Withholding tax on Old Age Insurance contributions?
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The legislative changes for withholding tax are diverse. Those changes also affect the reimbursement of Old Age and Survivors Insurance contributions. From 2021, these reimbursments will be subject to withholding tax.
Foreigners can have their OASI contributions refunded under the following conditions: (i) they have paid OASI contributions in Switzerland for at least one year, (ii) they are definitively leaving Switzerland, and (iii) no social security agreement exists with their home country or their home country has a corresponding exception. From 1 January 2021, this reimbursement of OASI contributions is subject to withholding tax. The withholding tax is to be levied and settled on whether a double taxation agreement restricts Switzerland’s right of taxation or not.
The Swiss Compensation Office (SCO) is responsible for determining and paying out the refunded OASI contributions as well as taxing and settling the withholding tax on the benefits concerned. As SCO is based in Geneva, it is the canton of Geneva‘s responsibility to tax the reimbursed OASI contributions. The withholding tax is due at the time of payment, transfer, crediting, or offsetting of the taxable benefit. To calculate the withholding tax on the reimbursement of OASI contributions, the total reimbursement amount is determining the tax rate, whereby tariff D is applied. The applicable tax rate is determined by the canton of Geneva.
However, an OASI pension received by a non-resident taxpayer remains free of withholding tax. Non-resident taxpayers are on the one hand, Swiss nationals who emigrate abroad. On the other hand, these are EU/EFTA citizens who benefit from the Agreement on the Free Movement of Persons between the EU/EFTA member states and Switzerland, as well as foreigners whose home country has concluded a social security agreement with Switzerland. As a result, OASI pensions will (continue to) be paid out without withholding tax. Therefore, double taxation is also avoided in non-DTT cases. Similarly, OASI pensions will continue to be tax-free if the foreign state does not levy taxes on pension income.
Example 1: Reimbursement of OASI contributions
In 2010, Justina came from Russia to Switzerland and has worked as an accountant for an industrial company in Zurich. She will retire on 31 December 2020. On 1 January 2021, she will move back to Russia.
Since she will definitively leave Switzerland, Justina is entitled to reimbursement of her OASI contributions. SCO will withhold withholding tax in the context of payments after 1 January 2021. In accordance with article 21 of the double taxation treaty between Switzerland and Russia, only Russia has the right of taxation on OASI contributions. Consequently, Justina can apply to Geneva’s tax authorities to refund the respective Swiss withholding tax. How the refund will be handled in detail is currently unclear. According to the tax authorities in Geneva, an informal application should initially be sufficient. However, we recommend submitting the application together with a certificate of residence from the relevant tax authorities.
Example 2: OASI pension
Urs emigrated from Zurich to Monaco in the year 2019. He draws an OASI pension of CHF 2’370 from his work as a caretaker.
The OASI pension will continue to be paid out to Urs without withholding tax from 2021.