The term withholding tax refers to a tax at source which must be debited directly from money paid out by a tax-resident entity (an employer, for example) to a taxable entity (an employee, for example). Withholding taxes are put in place when circumstances make it difficult for taxes to be collected from taxable entities.
In Switzerland, a withholding tax is deducted from the salaries of temporary residents, seasonal workers and cross-border workers to ensure payment of Swiss taxes. Withholding taxes also apply to the salaries of short-term employees and freelancers delivering goods or services in Switzerland, such as entertainers temporarily conducting performances in Switzerland. A withholding tax also applies to lottery winnings (to avoid winnings being spent before taxes can be collected).
While temporary residents and cross-border workers are subject to withholding tax and do not file Swiss tax returns like Swiss citizens and permanent residents do, they may submit forms outlining tax deductions for which they are eligible during the tax season. If the actual taxes due are lower than the withholding tax deducted from their salaries, the difference is returned to them in the form of a tax refund.
The anticipatory tax on interest earned on bank account balances which is withheld by banks on behalf of Swiss tax authorities is another form of withholding tax, as is the anticipatory tax deducted by lottery winnings by lottery operators before winnings are paid out.
A withholding tax is also applied to pillar 3a retirement savings and vested benefits when these are withdrawn upon retirement, in which case the bank or vested benefits foundation withholds the tax due on behalf of tax authorities. In both cases, taxable entities may be able to claim tax refunds when certain conditions are met.
Swiss tax at source for expats and cross-border workers explained