Which income from provision must I tax?
The taxation of pension benefits in Switzerland varies according to the form of payment under the "three-pillar principle".
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Whether income from provisions is taxable depends essentially on whether the payout is made in a lump sum or in the form of a pension. The form of pension payment is generally fully taxable under the "three-pillar principle".
The social security system in Switzerland is based on the "three-pillar principle" (see blog post). The benefits from the provisions can either be paid out in the form of a pension or as a lump sum. Pensions are periodic recurring, constant benefits, the duration of which is not determined. The law establishes the principle that contributions to the 1st and 2nd pillars are fully deductible from taxes, and the benefits are fully taxable.AVH/IV (1st Pillar)The mandatory contributions to the AVH and IV can be deducted from taxes (Art. 33 par. 1 lit. d Federal Law on Direct Federal Tax [DBG]). However, the benefits from these funds must also be taxed as income (Art. 22 par. 1 DBG). AVH supplementary benefits, however, are tax-free.
Occupational Provision (2nd Pillar)
The contributions to the occupational provision are also fully deductible. To prevent tax evasion, however, the law prescribes maximum amounts (BVG 79a). Additionally, buy-ins are subject to a lock-up period of three years, otherwise, they are not recognized for tax purposes. The only exception is the buy-back after a divorce.Pensions from the 2nd pillar are taxed together with other income under income tax. If the benefit is taken as a lump sum, it is taxed separately from the other income at 1/5 of the normal rate (Art. 38 DBG). This regulation applies uniformly to income tax at the federal and cantonal levels, although cantonal tariffs may vary.
Tied Self-Provision (Pillar 3a)
The amounts to Pillar 3a (see blog post) are only limitedly deductible. The amount of permissible deductions is announced by the Federal Tax Administration. Payments in the form of a pension are also taxed together with the income, and capital benefits are taxed separately, at the reduced rate of 1/5.
Statutory Accident Insurance
Contributions to statutory accident insurance are also fully deductible. If pensions or capital benefits are taken, they must be fully taxed (Art. 23 DBG).
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