• Ersan Sucu, Expert |

The governing council of the Canton of Zurich reduces the tax rates for pension capital withdrawals from 1 January 2022. With this the Canton of Zurich increases its competitiveness in the intercantonal context especially for medium and high pension capital withdrawals.

Taxation of Pension capital withdrawals

The tax rates for pension capital withdrawals have been high on average in the Canton of Zurich for many years and depending on a taxpayers personal situation the Canton of Zurich is located in the midfield or even at the bottom in the cantonal ranking in Switzerland. Therefore, the governing council in Zurich noticed that there is a need for a change and therefore Article §37 of the Zurich tax law has been adjusted and come into force in 2022. From 1 January 2022 lower tax rates will be applied for a pension capital withdrawal (e.g. from occupational pension plans “Pillar 2” or from private pension schemes also known as “Pillar 3a”) and the Canton of Zurich may gain more attractivity with regards to pension withdrawals in Switzerland. However, the final taxes due depend on the taxpayer’s personal situation (single / married, religious affiliation) as well as the place of residency.

Zurich Tax Rates 2021 vs 2022

Up and including the tax year 2021 the tax rates for a pension capital withdrawal for a single taxpayer in the Canton of Zurich have been between 5.2% and 16.1% for a payout between CHF 125’000 and CHF 1’000’000 and between 4.9% and 13% for married taxpayer with no religious affiliation. 

Due to the reduction of the tax rates from 1 January 2022 single taxpayer will be subject to tax rates between 5.2% and 11.5% depending on the amount of payout and married taxpayer between 4.9% and 8.5%.

This overview shows a comparison of taxes due for various amounts of payouts for single and married taxpayer. The taxes shown do not consider the religious affiliation of a taxpayer and it is assumed that the taxpayer is a resident of the city of Zurich.

As the taxable event for pension capital withdrawal is the cashflow at withdrawal, taxpayer may decide to wait until 1 January 2022 to benefit from the adjustment of the Zurich tax law. However, single taxpayer may consider that the tax saving starts from a payout of approx. CHF 210’000 compared to 2021, and married taxpayer only benefit from the lower tax rates in 2022 for a withdrawal from approx. CHF 370’000.

Zurich in an intercantonal comparison 2021 vs 2022

The following section answers the question if the Canton of Zurich could gain a competitive advantage in Switzerland for pension withdrawals with the adjusted tax law from 1 January 2022. While the first paragraph shows overviews with taxes for single taxpayer, the second paragraph shows taxes due for married taxpayer, both with no religious affiliation of the taxpayer. The comparison for both is based on the tax rates of the provincial capitals of each canton.

Cantonal comparison for single taxpayer

This overview shows the cantonal comparison for a pension capital withdrawal of CHF 500’000 for a single person – 2021 taxes on the left and 2022 taxes on the right side. 

The most significant benefit is given to taxpayer at these levels – Zurich makes up the most places and jumps from rank 24 to rank 10 in the cantonal comparison. For a pension capital withdrawal of CHF 250’000 the Canton of Zurich improves from rank 14 to rank 8 in the cantonal comparison and from the last place to rank 23 for a withdrawal of CHF 1’000’000. 

The Canton of Zurich improves at all levels in comparison with other cantons for single taxpayer and is more competitive for medium pension capital withdrawals.

Cantonal comparison for married taxpayer

This overview shows the cantonal comparison for a pension capital withdrawal of CHF 500’000 for a married couple – again, 2021 taxes on the left and 2022 taxes on the right side. 

While the Canton of Zurich remains at the same rank for a pension withdrawal of CHF 250’000 for married taxpayer, the canton makes up 13 places and climbs from rank 21 to rank 7 for a withdrawal of CHF 500’000, which is shown in the above overview. Remarkable is also the jump from the second-last rank to the midfield rank 16 in the cantonal comparison for a withdrawal of CHF 1’000’000. 

For married taxpayer the Canton of Zurich has not improved for lower withdrawals, however taxpayer can benefit from a significant lower tax liability for a pension capital withdrawal of more than CHF 450’000.

What should taxpayer do?

With the change in the tax law the Canton of Zurich makes up the most places in the cantonal ranking for a pension capital withdrawal of approx. CHF 500’000 for both single and married taxpayer. Tax savings up to 40% are possible with the new tax law.

Despite the lower tax rates in the Canton of Zurich from 1 January 2022, a change of the residency location may still make sense for certain taxpayer to even lower the tax liability for pension capital payouts. However, it is difficult to make a general statement as the taxpayer’s personal situation should be analyzed in detail and applicable personal questions need to be answered. Independent of the upcoming change in the tax law in Zurich, an early assessment and the analysis of the person’s life planning is recommended.

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