Circular No. 45 “Withholding tax on employees’ earned income” dated 12th June 2019 governs changes to the way balances are settled. These changes have to be implemented by payroll accounting software providers. They should also meet the ELM Standard 5 developed by Swissdec, and be certified. Employers with employees who are liable to pay withholding tax must also update their payroll software by 1 January 2021.
This blog post kicks off a series dealing with selected topics relating to withholding tax following the overhaul of withholding tax that takes effect from 1 January 2021.
Starting with definitions
Circular No. 45 has 69 pages and the appendices I to III. It is divided into a number of sections. It starts by defining terms such as employee, dependent employment, taxpayer (i.e. who is responsible for calculating and paying the withholding tax) and domicile. A distinction is made between the treatment of domiciled and non-domiciled persons. The document also defines when a person’s individual circumstances change. Finally, a definition is provided of the benefits that are subject to withholding tax, including a description of the tariff codes to be applied.
Aim of achieving standardisation between cantons
The rules of calculation in accordance with the monthly and annual models form the centrepiece of the circular. They are intended to serve as the basis for the identical assessment of the same facts by the cantons within a particular model. The changes to the calculation rules are not without their challenges, for example using the right tariff in cases of multiple employers, the calculation of the 13th monthly salary and more.
Vigilance required for discrepancies
The circular also looks at various special cases. Particular mention should be made of the method for excluding days worked in other countries. Benefits provided prior to the start and after the end of employment also need to be taken into consideration. Finally, procedural provisions are also described for the taxpayer/employee.
There is still a lot to do
Despite all of the standardisation, unfortunately the authorities failed to take the opportunity presented by this overhaul of withholding tax to simplify the entire field of payroll. Companies are therefore well advised to inform their employees who are liable to pay withholding tax about the latest changes, and to train their HR and payroll managers and employees accordingly. PwC offers a range of practical seminars in this respect.
They also need to update their payroll accounting software in order to properly reflect the new calculation rules. It goes without saying that this only applies to companies who have their tax calculated by their payroll accounting software rather than manually.
Circular No. 45 “Withholding tax on employees’ earned income” specifies changes to the way balances are settled.