Tax prepayments

Whoever pays their taxes late has to expect late payment interest. In contrast, those who make advance tax payments may benefit from financial advantages in the form of balancing or compensation interest.

Pay in advance to save on taxes

Regarding the tax assessment, the Swiss tax system fundamentally distinguishes between three types of taxes:

• ‍Late payment interest: Late tax payments incur late payment interest for the taxpayer.‍
• Balancing interest: The balancing interest offsets advance tax payments. Depending on whether the definitive assessment is higher or lower than the provisional tax assessment, the difference is calculated with interest in favor of or against the taxpayer.‍
• Compensation interest: The compensation interest is applied to advance tax payments made before the provisional tax assessment is sent.

Depending on how high these three interest rates are, it may be worthwhile to make advance tax payments.

Legal entities

For legal entities, especially corporations and limited liability companies, business expenses increase by the interest expense when paying after the tax due date or decrease by the interest income from advance tax payments. If a company has freely available funds, it may be worthwhile to make an advance tax payment. However, it should be noted that the balancing interest has been zero percent since January 1, 2022.

Natural persons

Advance tax payments can also be worthwhile for natural persons. This is because while bank interest – if it is even granted in today’s negative interest environment – is also taxable, the compensation interest is tax-free.

Withholding taxes

Particular caution is required with withholding taxes. Ideally, the withheld withholding taxes match the actual tax liability. However, this ideal case does not always occur. If the withholding taxes are higher than the owed tax amount, a refund is issued. Conversely, if the withheld withholding taxes are lower than the tax liability, a subsequent charge occurs with the imposition of late payment interest. To avoid such subsequent charges, careful tax calculation is recommended.

Findea helps you to maintain an overview of your company’s financial situation at all times.