1. Side-Hustles in Switzerland 

Side-hustles in Switzerland are on the rise, especially among employees looking to supplement their primary income. However, navigating the legal and tax requirements in Switzerland can feel daunting. This guide is tailored for Swiss employees, expats, and freelancers who want to confidently manage their side incomes without breaking compliance or burning out. 

Make sure to check with your primary employer about your employment contract. Many companies in Switzerland require you to disclose a side-hustle or even seek approval to ensure there’s no conflict of interest. Do not fear this though: If you work in IT, your side-hustle can be approved in many cases.

2. What Is Quellensteuer and How Does It Affect Side-Hustlers? 

For expat employees in Switzerland, income tax is always deducted directly from your paycheck through Quellensteuer (tax at source) in your first 5-10 years in Switzerland until you hold a C permit or become a Swiss citizen. Here’s an overview of how it works and its implications. 

How Quellensteuer Works

Quellensteuer is calculated and deducted based on your gross monthly salary. If you're an expat (B or L permit holder), your primary salary will always be taxed at source.  This is true even if some of your non-salary income is taxed through the normal process (ordentliche Veranlagung).

Quellensteuer and Side-Income 

When you add income from a side-hustle, the system adapts. Your main salary will still be taxed at source. However, your entire income, including profits from your side-hustle, will be subject to a recalculated income tax rate under the standard taxation process the following year (ordentliche Veranlagung).  Non-salary side incomes can never be taxed under Quellensteuer in Switzerland (with the exception of dividends). The Quellensteuer you’ve already paid is treated as a prepayment toward your entire tax bill.

Example: 

If you earn CHF 80,000 from your full-time job (taxed at source) and generate CHF 10,000 from freelance work in the same year, the following year's tax calculation will consider the combined CHF 90,000 income, deducting the Quellensteuer already paid from your remaining tax bill. 

3. Understanding Ordentliche Veranlagung

If you have side-income, Switzerland requires that you partially move from Quellensteuer to ordentliche Veranlagung, which is the regular tax declaration system that every C permit holder and Swiss person also is taxed under. The Quellensteuer system for income tax in contrast exists only for expats under the B permit and L permit. Do not confuse it with Quellensteuer on dividends vs. wages. Dividends from stocks are taxed at the source in most countries in the world, but this has nothing to do with the Quellensteuer on regular salary income which we are mainly talking about here in this post.

How it Works for Side-Income

1. At the end of the year, you’ll declare your total income (primary job + side-hustle) via a tax declaration. 
2. Quellensteuer already paid for your primary employment will be counted as a prepayment against your final total tax bill, and you’ll either be refunded (e.g. if your side-hustle generated very little profit and you are getting a better deal under ordentliche Veranlagung vs. the Quellensteuer tariff) or asked to pay the difference (if your side-hustle delivered a nice profit).

Benefits of Ordentliche Veranlagung

• Full Tax Transparency: You get clarity on how all your income is taxed. 
• Deductible Expenses: Many side-hustlers benefit from deducting work-related costs, such as coworking spaces, equipment, or travel expenses related to their hustle.  Overall, you might get a better deal in any case under ordentliche Veranlagung even for your regular income. The opposite is also possible in some cases though.
• Preparation for later: Once you hold a C permit or become a Swiss citizen, the Quellensteuer on income ends anyways and the ordentliche Veranlagung is the only possible system.

4. Tax Implications for Side-Hustlers 

Starting a side-hustle comes with specific tax obligations. Here are some key considerations for Swiss employees to stay compliant.

• Declare Everything: All side-hustle income must be fully declared to avoid fines or penalties. 
• Track Your Expenses: Keep meticulous records to maximize deductible expenses, such as office equipment or business-related services. 
• Anticipate Higher Tax Rates: Your entire income (employment + side-hustle) will determine your tax rate using Switzerland’s progressive tax system. So if your current salary is taxed at e.g. 10% + social security, the taxes on your total income will be higher and social security is calculated a bit differently, so it will look like it's higher since you pay 100% of AHV for example.

5. Social Security (AHV, IV, EO) for Side-Hustlers 

Switzerland's social security system plays a significant role in side-hustles. Contributions are mandatory on all earnings and cover payments for AHV (OASI), IV (disability), and EO (income loss insurance). Unemployment insurance only applies to employed salary but not freelance income.

Key Points for Side-Hustlers 

• AHV Contributions:  Side-income exceeding CHF 2,300 annually must be reported to the Ausgleichskasse (Compensation Office). Contributions will then be calculated based on this income. 
• Primary vs. Secondary Income:  Since your main employer already deducts social security from your primary salary, additional side-hustle contributions will only apply to that extra income.

6. Communicating with the Ausgleichskasse 

You must notify the Ausgleichskasse when starting your side-hustle. Here’s what to do: 

1. Register Your Side-Hustle 

Declare your intention to earn supplementary income. This includes providing details of expected income and the business category you’ll operate under.

2. Submit Your Earnings 

At the end of the year (or as requested), provide an account of your side-hustle’s total revenue to calculate social security contributions.

3. Make Payments 

Regular payments will be billed based on your reported income.

Failing to communicatively declare side-income to the Ausgleichskasse can result in penalties or back-dated contributions.  The biggest risk is usually that you underestimate how much you owe in taxes + social security on your freelance income and then might be in trouble paying the outstanding amount if there is a hefty bill at one point.

7. Tips for Managing Taxes and Social Security 

Here are practical steps to streamline the management of your side-hustle’s financial obligations. 

• Use Accounting Software: Keep track of your income, expenses, and invoices with tools like Bexio or Xero. If your income and expenses are very simple (few transactions and low amounts) you can also use a spreadsheet in the first year.
• Set Aside Taxes and AHV: When receiving side-income, set aside at least 20-40% for taxes and AHV to avoid surprises when your annual bill arrives. While your tax bill might be "low", social security is often the bigger expense on your freelance income in Switzerland.
• Seek Professional Advice: Consult a tax advisor or accountant with experience in Swiss taxation. They’ll help ensure you’re claiming appropriate deductions while staying compliant.  Contact me for a suggestion on a tax advisor.
• Stay Organized: Maintain accurate records of all revenues and expenses for easier tax declarations and Ausgleichskasse reporting. 

8. Common Challenges and Solutions 

Starting a side-hustle isn’t without its challenges in Switzerland. Here’s how to overcome them.

• Challenge: Managing dual tax systems (Quellensteuer + Ordinary Taxation). 
• Solution: Work with a tax advisor who specializes in transitioning between systems. 
• Challenge: Balancing workload and personal time. 
• Solution: Establish boundaries, such as setting specific hours for side-hustle tasks. 
• Challenge: Staying compliant with social security rules. 
• Solution: Proactively communicate with your Ausgleichskasse to avoid penalties. 
• Challenge: Freelance work vs. temporary employment.
• Solution: If you do a full-time "freelance" project as a temporary hire, then you are not a freelancer in Switzerland. Instead, you must be a temporary employee through a payroller, agency or your own company. Freelance work in Switzerland in contrast is defined as having at least 3 different clients and none of them should be your main source of income in any given year, except in the very beginning. So while a side-hustle typically can qualify as freelance work, a 6 month contract for an IT project will never qualify as freelance work in Switzerland.
  

9. Real-Life Case Studies 

Case Study 1: 

Ana, a B-permit holder and software developer in Zurich, launched a side-hustle offering freelance coding services. By working with her Ausgleichskasse and a tax advisor, she seamlessly managed all the compliance work. Using expense deductions for new equipment, she offset a significant portion of her additional tax liability. 



Case Study 2: 

Lukas, an expat on an L permit, began offering photography services on weekends. Despite his initial worries about compliance, clear communication with the Ausgleichskasse kept him in good standing. His side-hustle now supplements his income with minimal stress. 

10. Pursue Your Side-Hustle Confidently 

Starting a side-hustle as a Swiss employee offers a unique opportunity for growth, learning, and financial reward. By understanding the dual tax systems, social security obligations, and compliance measures, you can turn your hustle into a benefit—not a burden. 

Need expert guidance for taxes and social security? Reach out to me and I can put you through to the best tax professional for your case, and take your first step towards unlocking your earning potential.