While AHV contributions from the first pillar directly benefit the population in retirement, the Swiss save their own assets for old age in the other two pillars. At the time of withdrawal, the saved retirement assets are subject to taxation. In the case of a pension as income and in the case of a lump-sum payment or an advance withdrawal, the savings are taxed in the form of a reduced capital withdrawal tax.
In this article, we show how the capital withdrawal tax is calculated and why it is called a «reduced» tax. First, however, we compare how high the capital withdrawal tax is in relation to the capital benefit from the 2nd and 3rd pillar in the individual cantons:
Intercantonal comparison of the amount of capital withdrawal tax in % of the capital payment (municipal, cantonal and federal tax combined)
The table can be sorted as desired:
| 50'000 | 100'000 | 250'000 | 500'000 | 1 Mio. | 2 Mio. | 5 Mio. | 10 Mio. | 20 Mio. | |
|---|---|---|---|---|---|---|---|---|---|
| AG, Aarau | 3.3% | 5.0% | 7.3% | 8.3% | 8.9% | 9.0% | 9.1% | 9.2% | 9.2% |
| AI, Appenzell | 2.4% | 3.4% | 4.7% | 5.2% | 5.4% | 5.4% | 5.4% | 5.4% | 5.4% |
| AR, Herisau | 7.6% | 8.0% | 9.0% | 10.0% | 11.2% | 11.7% | 12.0% | 12.1% | 12.1% |
| BE, Bern | 3.6% | 4.7% | 6.7% | 8.4% | 9.8% | 10.5% | 11.1% | 11.3% | 11.3% |
| BL, Liestal | 3.5% | 3.9% | 4.9% | 6.7% | 9.6% | 9.7% | 9.7% | 9.7% | 9.7% |
| BS, Basel | 3.7% | 5.3% | 8.3% | 9.5% | 10.0% | 10.1% | 10.2% | 10.3% | 10.3% |
| FR, Fribourg | 4.1% | 5.6% | 9.2% | 11.3% | 12.3% | 12.7% | 12.9% | 13.0% | 13.1% |
| GE, Genève | 3.0% | 4.7% | 6.7% | 7.9% | 8.5% | 8.8% | 8.9% | 8.9% | 9.0% |
| GL, Glarus | 4.8% | 5.2% | 6.2% | 6.7% | 6.9% | 6.9% | 6.9% | 6.9% | 6.9% |
| GR, Chur | 3.0% | 3.4% | 4.4% | 5.9% | 6.1% | 6.1% | 6.1% | 6.1% | 6.1% |
| JU, Delémont | 5.4% | 6.2% | 8.7% | 9.7% | 10.1% | 10.2% | 10.3% | 10.3% | 10.4% |
| LU, Luzern | 4.0% | 5.3% | 7.2% | 8.2% | 8.6% | 8.7% | 8.7% | 8.7% | 8.7% |
| NE, Neuchâtel | 4.9% | 5.8% | 8.0% | 8.6% | 8.9% | 8.9% | 8.9% | 8.9% | 8.9% |
| NW, Stans | 2.7% | 3.7% | 5.1% | 5.6% | 5.7% | 5.7% | 5.7% | 5.7% | 5.7% |
| OW, Sarnen | 5.3% | 5.7% | 6.7% | 7.2% | 7.4% | 7.4% | 7.4% | 7.4% | 7.4% |
| SG, St. Gallen | 5.7% | 6.1% | 7.1% | 7.6% | 7.8% | 7.8% | 7.8% | 7.8% | 7.8% |
| SH, Schaffhausen | 2.2% | 3.5% | 5.3% | 5.8% | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% |
| SO, Solothurn | 3.6% | 5.0% | 7.0% | 7.7% | 7.8% | 7.8% | 7.8% | 7.8% | 7.8% |
| SZ, Schwyz | 1.3% | 2.4% | 5.9% | 8.7% | 10.7% | 10.7% | 10.7% | 10.7% | 10.7% |
| TG, Frauenfeld | 6.3% | 6.6% | 7.7% | 8.2% | 8.4% | 8.4% | 8.4% | 8.4% | 8.4% |
| TI, Bellinzona | 4.0% | 4.4% | 5.4% | 7.3% | 14.2% | 19.7% | 24.6% | 27.5% | 29.2% |
| UR, Altdorf | 3.9% | 4.3% | 5.3% | 5.8% | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% |
| VD, Lausanne | 3.4% | 4.7% | 7.1% | 8.5% | 9.1% | 9.3% | 9.4% | 9.5% | 9.5% |
| VS, Sion | 4.4% | 4.8% | 6.4% | 9.3% | 10.3% | 10.3% | 10.3% | 10.3% | 10.3% |
| ZG, Zug | 1.8% | 3.4% | 5.0% | 5.9% | 6.4% | 6.5% | 6.5% | 6.6% | 6.6% |
| ZH, Zürich | 4.5% | 4.9% | 6.0% | 7.4% | 11.4% | 16.0% | 22.3% | 26.5% | 28.6% |
Assumption: Payment at age 65, single man, no religion (Source of tax data)
Methods of calculation of the reduced capital withdrawal tax
The tax laws of the cantons and the Confederation have the following common characteristics for the calculation of the capital subscription tax:
- The capital withdrawal tax is taxed separately from other income. It is, therefore, possible that two neighbours have to pay the same tax amount, even the taxable income differs significantly. The prerequisite for this is, that the capital or advance withdrawal is the same for both neighbours.
- If more than one lump-sum benefit (from Pillar 2 or Pillar 3) accumulates in one tax year, these benefits are combined to calculate the capital withdrawal tax. Payments to spouses are usually taxed jointly.
- The social deductions that are otherwise granted when calculating taxable income do not apply to capital benefits.
Different calculation methods of the cantons
The taxation of lump-sum benefits from the pension provision is calculated differently from canton to canton. Below we briefly explain the four calculation methods:
- Proportional to income tax rate (Swiss Confederation, AG, AI, GE, LU, NE, NW, OW, SH, SO, VD, and ZG): The capital withdrawal tax is a fraction of the tax that should have been paid on a corresponding income. Either one takes a fraction of the tax rate or the theoretical income tax. Both ways lead to the same result, a reduced capital withdrawal tax.
- Taxation according to the “Rentensatz” (GR, SZ, TI, VS, and ZH): This model is based on the income tax rate as well. However, the calculation is more complex. First, we look at how high a corresponding annual pension payment would be* if the retirement assets were withdrawn in pension form. With the pension amount determined in this way, the tax rate can be determined based on the income tax rate. This tax rate is then multiplied by the total capital withdrawal.
- Own tax rate for capital withdrawal (AR, BE, BL, BS, JU, and ZG):
A separate tax rate – also known as a staggered rate – is applied specifically for capital withdrawal. This rate is not dependent on the income tax rate and is listed separately in the tax law. - Fixed percentage for capital withdrawal (GL, SG, TG, and UR): After all, there are cantons that like things to be simple. They apply a fixed tax rate, which is payable on the entire capital payment. Regardless of the amount paid out, the tax rate is always exactly the same. The only reason that the tax rate in the comparison table also increases in these cantons with the increasing amount of capital withdrawal is the federal tax, which is not flat but progressive. However, this is substantially less than in other cantons.
*The pension conversion rate varies from canton to canton. Ticino and Valais use tables to convert lump-sum payments into life-long pensions. As there are different retirement ages for women and men, gender is also a determining factor in calculating the tax in these cantons.
Various cantons have additional guidelines in the form of minimum or maximum tax rates (AR, AI, BL, GR, LU, NE, NW, SZ, TI, VS, ZG, and ZH). Partly tax-free amounts are also granted (AG, BE, BS, FR, GR, VS).
The tax calculated with the tax rate is also called simple tax. It must be multiplied by the municipal and cantonal tax rate to obtain the effective tax amount.
Calculation example: Proportional to the tax tariff for income (2022)
To illustrate, an example with Ms Muster, single, non-denominational and resident in the municipality of Lucerne LU: He would like to withdraw his vested benefits capital of CHF 250’000. The canton of Lucerne taxes lump-sum benefits from pension schemes in proportion to the tax rate for income (1/3). The tax rate for an income of CHF 250’000 is 4.39%. One-third of this is 1.46%, multiplied by CHF 250’000 this results in a simple tax of CHF 3’658.53. The tax base of the municipality of Emmen LU is 3.82, which results in CHF 13’975.58. Added to this is the federal tax of CHF 4’032.30, which is calculated according to the same model (1/5). The capital withdrawal tax for Mr Muster amounts to CHF 18’007.90 what it 7.20 percent of the capical withdrawal.
Sample calculation: Taxation according to the “Rentensatz” (2022)
Mr Meier, single, non-denominational, lives in the community of Schwyz SZ. Her capital withdrawal of CHF 250’000 is taxed according to the «Rentensatz». The tax law of the Canton of Schwyz states: “Lump-sum benefits are calculated at the tax rate that would result if an annual benefit of 1/25 of the lump-sum benefit were paid instead of the lump-sum benefit.” 1/25 of CHF 250’000 is CHF 10’000. The income tax rate for CHF 10’000 income is 1.275%. This rate is now multiplied by the total capital benefit. This results in a simple tax of CHF 3’187.50. The simple tax must, in turn, be multiplied by the tax rate. The tax rate is 335% of the simple tax. The cantonal tax thus amounts to CHF 10’678.13. Together with the federal tax, this results in a tax of CHF 14’710.53 or 5.9 percent.
Reimbursements WEF advance withdrawal: Paid capital withdrawal tax can be reclaimed
Capital that was once withdrawn from the occupational pension plan as part of the Home Ownership Promotion Program (WEF) can be repaid. The normal capital withdrawal tax applies to WEF withdrawals. This tax can be reclaimed when the capital is repaid. It is important to know that you must apply for a refund within three years, otherwise, the right to a refund expires. An automatic refund is not planned. You must, therefore, take action yourself.