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Having a side hustle is a great thing to increase your income. But you need to be careful about doing it legally. If your side hustle is getting serious, you need to make sure you are respecting the law.
If you are just selling a few things you do not need anymore, you probably will not have any problem. But if you have a side hustle that generating a more serious amount of money, you need to do it right.
Here, a serious amount of money is 2300 CHF per year. From that point, you will need to start thinking seriously about it. 2300 CHF per year is the amount from which you will need to pay social contributions.
In this article, we see exactly what you need to do if you want to be serious about your side hustles. You need to pay taxes, pay social contributions, and maybe declare your company.
Now, please keep in mind that I am not a lawyer! This article is only the result of my research. This information is not legal advice! If you are unsure about something, you should consult a lawyer or a government official.
That being said, I hope this will be useful as an introduction! I wish this information was available when I started my research!
Can I side hustle?
Let’s start at the beginning. Can you legally side hustle in Switzerland?
In general, you can legally side hustle in Switzerland, but there are some rules.
First, you cannot compete with your employer! This rule is fundamental. Starting a side hustle doing the same thing as your employer could be very dangerous.
Second, you need to ensure your work does not suffer from the side hustle. If you are too tired to work at your primary job because of your side hustle, your boss could force you to give it up.
Some contracts may prohibit you from having a serious side hustle business. So, you need to read it properly before you start hustling. If your contract is linked to a collective agreement, you also need to pay attention to the collective agreement terms. There could be something about side hustle in that.
So, in general, people can side hustle in Switzerland, but not to the detriment of their primary job.
Side hustle and taxes
First, you need to know that you will have to pay taxes on your side hustle income.
If you do not have a dedicated company for it, you will pay taxes directly as an individual. It means that your side hustle income will be added to your normal income. If you already have a large income, this could mean a large portion of your extra income will go to taxes.
If you create a dedicated company for this, then you will have to file two tax declarations: one for you as an individual and one for your company.
In any case, you can also declare the expenses of your side hustle. Declaring them is important because it means that it will bring down the income from your side and hence your taxes.
Now, you need obviously to be careful about that and only declare expenses that are related to your business. Do not start declaring all your dinners as your company if they are entirely unrelated! Doing so could bring down a lot of questions on you. And you never want the tax office to be curious about yourself!
For instance, if you are running a website as a side hustle, here are some expenses you could deduct:
- The cost of hosting
- All the digital products you are using
- Digital courses you are taking for training
- Lunch with a client
- And so on
It is essential that you declaring them because reducing your net income is very important for your taxes.
Side hustle and social contributions
Something that really few people is that if you have a significant side hustle, you will have to pay social contributions to the first pillar. With your salary, this is already removed from your it directly before you receive it.
But for a company, they cannot do that. So, you will have to pay some percentage of your side hustle income to the first pillar.
The amount you will pay will depend on the revenue you generate and the state you are living in. Each state has different minimums and rates for self-employed.
Now, you only need to start paying social contributions if your income is more than 2300 CHF per year. Below that amount, you are exempted from these social contributions. So, 2300 CHF per year is where we will
To pay these social contributions, you have two choices:
- You simply wait the end of the year, fill your taxes, and the information should be passed over to the first pillar office. Then, you should receive a bill related to that.
- You register yourself a side self-employed person in advance to the AVS office (AHV in German). With this, you will give an estimate of your revenue. You will then receive a bill for what you owe them.
If you are serious about your side hustle, I strongly encourage you to go with the second option. It has several advantages. You will pay in advance, in several installments and not in one go. You will not get a big surprise when you file your taxes. And finally, you can already deduct what you pay from your income. So your taxed net income for the first year will be lower than the second year. I also feel this is a more standard way to deal with things, but this is only my personal opinion.
To register, you need to contact your local AVS office. You can find a list of all these offices online. I cannot give you all the instructions since they will depend on each state.
Do we have to create a company?
Well, it depends!
In most states, you will have to register at least a sole proprietorship company (raison individuelle in French). The good news is that there is no paperwork for this kind of company when you are starting!
For me, a sole proprietorship is the entity type that makes the most sense for a side hustle. It is the easiest company to create and does not require any capital to start with. Another advantage is that you can file the taxes for your side hustle directly in your tax declaration. There is no need to file it separately.
Not filing taxes for the company also means that you can avoid double taxation. With another company, you will pay taxes on the company revenue, and on the salary that you are giving yourself from the company. Only a sole proprietorship can help you with that.
But sole proprietor has some disadvantages. The bigger one is that you can only have one owner. And the second is that you are financially responsible for your company. If you are starting a serious business with some partners, it is probably not the best company type. But then, this is probably not a side hustle anyway.
You are entirely free to create another kind of company for your side hustle. You could create a Limited Liability Company (LLC). But you will have to provide a starting capital of 20’000 CHF. So unless you are starting a full-time business, it may be much. Also, keep in mind that with such a company, you will have to file taxes twice!
There may be some cases when you do not have to create a company. But you should talk to your local tax office or AVS office about that. And remember that creating a sole proprietorship is almost effortless.
So, in general, you will have to create a sole proprietorship for your side hustle. But this does not involve any paperwork.
Do we have to register the company?
Again, it depends.
If you create any type of company other than a sole proprietor, you will be automatically registered in the Registry of Commerce when you created the company with the Notary.
If you created a sole proprietorship, the registration to the Registry of Commerce is optional. If you reach 100’000 CHF revenue in a single year, you will have to register it.
So, in most cases, you will not have to register a company in the Register of Commerce for your side hustle.
Do we have to pay VAT?
In Switzerland, when you buy something, a part of what you pay goes to the government. This tax is the Value Added Tax (VAT).
If you are starting with your side business, you will not have to pay VAT. For most commercial companies, you will only need to pay VAT once you reach 100’000 CHF in yearly revenue.
Once you register your company for VAT, the amount you will pay depends on the services or products you are providing. VAT ranges from 2.5% to 7.7%.
So, unless your side business is thriving, you will not have to pay VAT on your revenue.
Do we have to do accounting?
Most likely, you will not need full accounting.
With a small side hustle, you do not have to hold a full accounting of your business. If you are registered in the registry of commerce and generate more than 500’000 CHF in revenue, professional accounting will be required.
Now, you are still obligated to keep track of your expenses and revenue. And this could be asked from you by the tax office or by the registry of commerce. But honestly, it only makes sense to track all your expenses and earnings for your side hustle. Tracking your expenses and earnings is the only way you will know if it is profitable or not. And this is also the only way to know how much revenue you have to declare for your taxes.
So, in general, you will not have have to keep a full accounting of your business. But you should still track earnings and expenses.
Can I contribute to the second pillar?
No. Since it is only a side hustle, you already have a second pillar with your primary job. It means you are already affiliated with a pension plan.
Now, you can use your side hustle income to contribute to your current second pillar. It all depends on your plans for the future and your overall asset allocation.
If you grow your side hustle into your main job, you will be able to contribute up to 25% of your income to a second pillar. But let’s stay focused on side hustles.
Can I contribute to the third pillar?
Nothing prevents you from contributing to the third pillar. But having a side hustle will not increase your maximum contribution (6883 CHF in 2021).
Since you should already be maxing out your third pillar, a side hustle should not change anything. But if you were not able to max out your third pillar before, you should use your side hustle income to do it.
As you can see, starting a serious side hustle in Switzerland may be a bit more complicated than in some other countries.
And if you are just selling a few things you do not need on the internet, there is nothing. You should still declare that income in your tax declaration.
When your side hustle is generating more than 2300 CHF per year, you will need to start thinking about these issues.
But now, here is good news: Most of these steps are optional if you are not generating 100’000 CHF in yearly revenue. Below that, you do not have to register your company, you do not have to have a full account, and you do not have to pay VAT!
If you are only generating a little money, the only thing you need to do is register yourself for the social contributions and file your taxes. You will not need any other things than a sole proprietorship for that.
So, in the end, in most cases, side hustle legally in Switzerland is pretty straightforward. And when you are starting to generate a high income, you will have to do more for your company. But this will probably not be a side hustle at this time.
To get extra income, read about several ways to increase your income.
Do you have any tips on starting a serious side hustle in Switzerland?