Besteuerung von Kapitalleistungen im Kanton Zürich ab 1.1.2022

What will change in specific terms and how will the change in the law affect lump-sum withdrawals in the canton of Zurich?

In contrast to many cantons and the federal government, which apply a reduced tax rate to lump-sum withdrawals, the canton of Zurich (like the cantons of Graubünden and Schwyz, for example) uses the pension rate model. In accordance with § 37 of the Zurich tax code, the tax rate is determined by starting from the hypothetical assumption that the lump-sum benefit is paid in 10 annual instalments. For example, a lump-sum benefit of CHF 600,000 is taxed at the rate resulting from an annual income of CHF 60,000. This results in a reduction in the tax burden. For very high lump-sum withdrawals, however, the effect is largely eliminated because one still ends up at the maximum rate. In contrast to the aforementioned cantons of Graubünden and Schwyz, Zurich does not provide for a maximum tax rate. This model is retained in the revised § 37 of the Zurich tax code, but 20 annually constant benefits will be used to determine the rate, i.e. 5% instead of the previous 10% of the lump-sum benefit. In our example with the lump-sum withdrawal of CHF 600,000, the Zurich tax calculation would now be based on an annual income of CHF 30,000. As shown in the calculation examples below, this leads to a significant reduction in the tax burden precisely for such medium-high withdrawals. However, this does not apply to smaller withdrawals of up to just under CHF 250,000, as the minimum simple tax rate continues to apply here. The tax relief on very high withdrawals is only limited as the maximum rate continues to apply. 

With this change in the law, Zurich has taken a large step forward in comparison with other cantons when it comes to withdrawals in the range of CHF 250,000 to CHF 2,000,000. For comparison purposes, the following table shows the tax rates of the neighbouring cantons of Aargau, Schwyz, Thurgau and Zug as well as the national leader (Appenzell Innerrhoden) and the bottom-placed canton (Vaud) for a withdrawal of CHF 600,000 (tax rates in the cantonal capitals are used; calculations including federal tax).

Zurich is in mid-table for smaller withdrawals. For very high lump-sum withdrawals, the tax burden in the canton remains considerable in a national comparison. The municipal tax rates must also be taken into consideration, however. The city of Zurich rate used for the calculation is relatively expensive. In the municipality of Kilchberg, the tax rate on a withdrawal of CHF 1,000,000 would be only 9.48% overall, due to the lower municipal taxes. 

Conclusion

With the amendment of § 37 of the Zurich tax code, the canton will become more attractive for the withdrawal of lump-sum benefits, especially as many payments (e.g. also advance withdrawals to finance residential property) are likely to be within the now relieved range.

Since the tax burden is being reduced on mid-range lump-sum benefits in particular, it is important to ensure that withdrawals are staggered instead of making one high withdrawal in one year. This applies throughout Switzerland and is likely to be a well-known fact. Due to the new regulation in the canton of Zurich, however, this aspect seems to us to be somewhat more important here. Another point is the time component. If a lump-sum benefit can be drawn both in 2021 and in the years thereafter, it should not be withdrawn until 2022 – in which case the new § 37 of the Zurich tax code will apply. A change of residence is unlikely to be necessary in most cases, especially since in many constellations the payments were also deductible in Zurich. However, if you are planning to spend your retirement somewhere else in Switzerland – or even abroad – anyway, it is advisable to check exactly when a withdrawal makes sense.