What is Swiss source tax?

Definition

Source tax (in French impôt à la source, in German Quellensteuer) is a mechanism for collecting income tax whereby the employer — acting as a fiscal agent — withholds tax directly from the employee's gross salary and remits it to the relevant cantonal tax authority. This system is designed to simplify tax collection for persons who are not required to file an ordinary tax return.

Who is affected

Source tax applies primarily to:

• Foreign nationals residing in Switzerland holding a residence permit (B), short-term permit (L) or asylum-seeker permit (N, F) — excluding the settlement permit (C).
• Cross-border commuters working in Switzerland (with rules varying according to bilateral agreements and cantons).
• Persons domiciled abroad receiving certain income from Swiss sources (artists, sportspeople, board members).

Swiss nationals and foreigners holding a permit C are taxed under the ordinary procedure (annual tax return).

Scales and codes

Each canton issues its own source tax scales, expressed as a percentage of gross salary. These scales take into account:

• The monthly income (tax progressivity)
• The employee's family situation (scale codes)
• The canton of domicile (or of employment for cross-border commuters)

The most common scale codes:

Employer obligations

The employer subject to this regime must:

1. Identify employees subject to source tax.
2. Collect the information necessary to determine the applicable scale (marital status, number of children, canton of domicile).
3. Withhold source tax from each monthly salary.
4. Remit the withheld amounts to the competent cantonal tax authority at the prescribed frequency.
5. Submit annual returns (via Swissdec or paper declaration depending on the canton).

In return, the employer receives a collection commission (generally 1 to 2% of the amount withheld).

Swiss context

Since 1 January 2021, a reform of source tax withholding has harmonised the rules between cantons (in accordance with the Federal Act on Direct Federal Tax, DFTA). It notably introduced the possibility for persons taxed at source whose income exceeds a certain threshold to request a subsequent ordinary assessment (SOA), enabling them to benefit from additional deductions (professional expenses, debts, etc.).

How Neoffice calculates it

Neoffice integrates the cantonal source tax scales for all Swiss cantons. On each payslip, the source tax amount is calculated automatically according to the scale code and the employee's canton of domicile. Monthly or quarterly returns by canton are generated automatically and integrated into the annual Swissdec transmission.