pay into pillar 3a and claim the deduction as part of a subsequent ordinary assessment. The same applies to Chantal, who is also properly taxed at source. Pierre is different: he is liable for tax in France and cannot claim a deduction.
Pillar 3a taxed at source as a foreigner in Switzerland
Nigel works for a MedTech company and has a B residence permit. He plans to stay for a few more years and wonders whether he can also benefit from the 3a tax deduction.
As he does not have a C residence permit, he can pay into pillar 3a because his employer pays withholding tax directly from his salary. In order for the 3a payment to be taken into account for tax purposes, he must submit an application for subsequent ordinary assessment. This is possible until March 31 of the following year.
Our tip: So test those who bind themselves to the proper investment
If you decide to switch from withholding tax to ordinary assessment, this also applies to subsequent years until the end of your withholding tax liability. So you no longer just “get away” with withholding tax, but from now on have to submit a tax return every year – regardless of whether you exceed the limit of CHF 120,000 gross earned income or not.
It is no longer possible to switch back to pure withholding tax. You should consider this carefully and also take a look at your personal financial future, as the tax rates in your respective municipality of residence may exceed the withholding tax rate. This could effectively result in an additional tax burden despite the 3a tax deduction granted.
Pillar 3a after moving away from Switzerland: I am a foreigner and have moved away from Switzerland
Brian has worked for a pharmaceutical company in Switzerland for the last 5 years and left Switzerland this year. Can he continue to pay into his existing pillar 3a after moving away?
As long as Brian is liable for tax in Switzerland and earns income subject to AHV contributions, he was able to pay into pillar 3a and claim the deduction. After moving away, his place of residence is no longer in Switzerland. This eliminates the basis for taxation in Switzerland. In addition, he no longer earns any income subject to AHV contributions, which means that the requirement for a tax deduction no longer applies.
Brian can consider having his pillar 3a paid out or leaving it in place because he is moving away. Finally, a permanent departure from Switzerland is a permissible reason for reference. In the event of a capital payment, withholding tax is due, which may be reclaimed under a double taxation agreement or credited in the new country of domicile.
Our tip: Optimize capital withdrawal tax on departure by timing the withdrawal
If Brian opts for a payout, capital gains tax will be payable. The amount depends on Brian’s place of residence at the time of payment. If he is already domiciled abroad, the lump-sum withdrawal is taxed at the domicile of the pension foundation (withholding tax). If he is still resident in Switzerland, the capital payment tax is due at his place of residence. The amount of capital withdrawal tax differs significantly depending on the canton; for example, the range for a capital of CHF 100,000 is between 2.4% (Canton of Schwyz) and 4.8% (Canton of Valais). By choosing the reference date, Brian can therefore save a lot of tax if he has an “expensive” canton of residence and a “favorable” canton of foundation domicile.
Pillar 3a with salary abroad
Reto lives with his family in Basel. He commutes across the border to Germany to work because he is employed by a German company there. Can he pay into pillar 3a?
In principle, cross-border commuters with their main place of residence in Switzerland and earned income abroad cannot claim a 3a tax deduction. The reason for this is that they do not earn any income subject to AHV contributions in Switzerland.
An exception to this is earned income in neighboring Liechtenstein. If Reto earned his living in Liechtenstein, he would also be able to claim the pillar 3a deduction in Switzerland because AHV contributions in Liechtenstein are treated the same as those in Switzerland.
The situation would be different again if Reto only earned part of his income abroad: according to a Federal Supreme Court ruling, he could then deduct his pillar 3a payments in proportion to his earned income in Switzerland.
And if Reto were to take out voluntary AHV insurance in Switzerland, he could also pay into pillar 3a. You should clarify this case with your cantonal tax administration beforehand.
Contributing to pillar 3a as a cross-border commuter and foreigner – summary
In most cases, it is also possible for foreigners to pay into pillar 3a. But pillar 3a for cross-border commuters and foreigners can be complicated 😉 Depending on the neighboring country, different regulations apply to genuine cross-border commuters. Weekend cross-border commuters are always taxed at source in Switzerland.
If you are a foreign national working in Switzerland, live here and have an income subject to AHV contributions, you can pay into pillar 3a in any case. If you are not subject to withholding tax, you can claim the deduction directly in your tax return and thus save tax.
It is also possible to use the pillar 3a tax deduction if you are subject to ordinary withholding tax, for example if you have a B residence permit or are a weekly cross-border commuter. To do this, you must submit an application for a retrospective ordinary assessment to your cantonal tax authority. Please note that this change from withholding tax to ordinary taxation should be carefully considered: it is irreversible and can be tax disadvantageous depending on the municipality of residence.
If you leave Switzerland for good, you can withdraw your assets from pillar 3a or leave them there.
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Last update: 08.01.2024 19:30