Working in switzerland – tips on taxes, social security and housing

adminonMarch 17, 2023April 6, 2023Leave a Comment

working in switzerland - tips on taxes, social security and housing

Since the Alpine country between France, Italy, Germany and Austria pays the highest salaries in the world, working in Switzerland can really pay off. On the other hand, of course, the cost of living is correspondingly high. As a German commuter living near the border and performing work in Switzerland, you have the advantage of enjoying the wage benefits while making your purchases in Germany. Yet Zurich and Basel – the two cities with the highest earning potential – are not far from the border.

As an EU citizen, you are on an equal footing with the Swiss in the labor market and only need a valid ID card or passport to enter the country. However, if it is still necessary for you to move to Switzerland altogether, there are other points to consider.

General work situation

The decline in growth in the EU has also had an impact on working in Switzerland. Nevertheless, the unemployment rate is so low that one can almost speak of full employment. There is a high demand for skilled workers, especially in the fields:

Chemical industry
Construction industry
IT and communications technology
Environmental technology
Medical technology
Car industry
Craft (plumber, electrician, carpenter, painter and upholsterer)
Healthcare sector (doctors, nurses and caregivers)

If you get such a job, you must also come up with the necessary motivation. After all, working weeks of 42 hours are not uncommon here, and there are also fewer public holidays and vacations than in Germany. For this it is financially worthwhile. Many Swiss salary models rely on a reward system where, in addition to the basic salary, a commission is paid for reaching a certain target. In general, the gross income for working in Switzerland is on average 25% higher than in Germany, plus the low tax burden and the low social security contributions.

Social security and taxes

In contrast to Germany, health insurance is compulsory in Switzerland, but not through the employer. You will have to look for insurance yourself. The contributions of the various insurance companies do not depend on the amount of income and also not on gender or state of health, but are only different from region to region. The range of services also varies. While the basic benefits for outpatient and inpatient treatment are included everywhere, the trip to the dentist must be insured separately. A significant difference in insurance carriers is the regulation of continued payment of wages in case of illness. Here you should also consider an additional insurance for the daily allowance. While the form of health insurance is more reminiscent of private insurance in Germany, accident, pension and unemployment insurance are regulated similarly to those in the Federal Republic of Germany.

The amount left over once all social contributions have been deducted from the salary serves as the basis for income taxation. This is divided into municipal, cantonal and federal taxes, which is why the tax rate can range from 5 to 20 percent, depending on where you live and the amount of your salary.

For commuters and non-Swiss nationals without a residence permit, withholding tax is levied, the amount of which varies from canton to canton.

Residence permit for Switzerland

If you want to settle completely in Switzerland, you have to register at the respective employment office and at the municipality of residence of the responsible canton. It is necessary to already have a health insurance and an employment contract. The duration of the residence permit is in fact based on the duration of the employment contract. In the case of unlimited contracts, the general residence permit of 5 years is generally granted, which you can extend at the end of the period by presenting a valid ID and proof of employment.

Should you emigrate with your family, your spouse and any children under 21 will receive a permit for the same residency period you were granted.

Housing in Switzerland

Once you have found a job in Switzerland, the only thing missing is inexpensive accommodation. But especially in urban areas, housing is scarce and prices are correspondingly high. Outside the metropolitan areas, on the other hand, many houses and apartments are empty. Compared to Germany, however, rental costs are high everywhere. To find an affordable place to stay, you should thus include all search options. The real estate advertisements in the daily newspaper are already indispensable aids there. Small local papers can also be useful here. In addition, there are the services that the Internet can offer you. In addition, many municipalities maintain real estate listings of vacant residential properties.

If you absolutely need accommodation in a city, you can also contact the property management directly. If none of this helps, there is always the option of hiring a broker.

At the end of August, the German government presented a draft law on the restructuring and orderly resolution of credit institutions (Restructuring Act), which draws lessons from the financial crisis. Ultimately, it is a question of the extent to which basic principles of the market economy continue to apply in crisis situations.

There is a simple rule for responsibility in a market economy: owners of a company bear opportunities and risks equally. If the company makes a profit, the owners are entitled to it. If the company is doing badly, they must weigh whether to invest to avoid a reduction in value or slippage. In the worst case, normal market conditions threaten insolvency. This can economically mean the total loss of the investment, for owners as well as for creditors.

This balance between opportunities and risks is at the core of market-based owner and creditor responsibility. It works when not only opportunities beckon, but also risks are imminent. Opportunities for profits and the risk of insolvency are the scales of owner and creditor responsibility.

In the financial crisis, this principle no longer applied.

Core experience of the financial crisis: too big to fail

The core experience of the financial crisis was bitter: banks were too big to go bankrupt. The consequences of insolvency would have been more burdensome for the financial market, the economy and the population than averting them through state aid. The negative example of Lehman Brothers was in front of everyone's eyes. "too big to fail" has become the buzzword for justifying extensive government guarantees and capital measures. Insolvency was no longer an option. The basic principle of the free market economy, the balance between opportunities for profit and (insolvency) risks, was out of kilter.

But what can be done if, on the one hand, the systemically important bank is not to be dropped in the event of insolvency and, on the other hand, responsibility is to be preserved in the market economy?? This question was already posed to the legislators of the Financial Market Stabilization Act at the end of 2008/beginning of 2009. And it confronts again, from a slightly greater distance, the legislator of the Restructuring Act 2010. There are two answers to this:

The first response is to recognize that the baby is already in the well when the law becomes relevant. The Restructuring Act is a repair kit, the accident has already happened. It consists of a situation in which a credit institution in danger of going out of business poses such a threat to other companies in the financial sector, to the financial markets or to the general confidence of depositors and market participants in the functioning of the financial system that the state, in deviation from the normal case, does not allow insolvency to occur. The first and most important lesson of the financial crisis is to avoid precisely such "too big to fail" situations in the future. This is also the aim of the new regulatory requirements, at international level z.B. the increased capital requirements of "Basel III". Meanwhile, no one assumes that this ideal goal, the complete avoidance of "too big to fail," will be achieved. Therefore, the legislator must provide for the worst case scenario and minimize the damage of a "too big to fail" for taxpayers and the market economy, that is the second answer – and the goal of the restructuring law.

The state helps under conditions

To the inevitable question of whether the state should help a systemically important institution, the Restructuring Act answers with a "yes, but": it helps. But the burden on taxpayers and competition must be kept as low as possible. This was already the goal of the financial market stabilization laws in 2008/2009 and is also now the goal of the 2010 restructuring law.

In doing so, the legislator starts from the principle: Financial market stability may require the rescue of a systemically important credit institution, but not the abrogation of ownership and creditor responsibility.
A distinction must therefore be made between the institution on the one hand, especially its systemically relevant parts, and the owners as well as creditors on the other hand –
at least as a guideline:

The first financial market stabilization package of October 2008 already provided that payments not legally owed to shareholders during the period of state aid would not be made either. Even then, it was recognized that rescuing companies in the interest of the common good and maintaining owner responsibility are not mutually exclusive.

In spring 2009, this principle was taken a step further, in the Supplementary Act on Financial Market Stabilization. It was clear that the scales of owner responsibility, which had been thrown out of balance by the certainty of the rescuing state, would only be redressed when the owners had to fear a situation economically comparable to insolvency. In the interest of financial market stability, the Financial Market Stabilization Supplementary Act enables the federal government to step in for a limited period of time, which is absolutely necessary in the case of comprehensive restructuring of an endangered company, even without or against the will of the previous owners. The instruments of intervention are of a private and public law nature:

Where previously 75% of votes were required for a capital reduction or exclusion of subscription rights at a shareholders' meeting, a simple majority is sufficient for the federal government under the Financial Market Stabilization Supplementary Act if the capital measure serves financial market stabilization purposes. Where previously an action to set aside a resolution of a shareholders' meeting already delayed registration, registration must now take place immediately. And the threshold for a squeeze-out of minority shareholders was reduced from 95% to 90%. These restrictions on shareholder rights, which are necessary in the interest of financial market stability, were z.B. used when the German government stepped in to rescue the Hypo Real Estate Group (HRE).

As a public law instrument, the Supplementary Act in the form of the Rescue Takeover Act permitted expropriation of the credit institution for the purpose of financial market stabilization.

The expropriation option, which was still created by the Grand Coalition, was highly controversial politically; it was therefore limited until the end of June 2009 – a point in time by which it was clear whether, in the case of HRE, the federal government would be able to obtain sole ownership with the help of the tightened corporate law instruments. That was the case. The rescue takeover law was never applied, the option – and the associated (effective) threat – remained in place.

Expropriation options will no longer exist in the future

Crisis management of the future no longer provides for this instrument. The Restructuring Act does not contain an expropriation option, but does contain extensive powers of intervention by the Federal Financial Supervisory Authority vis-A-vis faltering credit institutions. This includes the right to compulsorily sell off the systemically important parts of a bank that is in danger of going out of business and endangering the system, d.h. by administrative act, to spin off to a new entity owned either by a third party, by the restructuring fund belonging to the federal government or by the core bank and third parties or by the restructuring fund.

By only allowing support for the systemically important parts to be spun off in the Restructuring Act, but not for the core bank, the federal government is trying to avoid burdens on taxpayers by supporting bad parts of the bank. However, since in practice systemically important parts of a credit institution are not necessarily identical with the "good", i.e. profitable parts of the bank, it is conceivable that the restructuring fund will also support "bad" parts.

Bank levy may not be enough

Another component with which the restructuring law aims to keep the burden on taxpayers as low as possible is the bank levy imposed on all credit institutions.

It flows into the restructuring fund, from which future support measures are to be financed. However, since the bank levy is not expected to be sufficient to finance aid measures, the restructuring law allows state loans to be taken out in this case. So then costs will continue to come to the taxpayer. In addition, since the federal government guarantees the services of the restructuring fund by law, the law creates an implicit state guarantee, which distorts competition in favor of these banks.

Nevertheless, the restructuring law goes the right way. After all, if a "too big to fail" cannot be completely ruled out, there is nothing left to do but answer the question of whether the state, ignoring the principles of the market economy, should save a systemically important bank from insolvency with a "yes, but". Yes, it helps in the interest of financial market stability, but only under conditions that, as far as possible, maintain the responsibility of owners and creditors of the bank even in crisis situations.

Editor's note: PUBLICUS will report on the effects of the financial crisis – especially for municipalities and municipal budgets – from the perspective of strategic solution approaches and using best practice examples in loose succession.

How life insurance can help with accumulation

The primary goal of personal life insurance is to cover final expenses and protect beneficiaries from a loss of income or debt burden in the event of a family member's death. Permanent life insurance policies, however, build cash values that can be used for retirement or emergency use. Whole life and variable universal life (VUL), if properly funded, offer the opportunity to accumulate cash that can be accessed as needed through policy loans or direct withdrawals.

Whole life policies

Life insurance policies tend to be among the most expensive policies to purchase. The cost of insurance is based on the age and health of the applicant. Tobacco use also increases premiums charged for coverage. As a rule of thumb, younger policyholders pay lower premiums than older policyholders. A 25-year-old male nonsmoker might pay about $900 per year for a $100, 000 death benefit policy, whereas a 40-year-old male smoker might expect to pay $1, 800 per year for the same face amount. A portion of the annual premium is applied to the pure cost of insurance, commissions and administrative expenses, while the balance is allowed to grow at fixed rates determined by the issuer.

Cash values accumulate slowly in the first few years of a whole life policy's life. It takes several years for interest rates at historic lows in 2016 to reach a break-even point when total premiums paid equal the cash surrender value of the policy. At any point, however, the equity in the policy can be acquired through credit or withdrawal. Premium rates set at the time of issuance may also be increased by the payment of dividends from a mutual insurance company whose policyholders have an interest in the property.

In addition, some policies offer paid additional coverage options that allow policyholders to contribute additional dollars, increase death benefits and earn interest. Unchanged, whole life cash values can grow to substantial sums, depending largely on the number of premium years and the internal rate of return offered by the insurer.

Variable universal life

Policyholders with an appetite for risk can opt for a VUL policy. These policies allow flexible payments and offer the option of a separate account in which premiums are invested in mutual funds. Unlike whole life insurance, the cash values invested in the separate account are neither fixed nor backed by the insurer's financial strength. Rather, funds directed to mutual fund subfunds are subject to investment risk. The primary benefit of VUL policies is participation in equity or bond markets, which over time can exceed the fixed rates set by the insurance company.

Compared to whole life policies, which can credit premiums at a 4% interest rate, cash values grow faster in a VUL equity portfolio that averages 7% returns over the life of the policy. A 30-year-old nonsmoker can contribute $100 per month for 35 years for a whole life or VUL policy. The difference in accumulated cash values is substantial if the VUL subaccounts manage to exceed the fixed interest rates credited to the whole life premiums.

Excluding insurance and policy expenses, the difference in the cumulative value of regular monthly $100 contributions over a 35-year period would exceed $85.000 if the VUL portfolio were to earn an average 7% rate of return. %. Long time horizons and moderate risk tolerances apply to policyholders who want to use VUL policies as an additional cash accumulation vehicle.

Key impressions

Permanent life insurance policies are designed to pay death benefits. Such policies are not marketed as savings or pension funds. However, cash values subject to fixed interest rates or favorable investment returns can adequately supplement individual retirement accounts (IRAs) or accounts of nonqualified deposits and provide liquidity and income when needed.

General work situation

Social security and taxes

Residence permit for Switzerland

Housing in Switzerland

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