Can a bonus letter trigger income tax liability?

When is income “earned”?

According to the established practice of the Federal Supreme Court, income or gains are deemed realised for tax purposes as soon as the taxpayer receives benefits or at least acquires a irrevocable claim to them that he can actually dispose of. It can be in the form ownership of an asset (i.e. cash transferred to a bank account) or an enforceable claim against a debtor (e.g. the employer).

Can a bonus letter trigger tax obligations?  

It depends, how the letter is worded. The Federal Supreme Court recently had to rule on a case of a bonus letter. They decided that the bonus letter did not trigger the income tax obligation because there was a clear statement that the bonus was “voluntary and variable” and that this wording would not give the employee an enforceable claim to the bonus. However, if the bonus letter was worded differently and had given the employee an enforceable claim, the bonus letter itself would have triggered the tax obligation and not the cash payment that followed in a few months.


Many practitioners are not aware that a bonus letter could already trigger an income tax obligation. Since the bonus letter is often sent a few months prior to the actual payments, the time of the taxation might have a significant impact on the tax burden, specially if the employee leaves the country before the bonus is actually paid out (because in that scenario the bonus will subject to a higher withholding tax rate).

Therefore, it is strongly recommended to use very clear language in the bonus letter whether a bonus is “unconditionally and irrevocably due” (and therefore taxed immediately) or “voluntary and subject to change” (and therefore taxed a payout.