The Swiss side: taxation, residence and social security

Ordinary taxation in Zurich

A German who takes up residence in the canton of Zurich becomes subject to unlimited tax liability for the direct federal tax and for the cantonal and communal taxes from the day of his arrival. Since the canton abolished taxation according to expenditure with effect from 1 January 2010, he is taxed on his actual worldwide income and on his worldwide net wealth. Foreign real estate and foreign permanent establishments are exempt but are taken into account for the determination of the tax rate. The abolition in Zurich affects only the cantonal and communal taxes. The federal lump-sum taxation remains available in principle. It is of no use to a person whose cantonal taxes are assessed on an ordinary basis and is in any event barred to persons who pursue gainful activity in Switzerland.¹ German entrepreneurs who wish to be taxed on their expenditure must therefore choose another canton, such as Schwyz, Zug or Graubünden, where the instrument survives within the federal minimum conditions.

For a German who has been an employee or a managing director in Germany, the most significant change is the structure of the tax. In Zurich, as in all Swiss cantons, the wealth tax is levied annually on the net worth of the taxpayer, including shares in his German company valued according to the Swiss rules for unlisted securities. For an entrepreneur whose company is worth several hundred million francs, the wealth tax can exceed the income tax in years of low distributions. The valuation of foreign unlisted companies for the Swiss wealth tax is thus a practical issue in almost every relocation of a German business owner and is often the subject of an advance ruling. Employees of Swiss employers who do not hold a settlement permit are taxed at source on their salary, with a subsequent ordinary assessment when their income exceeds a threshold. This procedure concerns many German professionals during their first years in Zurich.

Residence under the free movement agreement

German nationals enjoy the rights of free movement granted by the Agreement between the European Community and its member states and the Swiss Confederation on the free movement of persons of 21 June 1999, which entered into force on 1 June 2002. A German who takes up employment in Zurich for at least one year receives a residence permit B for five years. Persons who do not pursue gainful activity, such as retired entrepreneurs, are entitled to a residence permit if they have sufficient financial means and comprehensive health insurance.² After five years of regular residence, German nationals obtain the settlement permit C on the basis of a bilateral settlement agreement between Switzerland and Germany. The migration office of the canton of Zurich handles these permits in the canton.³

The free movement agreement has been the subject of intense political debate in Switzerland. The popular initiative for moderate immigration, which sought to terminate the agreement, was rejected by the electorate on 27 September 2020. The package of agreements negotiated with the European Union since 2024 would update the agreement further. For German residents these debates have so far had no practical effect. The right of residence of a German national in Zurich is secure as long as the agreement remains in force. The practical formalities are limited to registration with the commune and the application for the permit.

Social security

Social security follows the rules of the European Union, which the free movement agreement extends to Switzerland. Since 1 April 2012, Regulation (EC) No 883/2004 on the coordination of social security systems has applied in the relations between Switzerland and the member states. Under that regulation, a person who is employed in one state is subject only to the legislation of that state. A person who works in several states is subject to the legislation of his state of residence if he pursues a substantial part of his activity there, defined as at least 25 per cent of working time or remuneration.⁴ For a German entrepreneur who lives in Zurich but remains managing director of his German company, the regulation can have surprising results. If he works in both states and a substantial part of his work is done in Switzerland, he is subject to Swiss social security on his entire remuneration, including the German salary. The German company must then pay Swiss contributions. The same applies to employees who work from home in Switzerland for a German employer. Switzerland and Germany have signed a framework agreement concluded under Article 16 of the regulation. It allows cross-border teleworkers to remain insured in the state of the employer if their telework in the state of residence amounts to less than half of their working time.⁵

The Swiss old-age and survivors’ insurance (AHV) is financed by contributions on the entire earned income without a ceiling, while the benefits are capped. For high earners the contributions therefore take on the character of a tax. Persons without gainful activity pay contributions based on their wealth and pension income, which can reach the statutory maximum for wealthy retirees. German entrepreneurs who move to Zurich after retirement are often surprised by this obligation, which does not exist in Germany.

Notes

1. Art. 14 para. 1 DBG, https://www.droit-bilingue.ch/de-fr/6/64/642.11-14-17.html: taxation according to expenditure is available only to persons who do not hold Swiss citizenship, who become subject to unlimited tax liability for the first time or after an absence of at least ten years, and who do not pursue gainful activity in Switzerland. The abolition in Zurich and its consequences for the number of lump-sum taxpayers are described in Part H of this book. ↩
2. Agreement between the Swiss Confederation, of the one part, and the European Community and its Member States, of the other, on the free movement of persons of 21 June 1999 (SR 0.142.112.681), Annex I, Articles 6 and 24. State Secretariat for Migration (SEM), “Ausweis B EU/EFTA (Aufenthaltsbewilligung)”, https://www.sem.admin.ch/sem/de/home/themen/aufenthalt/eu_efta/ausweis_b_eu_efta.html: the permit is valid for five years and requires employment of at least 365 days or of unlimited duration. Persons without gainful activity must prove sufficient financial means and hold health and accident insurance. ↩
3. Kanton Zürich, Migrationsamt, Migration im Kanton Zürich: Zahlen und Fakten 2025, cited above, which reports the numbers of EU and EFTA nationals holding residence and settlement permits in the canton. ↩
4. Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems, Articles 11 to 13, and Regulation (EC) No 987/2009, Article 14 para. 8, EUR-Lex, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32009R0987: “a share of less than 25 % in respect of the criteria mentioned above shall be an indicator that a substantial part of the activities is not being pursued in the relevant Member State”. Both regulations apply to Switzerland under Annex II to the free movement agreement as amended by Decision No 1/2012 of the Joint Committee, with effect from 1 April 2012. ↩
5. Framework Agreement concerning the application of Article 16(1) of Regulation (EC) No 883/2004 in cases of habitual cross-border telework, in force since 1 July 2023. Switzerland and Germany are among the signatory states. Federal Social Insurance Office, “Telearbeit”, https://www.bsv.admin.ch/de/telearbeit (“Bei Telearbeit unter 50 % bleibt die Zuständigkeit ab dem 1. Juli 2023 im Verhältnis zu Staaten, welche die multilaterale Vereinbarung unterzeichnet haben, unverändert”, with Germany listed among those states). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.