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Taxes in Switzerland

Taxation in Switzerland

Updated on Wednesday 26th August 2020

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When starting a business in Switzerland, foreign entrepreneurs should be interested in finding out information about the taxes applied at a national level. Switzerland levies direct or indirect taxes. The direct taxes are applied on income and wealth, while the indirect taxes are applied to goods and services and it also includes the Value Added Tax (VAT). Due to Switzerland’s political organization the taxation system is organised on the following: the confederate tax system, the cantonal tax system and the municipal tax system, each one applied individually. Switzerland has 26 cantons and 2600 municipalities based on the Federal Constitution and cantonal regulations. Our team of lawyers in Switzerland can offer more information on the taxes imposed to both natural persons and legal entities.
 

Types of taxes in Switzerland

Taxation in Switzerland is based on a 3-tier system levied at federal, cantonal and municipal levels, however, just like in other European jurisdictions, both natural persons and companies are subject to direct and indirect levies.
 
Here are the main taxes that need to be considered when paying them in Switzerland:
 
  1. the income tax which levied on natural persons on a progressive basis;
  2. the corporate tax which is levied on all three levels (federal, cantonal, communal);
  3. the value added tax which is the most important indirect levy in Switzerland;
  4. withholding taxes which are imposed on various incomes, such as dividends, interests, royalties.
 
When considering moving or starting a business in Switzerland, most foreign citizens and investors choose the best canton based on the taxes levied, as these make the difference between the higher and lower tax rates. Our law firm in Switzerland can offer more information on how taxes are calculated in this country.
 

The federal and cantonal taxes in Switzerland

 
The direct taxes are available for natural persons and are applied for income and wealth. Other taxes include the corporate taxes on profit and capital.
 
The Federal taxes are: the Value Added Tax (VAT), the withholding tax, stamp duties, border and other taxes.
 

Direct Taxes in Switzerland

The income tax in Switzerland

 
The income tax is levied by the Confederation and by the cantons and it can be progressive or proportional on the income of a natural person; it is imposed as a payroll tax for foreign workers without a residence permit and as a withholding tax on transient persons.
 
Non-working foreigners may choose to pay a “lump-sum tax” which is lower than the regular income tax and it varies from canton to canton, its lowest value being the quintuple of the rent paid by taxpayer.
 
It is important to know that the income below CHF 14,500 is exempt of the income tax. At a federal level, the income tax is imposed on a progressive basis, which ranges from 0.77% to 11.5% of the total income of a natural person. Natural persons interested in the taxation system available in Switzerland should also know that the personal taxation is imposed on a different system, in accordance with the legal statute of the individual (single or married).  
 
The following rates must be considered when it comes to the taxation of natural persons in Switzerland:
 
  • the first 14,500 CHF are exempt from taxation in Switzerland;
  • for single taxpayers the lowest income tax rate is established at 0.77%;
  • for married taxpayers, the lowest tax rate is 1% for an income of 28,300 CHF;
  • the highest rates are 13.20% in for single taxpayers and 13% for married couples.
 
Individuals living in Switzerland must also consider the cantonal taxes they need to pay. Also, foreign citizens and companies must register with the Federal Department of Finance.
 
The main taxes to be paid in Switzerland are also presented in the infographic below:
 
Taxes in Switzerland

 

The wealth or property tax in Switzerland

 
It is set at 0.3 to 0.5 per cent on the net worth of natural persons and it is levied on the value of all their assets (real estate properties, shares or funds). This tax is set at cantonal and communal level. The tax base is different in the case of married persons. 
 
 
The corporate taxes in Switzerland
 
 
Corporate taxes are set on profit and capital. Due to taxation of both corporation and its owners or shareholders, the corporate tax is prone to double taxation. All legal persons comply with the taxation of capital and profit, except for charitable organizations. The corporate tax rate applicable at a national level is established at 8.5%. Depending on the canton, the corporate tax rate can vary, as the Swiss authorities impose a cantonal tax rate as well. As a general rule, the overall corporate tax rate varies between 12% and 24%, depending on the region in which the company was incorporated. 
 
 
The profit tax in Switzerland
 
 
The profit tax is established at Confederation level and it is proportional or progressive at a flat rate of 8.5%, or at canton level which varies. It is based on the net profit as accounted for in the corporate income statement and adjusted for tax purposes. There are also provisions that limit double taxation according to tax treaties, such as “participation exemption” for companies that own 20% or more of the shares of other companies, a ‘’holding privilege” for companies that are exempt from cantonal corporate profit tax, and “domicile privilege” for companies based outside Switzerland and only administered in Switzerland.
 
Foreign investors should know that certain types of companies registered in Switzerland can be exempt from paying the profit tax.
 
 
The capital tax in Switzerland
 
 
It is a proportional tax levied by cantons at varying rates on the ownership equity of companies and works as if companies are taxed for the liabilities that function as equity. These debts cannot be deducted for purposes on the profit tax and are subject to the federal withholding tax. Our law firm in Switzerland will be at your disposal with more information in this matter. 
 
Investors should know that companies operating in Switzerland are required to file for tax returns on the capital tax on a yearly basis. The procedure is handled at a cantonal level. 
 

Federal Taxation in Switzerland

The federal taxes on goods and services are the following:
 
  • the VAT tax
  • stamp duties;
  • the tobacco tax;
  • the beer tax;
  • the tax on distilled spirits;
  • the mineral oil tax;
  • the motor vehicle tax;
  • the motorway vignette;
  • the distance-related heavy vehicle fee;
  • customs duties.
     
Cantonal and municipal taxes on goods and services
 
Cantonal and municipal taxes on goods and services include:
 
  • taxes on motor vehicles;
  • dog taxes;
  • entertainment tax;
  • stamp and registration duties;
  • water duty;
  • lottery tax;
  • visitor’s tax.
 
Value added tax
 
 
The VAT - Value Added Tax in Switzerland is one of the Confederation’s main sources of income. It is set at 8% on most commercial exchanges of goods and services, except for food, drugs, books and newspapers, that are subject to 2.5 % VAT. Medical, educational and cultural services are not subject to VAT registration in Switzerland, and so are the goods and services provided abroad. The standard VAT rate of 8% was established in Switzerland in 2011. As mentioned above, the Swiss authorities also provide lower VAT rates and in the case of companies operating in the accommodation industry, it is important to know that the VAT rate is imposed at the rate of 3.8%. 
 
Companies opened in Switzerland are required to file the appropriate VAT to the local authorities and, at the same time, they are also required to keep the books of records for a period of 10 years. 
 
The VAT rates imposed in Switzerland are much lower that the VAT rates available across the European Union (EU) due to the fact that the state is not a member of the Community. Thus, the local authorities are allowed to impose the rate which is considered suitable for the current needs of the Confederation. 
 
 
Federal withholding tax in Switzerland
 
 
The federal withholding tax is levied at 35% on dividend payments, interest on bank loans and bonds, liquidation procedures, lottery prizes, life insurance payments and private pension funds.
 
Debtors of such payments have to pay the tax, as for creditors it is only a way of making sure the profit tax is being paid, but the creditor can deduct the amount or ask for a refund. If a tax treaty exists, foreign creditors can also benefit of the refund.
 
 
Stamp duties in Switzerland
 
 
Stamp duties are taxes in Switzerland levied on commercial transactions. These are the issue tax and the transfer tax. The first one is applied to shares and bonds while the second one to trading certain securities by qualified traders such as stockbrokers and large companies. The transfer tax varies from 0.15 to 0.3 per cent depending on the provenience of the securities, to be exact, if they are Swiss or foreign. Also an insurance premiums tax of 5 or 2.5 per cent is levied on certain insurance premiums. The contributions to the equity of a company in Switzerland are imposed with a stamp duty of 1%
 
Foreign investors interested in mergers and acquisitions must also know that such procedures, including the reorganisation of the company, is exempt of the stamp duty
 
At the same time, the re-domiciliation of a foreign company in Switzerland is also exempt of the stamp duty
 
 
Border duties and other taxes in Switzerland
 
 
The Confederation has the power given by constitution to levy tariffs that are used as an instrument of trade policy. Also the import or manufacture of alcoholic beverages, tobacco, automobiles and mineral oil or gambling establishments are subject to federal taxes. Also, citizens that do not attend military service have to pay a tax in return.
 

Other than the taxes in Switzerland above, the cantons are free to introduce other taxes such as an inheritance tax, the gift tax, church tax, a tax on the profit from selling a house.

 

Tax residency for individuals in Switzerland

 

In order to determine the taxes that need to be paid as a natural person in Switzerland, specific rules must be respected. These refer mainly to the residency of the taxpayer which has a direct influence on the levies and amount of money to be taxed in this country.
 
An individual is considered a tax resident in Switzerland if he or she has a place to stay here. Also, permanent residents are considered tax residents in Switzerland, therefore they will be taxed on their worldwide income.
 
In the case of foreign citizens, these are considered tax residents in Switzerland if they live and earn money for a minimum period of 30 days in a calendar year. Those living in Switzerland for at least 90 days without gaining money here are also deemed as tax residents here. The exception to these rules applies to students and persons coming here for various medical treatments.
 
Government officials and individuals working for various organizations are subject to special criteria and are liable to pay the income tax in Switzerland on the money earned here. They also fall under specific regulations imposed in Switzerland’ double tax treaties.
 
Foreign citizens not falling under any of the categories mentioned above but still earning money here will be taxed on the income obtained here by filing specific tax forms.
 
Our Swiss lawyers can offer more information on how to obtain residency and citizenship here.

Tax residency for companies in Switzerland

Liability based on tax residency does not apply to individuals only, as companies must also meet certain criteria in order to pay the corporate tax on their worldwide profits here.
 
A company is considered tax resident in Switzerland if it has a registered office or place of management in this country. Even so, non-resident companies can also conduct various operations in Switzerland. Tax residency is important in order to establish the liability related to the taxes paid in this country.
 
In most cases, the residence of a company is based on the country of registration. The following situations can be encountered:
 
  • a company can be registered in Switzerland and automatically be considered a tax resident here;
  • a company can be registered abroad and sell or provide goods, respectively services in Switzerland without having an established presence here;
  • a company can be registered abroad but have a place of management in Switzerland, thus obtain the status of tax resident.
 
The latter case applies to branch offices and subsidiaries of foreign companies operating in Switzerland through permanent establishments.
 
An important aspect to consider about the taxation of companies in Switzerland refers to the shareholders and managers. In most cases, where a manager or shareholder is a Swiss resident, the company can be deemed as a domestic company.
 
Our lawyers in Switzerland can offer more information on how fiscal domicile is established in the case of companies. You can also rely on us for assistance in registering a company here.
 
For complete details about the Swiss tax system you can always contact our attorneys in Switzerland