Earning Interest by Paying Taxes in Advance

In Switzerland, paying your taxes in advance can be financially beneficial. Some cantons pay higher interest on tax advances than banks pay for deposits in regular savings accounts.

If you are a tax resident of Switzerland, then it is worth knowing that some cantonal tax offices pay interest on money deposited towards tax payments ahead of the tax season. In some cases, this interest can be higher than the interest earned through normal savings accounts.

Typically, taxes are paid – either in a single payment or as several installments – shortly after you complete your tax returns and receive your definitive tax bill. But many Swiss tax offices give you the chance to make provisional tax payments in advance, and there are good reasons to consider paying your taxes ahead of schedule.

Paying taxes in advance

Many cantonal tax offices offer a better interest rate on advance deposits made at the tax office than you earn with normal savings accounts at banks. The most generous cantons offer interest rates comparable with those of youth bank accounts.

Unfortunately, the interest rates used by tax offices have gone down considerably in recent years. In 2015 early tax payers could expect to earn up to 2% annual interest on prepaid tax deposits. In 2016 and 2017 the best available interest rate is just 1% per annum. According to the online portal Cash.ch, which tallies interest rates on a regular basis, interest rates at tax offices have pretty much collapsed.

Rates vary between cantons

As per 2018, only the cantons of Appenzell Innerrhoden and Glarus still use a 1% per annum interest rate for tax advances. Zurich, Uri, Schwyz, and Appenzell Ausserrhoden offer just 0.5% interest while seven Swiss cantons no longer pay any interest on tax advances.

If you live in a canton which does pay a reasonable rate of interest, advancing the money which you expect to pay in taxes – or even an amount slightly higher than your anticipated tax bill – can make financial sense.

In the canton of Zurich, you earn interest on the entire amount of money deposited at the tax office ahead of time, including any excess above your actual tax debt. Amounts in excess of your anticipated tax bill must remain within a realistic margin. If you deposit amounts which far exceed your probable tax bill, the money may be returned to you by the tax office without interest.

If you put money aside for the payment of taxes, compare the interest rate paid by your tax office to that paid by your bank. You may be able to earn more interest by paying your taxes in advance. It is also worth knowing that unlike interest earned on assets held in savings accounts, interest paid out by the tax office is not subject to withholding tax.

High penalty interest rates for delayed payment

Avoid paying your tax bill late at all costs. Tax offices charge high penalty interest on delayed tax payments. The Cantons of Lucerne and Basel Landschaft, for example, apply a 6% per annum penalty interest rate to outstanding tax dues.

Note: If you would like a detailed overview of the interest rates on tax advances and penalty rates for delayed payments, just request a copy here (as a PDF).

Last updated: 2018

More information:
Savings accounts in Switzerland
Personal loans in Switzerland

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The moneyland.ch magazine provides accurate, unbiased information on topics related to finance and money. In addition to research and expert interviews, the magazine contains numerous financial guides.

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