Subsequent Ordinary Taxation (TOU) has introduced a new dimension to the Swiss tax system since its implementation in 2021, significantly changing the rules for taxpayers taxed at source, in particular for residents with B permits and cross-border workers. Whether you are a resident in Switzerland taxed at source or a resident abroad, understanding TOU, as well as the associated conditions and benefits is crucial in order to optimize your tax situation. This article takes you through the essential aspects of TOU, helping you determine how and when it applies to your situation, and how to make the most of it.
What is Subsequent Ordinary Taxation (TOU)?
Subsequent Ordinary Taxation (TOU), established following the 2021 tax reform in Switzerland, allows taxpayers taxed at source to complete a tax return to declare income or property not initially covered and obtain additional deductions. The TOU adjusts taxation to better reflect the real financial situation of taxpayers. It is also the only way for persons taxed at source to claim their tax deductions from the 3rd pillar.
TOU comes in several forms:
TOU mandatory: Applies automatically to certain taxpayers resident in Switzerland based on specific criteria, such as annual income or possession of taxable assets.
TOU on request: Allows taxpayers who are not automatically subject to mandatory TOU to request this taxation, often in order to benefit from additional deductions.
ALL of the above: Is applied by the tax authorities in certain specific situations, for example when the taxpayer is both employed and self-employed.
TOU renewed: Once a taxpayer is subject to TOU, he or she must remain in this regime for the following years, so it is no longer possible to return to taxation at source.
TOU for residents in Switzerland taxed at source
For Swiss residents taxed at source, Subsequent Ordinary Taxation (TOU) offers the possibility of adjusting their taxation by declaring income and assets that were not covered by the initial taxation. This approach makes it possible to more accurately take into account the taxpayer's financial situation based on various real financial elements.
In what cases is TOU mandatory for residents in Switzerland?
TOU becomes mandatory for residents in Switzerland in the following situations:
- High individual gross annual earnings: When your gross annual income exceeds CHF 120,000, TOU is automatically required. For married couples, TOU becomes mandatory as soon as one of the two spouses exceeds the threshold of CHF 120,000
- Income not subject to withholding tax: If you receive income that is not subject to withholding tax, such as alimony, self-employed income, household income, housing benefits, property income or rental values, etc. it is mandatory to switch to the TOU.
- Possession of taxable assets: You have taxable wealth above a certain threshold, which varies according to the canton.
- Property owner: You are the owner of a property in Switzerland
It is crucial to note that, once subject to TOU, you will remain subject to it for all future tax years until the end of your withholding tax liability, even if you no longer want to benefit from this regime. Make sure you understand this long-term involvement before applying, and check the cantonal specificities associated with TOU.
TOU for residents abroad taxed at source
Residents abroad who are taxed at source in Switzerland may also be subject to Subsequent Ordinary Taxation (TOU). This measure allows them to declare income or property not included in their initial taxation and to benefit from tax deductions that more accurately reflect their financial situation.
In what cases is TOU mandatory for residents abroad?
TOU becomes mandatory for residents abroad in specific situations, including:
- ‍Real estate in Switzerland: Non-residents who own real estate in Switzerland are required to go to the TOU.
- ‍Independent activity: Residents abroad who are self-employed in Switzerland must pass the TOU.‍
- Independent income: Receiving self-employed income in Switzerland makes the transition to TOU mandatory.
The TOU is not automatic every year. Your file is examined again every year by the tax authorities.
In what cases is TOU beneficial?
The decision to switch to Subsequent Ordinary Taxation (TOU) must be carefully considered, as it can have varied consequences on your tax situation. A fiscal simulation is essential to anticipate these effects.
Here are the three main scenarios that can result from this transition:
‍Tax reduction thanks to TOU: Some taxpayers notice an immediate reduction in their tax burden by opting for TOU, even before taking into account various tax deductions. By adding deductions for the 3rd pillar, travel expenses, and other eligible deductions, the tax savings can be even greater.
Unchanged taxes before deductions: It is possible that your tax amount will remain similar after the switch to TOU compared to taxation at source. However, the application of tax deductions such as those related to the 3rd pillar or to travel expenses can lead to a reduction in your tax, making TOU beneficial.
Tax increase with TOU: In the less favorable case where, even after applying tax deductions, the tax due is greater than that calculated with withholding taxation, TOU may not be advantageous.
To best navigate these scenarios, an accurate simulation, ideally carried out by a financial advisor, is essential. This professional will be able to assess in detail the impacts of TOU on your taxation and guide you towards the most advantageous decisions. A thorough analysis will ensure that you get the most out of TOU, aligning it advantageously with your personal financial situation.
What deductions are taken into account for TOU
Only certain deductions are taken into account on a lump-sum basis in when you are taxed at source, such as:
- pension contributions (AVS, LPP),
- meal expenses, and
- sickness and accident insurance premiums.
Subsequent ordinary taxation (TOU) allows other deductions and effective costs to be taken into account such as:
- repurchases of pension contributions (2nd pillar),
- The contributions of 3rd pillar 3a and 3b
- Actual travel expenses
- childcare expenses,
- the payment of alimony in favor of minor children,
- training costs.
How do I switch to a TOU?
To move to Subsequent Ordinary Taxation (TOU), follow these essential steps:
1. Assessment and simulation: Conduct a tax simulation to determine if TOU is beneficial for your situation.
2. Complete the TOU application form: Get and fill out the TOU form. Depending on your canton, this form may be available in paper version or via the canton's online access.
‍3. Submission to the administration: Once completed, the form must be filed with the tax authorities before 31 March of the year following that of taxation.
‍4. Treatment by the tax administration: After receipt, your request will be processed by the tax authority, which will make the necessary recalculations taking into account all the declared items.
‍5. Notification of the result: You will then receive a notification informing you of the new assessment of your taxation. Depending on the result, you may receive a refund or be required to pay an additional fee.
How does a TOU take place?
When a taxpayer taxed at source in Switzerland opts for Subsequent Ordinary Taxation (TOU), he takes an approach that changes the way in which his tax is calculated and treated. Here is how it works in practice:
1. Filing the tax return: Taxpayers subject to TOU file their tax return at the beginning of the year following taxation, where they can report additional income or assets and claim specific deductions that are not taken into account in taxation at source. The tax return must be submitted to the tax authorities before 31 March.
2. Final tax calculation: The tax authority processes the return and calculates the final tax taking into account all the items declared. Withholding tax already paid during the previous year is deducted from this final amount.
‍3. Tax result: The taxpayer then receives tax slips detailing the calculation for the cantonal and communal tax (ICC) as well as for the direct federal tax (IFD). These documents show the balance of tax after taking into account the amounts withheld at source.
‍4. Refund or additional payment:
- If the balance is in favor of the taxpayer: If the tax already paid at source exceeds the amount due according to the declaration, the taxpayer receives a refund. The tax authorities make this refund by bank transfer, generally within 30 days of sending the notification letter.
- If the balance is in favor of the administration: Otherwise, if the taxpayer owes more than what was taken at the source, they will receive a notification to pay the balance. This payment must be made within 30 days of receiving the mail. In case of difficulties, it is possible to request an installment payment plan.
