Withholding tax: New regulations from 2021

On 1 January 2021, the revised Withholding Tax Act enters into force. Check your need for adaptation now – the countdown has started.

The changes to the withholding tax revision affect most companies. We will show you what it is all about and how you can prepare yourself optimally.

What is it all about

The revision of basic principles creates a need to adapt

There are numerous legal changes to withholding tax: On 15 December 2016, Parliament passed the Swiss Federal Act on the Revision of Withholding Tax on Earned Income. The Withholding Tax Ordinance was issued in April 2018. On 12 June 2019, the Swiss Federal Tax Administration (FTA) published Circular No. 45 on Withholding tax on employees’ earned income from employment. In addition, ELM Standard 5.0 is expected to be published by Swissdec by the end of 2019, after which payroll software can be reprogrammed. According to information from Swissdec, the definitive ELM version will be released before the end of 2019.

As an employer with employees who are liable to pay withholding tax, you must implement the new legislative basis by the deadline. In order to do so, you should be familiar with the changes and your need to adapt to them. This is the only way for you to provide your employees with the correct information and properly calculate withholding taxes.

The most important at a glance

The Federal Act and the Ordinance contain various relevant changes. Here is an excerpt of them:

Income subject to withholding tax is defined in a practically uniform manner.
In future, you will have to settle with all relevant cantons.
The withholding tax calculation within cantons in the monthly and annual models is defined uniformly.
Tariff codes are applied uniformly.
You must redefine the calculations for remuneration components prior to an employee joining the company, during employment and after the employee leaves the company and treat them the same within the two calculation models (monthly model, annual model).
Employers must not apply withholding tax code D (subsidiary income). However, multiple part-time jobs (even compensation from social security institutions) will be subject to a complex income extrapolation.
The withholding tax rate for the 13th monthly salary under the monthly model will now have to be determined using a special calculation formula.
Irregular hourly wages are subject to a uniform rate calculation.
The revised law firmly establishes the withholding tax liability for the de economic employer and for the staff lending from abroad.
The canton of residence at the end of the year or the end of the tax liability is responsible for the entire tax period. If the responsible canton changes due to a move of an employee, you must calculate and pay the withholding tax in the new canton from the following month.
The requirements for submitting a tax return (retroactive ordinary assessment) have been amended and expanded. The tariff rate correction no longer applies and the recalculation of withholding tax will be introduced for a conclusive list of situations.
The entitlement for provision for the employer was reduced from 1% to 2%.
The provisions for artists and athletes who are domiciled abroad were clarified and adapted.

Where you can find important details

What legislators and standard setters want

Swiss Federal Act on the Revision of Withholding Tax on Earned Income, valid from 1 January 2021
Ordinance on Withholding Tax in Direct Federal Tax, valid from 1 January 2021
Circular No. 45 of the FTA, valid from 1 January 2021
It remains to be seen whether there will be further questions and answers on the Circular.
ELM Standard 5.0 of Swissdec

How you can stay up to date

Well informed means better prepared

You can find information about current and future developments relating to withholding tax on our blog mybusiness.ch. We offer practical seminars to help you with implementation. We prefer to clarify individual questions and concerns in a personal conversation.

How we can support you

Take advantage of our expertise

You should not underestimate the amount of time and effort the changes will involve. Our knowledge advantage can help you in the process, as this topic is our profession and we deal with its legal developments and consequences on a daily basis.

You can count on us in this area:

Analysis of your need to take action
Project planning for obtaining and conveying the additional information required by your employees
Payroll software conversion (blueprints and tests for all payroll systems)
Software updates and all salary-type conversion work with Abacus payroll software
Evaluation of new HR/payroll software, for example in the secure cloud
Training of teams or individuals
Payroll review following implementation in order to check your cases and withholding tax calculations
Reassessment of withholding taxes until 31 March of the following year and further opportunities for tax optimisation
Renewal of withholding tax rulings with the authorities for validity as of 2021
New application for registration of the company in the concerned cantons

Outsourcing as a far-sighted option

You can also simply outsource your payroll accounting to us in an integrated corporate environment. As withholding tax experts, we will work with you to ensure that everything runs smoothly from day one. We can also implement Abacus Salary/HR in your company on site or support you by providing additional resources during the changeover. As an additional option, you can use our Abacus cloud solution, which correctly reflects your circumstances. We would be pleased to help you in making these decisions and to train your users upon request.