5 Traps to avoid when moving to Switzerland
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When moving to a new country, many financial decisions must be made. Ideally, some research should be done to understand the financial system of the new country. On top of the actual move, this can be stressful and complicated.
Unfortunately, expats moving to Switzerland often receive bad financial advice when arriving in Switzerland or even planning their moves. This is quite sad because that should not happen to people moving to a new country.
To help a little, I want to list N traps expats must be careful about when moving to Switzerland.
1. Life insurance Third Pillars
The biggest trap expats should be careful about when moving to Switzerland is the life insurance third pillar trap.
The third pillar is an essential part of the Swiss retirement system. This voluntary system allows you to complete your retirement funds and save on taxes.
The second part is what is used to lure expats. Advisors only talk about tax savings, but they do not talk in detail about the two different types of third pillars:
- A standard third pillar account, invested or not
- A life insurance third pillar
The problem is that the life insurance third pillar is a terrible option in most cases. So, people are losing money using a life insurance third pillar instead of a standard third pillar.
So, why are financial advisors recommending life insurance third pillar? Simple! For money! Advisors get large commissions when they sell these products since insurance providers have high fees.
It is not only expats that fall into this trap. These products are being sold to long-time residents as well. However, many expats fall into this trap because their advisors do not give them the complete picture.
So, you should avoid life insurance’s third pillar. And if an advisor recommends this product to you, he likely does not have your best interest at heart (but his own).
2. Financial advisors
I already touched on financial advisors in the previous point, but I want to emphasize this point!
In most cases, financial advisors will hurt your finances much more than they help you.
The issue is that most financial advisors will get commissions from the products they sell you. So, they are incentivized to sell products regardless of whether you need them.
The biggest issue with what they sell is 3a life insurance products. They make a massive commission on them, and most people will never need it. They sometimes also try to sell very complicated funds that will never outperform the market because the fees are so high.
If you want a financial advisor, I would recommend the following rules:
- Only use a financial advisor with a flat fee (no custody fee based on your net worth).
- Only use a financial advisor for advice, and then implement their advice yourself.
I hope you can find honest financial advisors. However, I have not heard many good things about financial advisors in Switzerland.
3. Tax Advisors
On the subject of advisors, we should talk about tax advisors.
The myth is that you cannot fill out your tax declaration in Switzerland. Unfortunately, many expats believe this is true and will use a tax advisor.
But everybody I know (except for expats) does their taxes themselves. It is not complicated and does not take nearly as much time as people think. And now that we have computer applications to fill them, it is even simpler.
Getting a tax advisor the first year to learn how to fill it properly may be interesting. But after this, you should fill it yourself for two reasons:
- To save money.
- To learn exactly how it works and be incentivized to optimize it.
The only reason to get a tax advisor for multiple years is when you have an extensive estate. But this only concerns a minority of people. If you have simple accounts, you probably will not have a complex tax situation.
Learning how to do your taxes yourself will likely only take a few hours and save you money for the rest of your life in Switzerland.
If you want to fill up your taxes yourself, you can start by learning about the possible tax deductions.
4. Expensive investment products
A common theme is that almost everything is expensive in Switzerland. And most investment products are not an exception to this theme.
Most expat will choose a large Swiss bank as their primary bank. And then they will invest in the products provided by this bank. Unfortunately, Swiss banks are extremely expensive to invest in. I have yet to find a Swiss bank with reasonably priced investment products.
Many people try to find a single provider with everything: a bank account, a third pillar, and a broker account. However, there is no single provider with all great offers. So, if you are trying to use a single company, you are doing yourself a huge disservice.
The provider of the best bank is different from the provider of the best third pillar and the provider of the best broker account. So, you need to be extremely careful about not using the first service offered.
So, when looking for an investment product (a 3a or a broker account or funds), you must look at the fees. There are often many different investing fees:
- Custody fees (or management fees)
- Load fees (or issuance fees)
- Redemption fees (or sell fees)
- Inactivity fees
- Transaction fees
- Currency exchange fees
These are the main fees, but Swiss companies are creative when it comes to creating new fees (and hiding them). So, be very careful about the small notes in the conditions of the products.
To recap, you should not use the first offered product for your investments. Instead, you should do your research, compare, and opt for something that suits you and has good fees.
5. Over-insurance
Finally, we should talk about insurance. It is easy to get over insured in Switzerland.
Some insurance is mandatory, like health insurance or personal liability insurance. However, most other insurances are entirely optional. So, if somebody tells you that collision insurance is compulsory on your car, they are lying to you.
So, when shopping for insurance, you should focus on what is mandatory. Then, you can consider supplementary insurance if you need it.
Most people do not need much complementary insurance. Of course, a new car should be insured more than an old car. But a new car will become old and not need such insurance over time.
What matters is that you are covered as you need (but not too much) and that you try to find the cheapest insurance for your needs.
It is also essential to reconsider insurance coverage every few years.
Small financial traps for expats
Here are a few more traps you can easily avoid to save money. And maybe a few more general financial tips for expats coming to Switzerland.
In some cases, some tax deductions will not apply. You cannot deduct your third pillar directly if you are not filling a full tax declaration. And there is not much reason to contribute if you cannot deduct it. The only way would be to request switching to the standard tax declaration. However, you may end up paying more taxes. So it depends on each situation.
If you already have a driving license from another country, you can generally only use it for a year. If you want to use it longer, you must convert it. But be careful because you typically cannot convert it after one year. And if you wait too long, you may have to get a full driving license, which is very expensive.
If you want to avoid fines with your car, remember that seatbelts are mandatory for every vehicle occupant. And you need a highway sticker (annual) to drive on the highway. It is very cheap, at 40 CHF per year.
A small thing you need to be aware of is that some places still do not accept credit cards or mobile payments. We are not much advanced on that front. That means that there are still many occasions when you need some cash at hand.
Conclusion
I hope that this article will help some people avoid traps when moving to Switzerland or after moving to Switzerland.
I do not know whether these traps exist in any country or if the Swiss system here is worse than elsewhere. But we indeed have many traps in our financial system. And while we have a reputation as the country of banks, our banks do not offer excellent products.
So, it is essential to be very careful when arriving in Switzerland. Avoiding these traps could make a big difference in your finances. And if you could avoid these issues, you will likely have a better time in Switzerland.
Did I miss any trap? What should we add to the list?
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As someone who has lived in Germany, this myth that Swiss tax declarations are supposedly ‘complicated’ is hilarious to me (same goes for the supposedly terrible Swiss bureaucracy, by the way).
Interesting. Are you saying the bureaucracy is even worse in Germany?
I would like to add this minor one (I found this out the hard way this January). As a former EU-citizen it could be that you’re not allowed to have your car registered in a different country than yourself. (So, you can’t drive around with license plates other than your country of residence.)
I arrived from Holland, and all will turn out OK for me. Just be aware that you won’t be able to use your car after you’re registered here, I don’t really know if other countries will follow suit. I just want to point out that these 12 months’ decision time (which Swiss authorities told me) is more likely 2 to 3 months.
The Dutch authorities gave me a “Declaration of consent under EU 1999/37/EC art5 and art9” on top of the usual documents. (The other documents are quite easy to resolve.)
Hi HV
Are you saying that the delay is less than 12 months for driving in Switzerland a car registered in another country?
That seems rash. Thanks for sharing!
“You cannot deduct your third pillar directly if you are not filling a full tax declaration. And there is not much reason to contribute if you cannot deduct it.” You can at least delay hitting the wealth tax threshold right? Is that not a good reason?
But again, if you don’t do a full tax declaration, you don’t declare your wealth, no?
Indeed, but let’s say you start with 0 when you come to Switzerland and you can save 20k a year. If you stay 5 years you saved 100k in VT and then you need to start paying wealth tax after the 5 years (because you need to start declaring your taxes). If you put the maximum in 3a then you would have only ~70k in wealth and would not need to start paying wealth tax once you need to do you taxes.
That’s correct indeed. However, I would still be careful about that. The opportunity cost on 7056 CHF is likely much higher than the wealth tax on these 7056 CHF.
Hi,
Thank you for the article!
I have a small hint for anyone looking to move here.
If you have a car on lease in your home country and want to move to Switzerland with this car you can drive it here up to 1 year. You DON’T have to buy out the car or end the lease before moving here!
This can save you quite a bit of money. We bought out our car from lease before moving here as we believed (incorrectly) that you can’t drive a car which you don’t own in Switzerland, which is not true.
It’s OK for up to 1 year. We lost like CHF 3k on this.
Of course please double-check with your leasing company whether you can even take the car outside your home country and with Swiss authorities, but it was up-to-date 2 years ago.
Cheers,
Chris
Hi CHris,
Thanks for sharing your tip.
This will save you one year of the difference in price between your country and Switzerland, right? It may still be interesting to the buy the car in your country and drive it here since car prices are likely more inflated in Switzerland than in neighbouring countries.
I am taxed at source, but I am wondering if I should look at doing my tax decleration, so I could deduct a few stuff like:
– public transport passes
– maybe my new PC, which I also work on?
– dentist visit
– other stuff I dont know about, which is deductable
Is this a good place to start in your opinion to educate myself?
https://www.ch.ch/en/taxes-and-finances/tax-return
Or do you have a better source?
Hi Zoltan,
You can read about the possible deductions here: Tax Deductions in Switzerland for 2024
You should not be able to deduct your PC, but a public transport pass is generally deductible. As for dentist, it will depend on whether they are higher the thresholds or not.
But I don’t know whether it will be worth it in your case or not.
Thank you :) Probably worth including this tax deductions article under point 3 :)
Indeed, will do!
You can now have an e-vignette (sticker) for the high way and order it online. It’s fast and easy and works for Swiss and foreign car plates. The validity is the same (December last year to January next year), the difference is broken windscreen vs plates change. If you’re note planning to do the latter, I’d say the first is more likely. Last year, I’ve seen discounted stickers in Aldi if you shop over 100 CHF, but I don’t think this action has repeated.
With the tax advisor, it heavily depends on individual situation. Many expats may come with foreign assents such as accounts or investments and don’t get me even started on this one:
“The only reason to get a tax advisor for multiple years is when you have an extensive estate. But this only concerns a minority of people.”
It may be simply overwhelming to do the tax yourself with many other details you need to pay attention to.
Nonetheless, great article and points as usual. Thank you!
Hi Baptiste!
Good pieces of advice, as usual!
Just noticed one thing:
“If you already have a driving license from another, you can generally only use it for a year.”
Probably it was supposed to be ” from another county”?
Also, not sure I’ve seen something about this in you blog:
“You cannot deduct your third pillar directly if you are paying tax at source.”
Is there any place you can recommend to read about it?
Thank you.
Thanks, Alex! That’s indeed a typo. I will fix it.
I need the rephrase that because you can do it as long as you fill up a tax declaration, but you can still pay tax at source and profit from the 3a.
Foreigners typically pay tax at source when they come into Switzerland. If their income is below 120’000 CHF per year, their taxes will be estimated based on a special system. Once they reach the limit (or if they ask for it), they will fill a full tax declaration to use the same tax system as Swiss citizens. And this will allow them to deduct 3a, but it may not be worth it for the sole purpose of doing 3a since the computation is different. It may end up paying more taxes.
Not specific to Switzerland but buying a new car may be a financial trap. I have never bought a new car in any country I have lived and in Switzerland it applies even more-so. (Maybe you have found a super deal but in general it is always a better deal to buy a secondhand car.)
Many people in Switzerland love to have new cars, and often with expensive purchase structures. That means there is typically a lot of near new cars for sale in the secondhand market, at a significant saving. And very nice cars that have been well maintained by folks who think of cars as an important status symbol.
Also make the necessary sacrifices to have the cash to buy it directly. It will give you additional leverage with the seller and you’ll avoid costly financing structures.
Hi Jamie,
I don’t have much experience, I bought one new and one second hand and I much prefer the experience with the new car. But I also bought a cheap new car with cash only.
I am not sure it’s always better to buy second hand or new, it will depend on many factors.
You make an excellent point. Most people use leasing to buy a car they cannot afford. I would never recommend buying a car that people cannot save the cash for.
Thanks as always, Baptiste!
So many good points here.
It is worth mentioning that car loans are tax-deductable and very popular in Switzerland (not everyone reads your posts!)
Cars, furniture, and savings are valued as ‘fortune’ and taxed. Loans are apparently one way of reducing the tax burden.
The fortune tax is really annoying. I paid tax on the money I used to buy the car and on my savings, so to pay tax on it again is double taxation, as I see it.
So is the lack of communication with (Vaud) tax officers. I have to send a document in 10 days, when requested. They can have my tax declaration for two years and not make a decision or tell me why there is a delay. That is not correct.
Hoping that 2024 will be financially very successful for you.
Yes, car loans are very popular, but this does not make them any better in my opinion :)
And for most people, wealth is not taxed because they are below the threshold. But yes, it’s definitely double taxation and I don’t like it either.
I also agree that the tax offices are too slow. We still have not received the tax decision from last year and will soon complete the tax declaration for this year, this is dumb.