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Taxation in Switzerland

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Taxes in Switzerland are levied by the Swiss Confederation, the cantons and the municipalities.

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Fiscal sovereignty

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Switzerland is a federal republic in which the sovereignty of the constituent states (the cantons) is limited by the enumerated powers delegated to the federal state (the Confederation) through the federal constitution. Consequently, the original authority to levy taxes is vested in the individual cantons of Switzerland through their constitutions.[1] Within the bounds of the authority delegated to them by cantonal law, the municipalities may also levy taxes. The extent of that authority varies from canton to canton.[2] While the formal framework of the most important cantonal direct taxes has been harmonised through the 1990 Federal Tax Harmonisation Law, the cantons (and, as the case may be, the municipalities) remain free to set their tax rates or establish new taxes, except on tax objects already taxed under federal law.[3]

Since World War II, the federal constitution authorizes the Confederation to levy a number of taxes, the most significant of which are an income tax, a withholding tax and a value added tax. However, Switzerland is unique among modern sovereign states in that the authority to levy these taxes is limited in duration and extent.[4][5] The Constitution imposes an upper limit on the federal tax rates and causes the federal authority to levy taxes to expire in 2035.[6] A renewal of that authority requires a constitutional amendment, which must be approved in a popular referendum by both a majority of the popular vote and the cantons. If that renewal is not approved at the polls (as it has been six times since 1958),[5] the Confederation itself will conceivably dissolve for lack of funds. All attempts to remove this limitation by amending the constitution to provide for a permanent federal authority to levy taxes have been rejected in Parliament or – no less than five times – by popular vote, most recently in 1991.[7]

Constitutional limits to taxation

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The federal constitution imposes certain limits on taxation at the federal, cantonal and municipal levels. To begin with, it provides that no tax may be levied except where provided for by federal, cantonal or municipal statute.[8] Because statutes can at all levels be made subject to a popular referendum, Swiss tax rates are in practice set directly by the voters through instruments of direct democracy.[9]

The constitution mandates that taxation must be general and equal in nature, and it must be proportionate to one's ability to pay.[8] The Federal Supreme Court has interpreted this as prohibiting a regressive tax,[8] although flat rate taxes (as instituted in several cantons) are held to be constitutional by tax law scholars. Moreover, double taxation by several cantons is constitutionally prohibited, as is a confiscatory rate of taxation.[8]

Direct taxes on natural persons

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Total tax revenue as a percentage of GDP for Switzerland over the past several decades compared to other highly developed states

All people resident in Switzerland are liable for the taxation of their worldwide income and assets, except on the income and wealth from foreign business or real estate,[10] or where tax treaties limit double taxation. For tax purposes, residence may also arise if a person stays in Switzerland for 30 days, or for 90 days if he or she does not work.[11] Moreover, non-residents are also taxed on certain Swiss assets or on the income from certain Swiss sources, such as from real estate, permanent business establishments or pensions.[12] The income and assets of spouses are pooled and taxed jointly, but at a lower rate to offset the effects of tax progression.[13]

Income tax

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Either a progressive or proportional income tax is levied by the Confederation and by the cantons on the income of natural persons. The income tax is imposed as a payroll tax on foreign workers without a permanent residence (C) permit,[13] and in the form of a withholding tax on certain transient persons, such as foreign musicians performing in Switzerland.

Taxable income includes all funds accruing to a person from all sources, in principle without deduction of losses or expenses,[14] and including the rental value of a house lived in by its owner.[15] However, capital gains on private property (such as profits from the sale of shares) are tax-free, except where the cantons levy a tax on real estate capital gains.[16] Certain expenses are also deductible. These include social security or pension fund payments,[17] expenses related to the gain of income (such as employment expenses and maintenance costs of real estate) and alimonies.[18] Gifts and inheritances are also exempt from the income tax, but are subject to separate cantonal taxes.[14]

Non-working foreigners resident in Switzerland may choose to pay a lump-sum tax instead of the normal income tax. The tax, which is generally much lower than the normal income tax, is nominally levied on the taxpayer's living expenses, but in practice (which varies from canton to canton), it is common to use five times or seven times the rent paid by the taxpayer as a basis for the lump-sum taxation.[19][20]

In 2011, the federal income tax varied from a bracket of 1% (for single tax payers) and 0.77% (for married taxpayers) to the maximum rate of 11.5%. Individuals earning below 13,600 and couples earning below 27,000 Swiss francs were exempt. On cantonal level, tax rates varies heavily, Obwalden adapted a 1.8% flat tax on all personal income following a cantonal referendum in 2007. In most cantons, the rate is proportional with a maximum rate of 6.5% in Bern, whereas in Zurich it was 13% and in Geneva 17.58-.76% (depending upon taxes as single or jointly).[21][22]

Wealth tax

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A proportional wealth tax of around 0.3 to 0.5 percent[23] is levied by the cantons on the net worth of natural persons. The tax is levied on the value of all assets (such as real estate, shares or funds) after the deduction of any debts.[24]

Taxes by canton

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Total federal, cantonal, municipal and church taxes in the cantonal capital for various gross incomes, in CHF (2014)[25]
Income of a single person Income of a married couple with 2 children
Cantons 20,000 40,000 60,000 80,000 100,000 200,000 500,000 20,000 40,000 60,000 80,000 100,000 200,000 500,000
ZH Zurich 477 2,149 4,577 7,629 11,018 31,411 108,877 48 85 1,092 2,791 4,882 20,624 90,318
BE Berne 511 3,847 7,567 11,369 15,483 39,496 120,369 0 0 1,756 5,336 8,517 28,806 106,809
LU Lucerne 278 3,025 6,170 9,370 12,552 29,586 87,002 50 50 1,319 3,634 6,331 22,204 79,707
UR Uri 266 2,944 5,367 8,001 10,589 23,817 64,149 100 100 1,545 4,193 6,752 19,303 59,634
SZ Schwyz 545 1,952 3,862 6,120 8,583 21,211 57,276 0 54 1,125 2,619 4,024 15,761 53,702
OW Obwald 340 2,596 5,042 7,502 9,907 22,029 58,451 0 0 1,604 4,199 6,523 18,578 54,999
NW Nidwald 361 2,530 5,137 7,905 10,709 25,455 65,696 50 50 812 2,756 5,196 19,159 62,707
GL Glaris 581 2,837 5,572 8,874 12,164 30,297 94,726 0 357 2,361 4,390 6,793 23,237 81,708
ZG Zoug 148 1,049 2,197 3,586 5,729 19,488 51,434 0 0 0 359 1,059 6,943 45,645
FR Friburg 601 3,372 6,893 10,986 15,443 40,909 111,188 0 124 1,406 3,633 6,242 27,191 105,740
SO Soleure 803 3,707 7,479 11,546 15,770 39,274 108,967 80 375 2,921 5,364 8,672 29,143 101,170
BS Basle-City 0 2,770 7,034 11,322 15,586 37,075 110,510 0 0 0 2,987 7,251 28,739 93,319
BL Basle-Country 0 2,617 6,498 10,917 15,667 41,732 124,296 0 0 0 2,534 6,180 28,722 107,828
SH Schaffhouse 569 2,970 6,180 9,961 14,150 36,512 97,717 60 90 1,863 4,280 6,645 25,079 93,525
AR Appenzell Outer-Rhodes 697 3,161 6,249 9,809 13,503 33,396 89,536 0 409 2,739 5,075 7,664 26,582 86,494
AI Appenzell Inner-Rhodes 629 2,601 4,993 7,525 10,308 24,883 64,824 0 480 1,670 3,155 5,392 19,336 62,455
SG St Gall 376 3,141 7,102 11,475 16,116 39,961 106,857 0 0 1,015 3,622 6,531 28,108 99,717
GR Grisons 22 2,251 5,403 8,962 12,585 32,274 93,439 0 0 390 2,691 5,204 22,378 82,271
AG Argovia 0 2,375 5,722 9,283 13,004 32,960 98,249 0 122 1,283 3,237 5,839 23,388 85,035
TG Thurgovia 179 2,807 6,043 9,344 12,704 31,388 91,205 0 0 683 3,109 5,747 22,647 80,293
TI Tessin 307 1,998 5,295 9,065 13,138 35,748 110,578 40 40 721 1,841 4,189 24,016 99,484
VD Vaud 0 2,020 7,713 11,754 16,027 41,897 131,490 0 0 630 3,930 9,068 27,754 110,347
VS Valais 34 2,757 5,718 9,572 13,876 40,477 111,349 34 34 477 2,362 4,104 22,601 94,233
NE Neuchâtel 474 3,631 7,944 12,388 17,002 43,531 116,508 0 350 2,447 6,270 9,516 32,577 111,752
GE Geneva 25 1,969 5,788 10,398 15,103 39,708 123,070 25 25 25 348 3,093 24,145 98,891
JU Jura 479 3,380 7,175 11,817 16,441 42,682 125,006 0 0 1,616 4,710 8,593 30,506 110,001
Federal taxes only 0 133 432 936 1,838 9,976 45,268 0 0 0 0 87 6,002 40,842

Corporate taxation

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Swiss corporations are subject to composite taxes. Pictured: Credit Suisse

Switzerland has a "classical" corporate tax system in which a corporation and its owners or shareholders are taxed individually, causing economic double taxation. All legal persons are subject to the taxation of their profit and capital, with the exception of charitable organisations.[26] Tax liability arises if either the legal seat or the effective management of a corporation is in Switzerland.[27] To the extent non-resident companies have Swiss sources of income, such as business establishments or real estate, they are also liable for taxation.[27] Conversely, as a unilateral measure to limit double taxation, profits from foreign business establishments or real estate are exempted from taxation.[27]

Profit tax

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A proportional or progressive tax is levied by the Confederation (at a flat rate of 8.5%) and the cantons (at varying rates) on corporate profits. The tax is based on the net profit as accounted for in the corporate income statement, as adjusted for tax purposes.[27] For instance, expenditures that have no business reason such as excessive depreciations, accruals or reserves, as well as disguised dividends are taxed as profits.[28]

A number of provisions limit the double taxation of profits at the corporate level and contribute to Switzerland's tax haven status. To begin with, a "participation exemption" is granted to companies who hold 20 percent or more of the shares of other companies; the amount of tax due on the corresponding profit is reduced in proportion to the percentage of shares held.[29] At the cantonal level only, a "holding privilege" applies to pure holding companies. They are exempt from the cantonal corporate profit tax.[29] Moreover, cantonal law confers a "domicile privilege" on companies who are only administered in Switzerland, but whose business is conducted abroad; including shell corporations.[30] The cantons tax only around 10 percent of the worldwide profits of such companies.[30]

Capital tax

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A proportional tax is levied by the cantons (at varying rates) on the Eigenkapital (ownership equity) of companies.[31] Thinly capitalised companies are taxed, moreover, on the liabilities that function as equity. This also means that debts paid on such liabilities cannot be deducted for purposes of the profit tax, and are subject to the federal withholding tax.[32]

Furthermore, many Cantons levy minimum taxes on capital or a general minimum tax, which means that small companies and non-profitable companies have to pay more taxes percentagewise than larger companies. Cantonal legislators try this way to cover the costs associated with auditing these small companies.[33]

Global minimum corporate tax rate

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Starting in 2023, about 200 companies with headquarters in the country and a several thousand subsidiaries of foreign companies would pay the global minimum corporate tax rate. The new rule applies to companies with at least €750 million in annual turnover, which is said to represent only about 1% of the companies based in Switzerland. These rules do not do away with some special regimes in Switzerland that benefit holding companies including tax relief on divideds and capital gains.[34]

Other federal taxes

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Value added tax

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Main article: Value added tax (Switzerland)

The value added tax (VAT; Mehrwertsteuer / Taxe sur la valeur ajoutée / Imposta sul valore aggiunto) is one of the Confederation's principal sources of funding. It is levied at a rate of 8.1 percent on most commercial exchanges of goods and services. Certain exchanges are subject to a reduced VAT of 2.6 percent:

  • Foodstuffs (except alcoholic beverages)
  • Cattle, poultry, fish
  • Seeds, living plants, cut flowers
  • Grains
  • Animal feed and fertilizer
  • Medications
  • Newspapers, magazines, books and other printed products without advertising character of the kinds to be stipulated by the Federal Council
  • Services of radio and television companies (exception: the normal rate applies for services of a commercial nature)

A special rate of 3.8% is in use in the hotel industry.[35] Yet other exchanges, including those of medical, educational and cultural services, are tax-exempt; as are goods delivered and services provided abroad.[36] The party providing the service or delivering the goods is liable for the payment of the VAT, but the tax is usually passed on to the customer as part of the price.[37]

In 2014 total revenue from VAT was nearly CHF 11 billion (short scale) on CHF 866 billion of taxable sales. In 2013 the revenue and sales were CHF 10.3 billion and 858 billion respectively.[38]

Federal withholding tax

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Main article: Withholding tax (Switzerland)

The federal withholding tax (Verrechnungssteuer / impôt anticipé / Imposta preventiva) is levied on certain forms of income, most notably dividend payments, interest on bank loans and bonds, liquidation proceeds, lottery winnings and payments by life insurances and private pension funds.[39] The debtor of such payments is liable for the payment of the tax; they must pay the creditor only the net amount.[40] The tax rate is 35% for moveable capital revenue and for lottery winnings of 1 million francs or more, 15% for life annuities and pensions and 8% for other insurance benefits.[41]

With respect to creditors resident in Switzerland, the withholding tax is only a means of securing the payment of the income or profit tax, from which the creditor may then deduct the amount already withheld, or request its refund.[42] The same applies to foreign creditors to the extent that a tax treaty provides for it.[43] Other foreign creditors are not eligible for a refund; with respect to them, the withholding tax is a genuine tax.

Stamp duties

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Stamp duties are a group of federal taxes levied on certain commercial transactions. The name is an anachronism and dates back to the time when such taxes were administered with physical stamps.[44] The issue tax (Emissionssteuer / Tassa di emissione) is levied on the issue of certain securities such as shares and bonds. Exceptions are made, inter alia, for securities issued in the course of a commercial reorganization, and the first million CHF of funds raised are in effect exempt from taxation.[45] The tax amounts to one percent of the funds raised and is payable by the issuer.[46] The trade in shell companies (Mantelhandel) is also subject to the issue tax.[47]

The transfer tax (Umsatzsteuer / Imposta sulla cifra d'affari) is levied on the trade in certain securities by certain qualified traders (Effektenhändler; mostly stockbrokers and large holding companies). The tax amounts to 0.15 or 0.3 percent depending on whether Swiss or foreign securities are traded.[48] Finally, an insurance premiums tax of 5 or 2.5 percent is levied on certain insurance premiums.[49]

Custom duties

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The Confederation can levy customs duties and other duties on the cross-border movement of goods entering the Swiss Customs Area. The rates are almost exclusively based on weight (e.g. CHF X per 100 kg gross). The revenue from customs duties goes into the federal coffers and amounted to approximately CHF 1.13 billion in 2016.[41]

Casino tax

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After the removal of the casino ban from the Constitution in 1993, the Confederation received the power to collect a special tax on the revenue of casinos. The tax may not exceed 80% of the gross gaming revenue and is assigned to the AHV/IV fund.[41]

Tax scales

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Grand casinos holding a type A concession: unlimited bets, unrestricted number of table games and slot machines. Currently, 8 Grand casinos are in operation. The basic tax rate is 40 percent for the first CHF 10 million of gross gaming revenue. For each additional million, the tax rate is increased by 0.5 percent until it reaches the maximum rate of 80 percent.[41]

Casinos holding a type B concession: limited bets, limited selection of table games and limited number of slot machines. Currently, 13 casinos are in operation. The basic tax rate is 40 percent for the first CHF 10 million of gross gaming revenue. For each additional million, the tax rate is increased by 0.5 percent until it reaches the maximum rate of 80 percent.[41]

Special consumption taxes

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The Confederation levies special consumption taxes on the importation or manufacture of tobacco, beer, mineral oil, automobiles and spirits.[41]

Military service exemption tax

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Every Swiss man is required to perform military service (Art. 59 para. 1 Cst). Anyone who, for whatever reason, fails (in whole or in part) to fulfil this duty personally by doing military or civilian service has to pay military service exemption tax.

The exemption tax amounts to CHF 3 per CHF 100 of income liable to tax, but no less than CHF 400. However, it is reduced according to the total number of service days performed by the end of the relevant year. The reduction is one tenth for 50 to 99 military service days (75 to 149 civilian service days), plus another tenth for each set of 50 additional military service days (75 civilian service days) or fractions thereof.

The exemption tax assessment is carried out annually, generally in the year following the relevant year. Only those who have performed the total number of mandatory service days are entitled to a refund of the exemption tax(es) paid. The revenue from military service exemption tax amounted to approximately CHF 174 million in 2016.[41]

Other cantonal taxes

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In addition to the taxes mentioned above, the cantons are free to introduce others. Several cantons levy an inheritance tax (Erbschaftssteuer / Imposta di successione) and a gift tax (Schenkungssteuer / Imposta di donazione), although there is a trend towards abolishing those.[50] Moreover, the cantons are required by federal law to levy a tax on the profit from the sale of real estate (Grundstückgewinnsteuer / impôt sur les gains immobiliers / Imposta sugli utili immobiliari).[51] Most also levy a tax on the value of the property sold (Handänderungssteuer / impôt sur les mutations / Tassa di mutazione) so as to discourage speculation in real estate.[52] Taxes are also frequently levied on the ownership of dogs and motor vehicles,[53] on lotteries, on the sale of tickets to public entertainments, or on overnight stays in certain tourist destinations.[54]

Casino tax

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All cantons with casinos holding a type B concession amended their tax legislation and introduced a tax on gross gaming revenue of casinos. The tax may not amount to more than 40 percent of the total casino tax due to the Confederation.

Tax rates and statistics

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In 2016, some CHF 183 billion in taxes were levied in Switzerland, of which 65.5 billion was levied by the Confederation, 46 billion by the cantons, 28 billion by the municipalities and 45 billion in form of social security contributions.[55] The overall fiscal rate was 27.8 percent of GDP in 2016.[55] The effective individual tax rate is subject to considerable variation depending on the canton and municipality of residence. For instance, companies subject to ordinary taxation paid between 13 and 25 percent of income tax in 2006, and the maximum individual tax rates in major cities ranged between 12.3 percent in the Canton of Zug and 32.3 percent in the Canton of Jura.[56]

Tax evasion

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Main article: Banking in Switzerland § Tax evasion

Depending on the nature of the tax at issue, criminal offences related to the nonpayment of taxes are regulated in substantially different ways by cantonal and federal statutes.[57] The statutes distinguish, however, between tax evasion and tax fraud.[58] The former is classed as a misdemeanour (Übertretung / contravention) and is punishable by a fine of 33% to 300% of the amount of tax evaded.[59] Tax fraud occurs if a tax evasion is committed by using falsified documents for deceptive purposes, a crime (Vergehen / crime) punishable by additional imprisonment of up to three years or an additional fine of up to 30,000 CHF.[60][61]

Tax evasion in Switzerland was estimated at CHF 66 billion according to a study in 2023. The Convention on Mutual Administrative Assistance in Tax Matters, FATCA and the related amnesty has also encouraged 3% of tax payers to report undeclared funds to the tax authorities, according to the same report.[62]

See also

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Notes and references

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  1. ^ Locher, 49.
  2. ^ Locher, 50.
  3. ^ Locher, 89 et seq.
  4. ^ Linder, 263.
  5. ^ a b Locher, 47 et seq.
  6. ^ "Bundesverfassung der Schweizerischen Eidgenossenschaft". Fedlex. 2022-02-13. Retrieved 2023-08-20.
  7. ^ Locher, 46.
  8. ^ a b c d Amonn, 26.
  9. ^ Linder, 161 and 263.
  10. ^ Amonn, 61.
  11. ^ Amonn, 33.
  12. ^ Amonn, 34.
  13. ^ a b Amonn, 65.
  14. ^ a b Amonn, 35.
  15. ^ Amonn, 52.
  16. ^ Amonn, 40.
  17. ^ Amonn, 46.
  18. ^ Amonn, 58.
  19. ^ Amonn, 59.
  20. ^ "Lump-sum Taxation: An interesting alternative" (PDF). KPMG. 2023. Retrieved 2023-08-18.
  21. ^ "Switzerland capital gains tax rates, and property income tax". Globalpropertyguide.com. Retrieved 2016-07-29.
  22. ^ "Obwalden votes for flat rate tax - SWI". Swissinfo.ch. 2007-12-16. Retrieved 2016-07-29.
  23. ^ Mäusli-Allenspach, 149.
  24. ^ Mäusli-Allenspach, 145.
  25. ^ "Belastung des Bruttoarbeitseinkommens durch Kantons-, Gemeinde- und Kirchensteuern nach Steuersubjekt und Kantonshauptorte". Swiss Federal Statistical Office. 4 March 2016.
  26. ^ Amonn, 69.
  27. ^ a b c d Amonn, 70.
  28. ^ Amonn, 71.
  29. ^ a b Amonn, 76.
  30. ^ a b Amonn, 79.
  31. ^ Amonn, 80.
  32. ^ Amonn, 81.
  33. ^ "Vergleich Mindeststeuersätze Kapitalsteuer für Unternehmen in allen 26 Kantonen". Nexova. 3 February 2023.
  34. ^ "Switzerland's tax haven reputation runs deep even with reforms". 17 April 2023.
  35. ^ Amonn, 179.
  36. ^ Amonn, 172.
  37. ^ Amonn, 169.
  38. ^ "Mehrwertsteuer nach Wirtschaftssektoren" (in German). Swiss Federal Statistical Office. 12 June 2016. Archived from the original on 2016-12-29.
  39. ^ Amonn, 86.
  40. ^ Amonn, 89.
  41. ^ a b c d e f g "The Swiss Tax System" (PDF). www.eda.admin.ch.
  42. ^ Amonn, 91.
  43. ^ Amonn, 92.
  44. ^ Mäusli-Allenspach, 325.
  45. ^ Amonn, 93 et seq.
  46. ^ Amonn, 96.
  47. ^ Amonn, 94.
  48. ^ Amonn, 98 et seq.
  49. ^ Mäusli-Allenspach, 360 et seq.
  50. ^ Locher, 205.
  51. ^ Locher, 188.
  52. ^ Locher, 204.
  53. ^ Locher, 223.
  54. ^ Locher, 225.
  55. ^ a b Statistik, Bundesamt für. "Steuern und Einnahmen" (in German). Retrieved 2018-09-01.
  56. ^ "Switzerland - Taxes and Accounting". Country Profiles. Federation of International Trade Associations. Archived from the original on 2008-10-18. Retrieved 2008-08-16.
  57. ^ Locher, 357.
  58. ^ Locher, 363.
  59. ^ Locher, 373; see Art. 175 of the Federal Direct Tax Statute.
  60. ^ Locher, 372; see Art. 186 of the Federal Direct Tax Statute.
  61. ^ Locher, 364.
  62. ^ Müller, Armin (2023-06-21). "Étude sur l'amnistie l fiscale – Près de 66 milliards de francs ont été cachés au fisc suisse". Tribune de Genève (in French). Retrieved 2023-06-29.

Bibliography

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  • Amonn, Toni (2008). Repetitorium zum Steuerrecht (in German) (3rd. ed.). Berne: Haupt. ISBN 978-3-258-07124-4.
  • Locher, Peter; Blumenstein, Ernst (2002). System des schweizerischen Steuerrechts (in German) (6th. ed.). Zürich: Schulthess. ISBN 3-7255-4342-9.
  • Mäusli-Allenspach, Peter; Oertli, Mathias (2006). Das schweizerische Steuerrecht: Ein Grundriss mit Beispielen (in German) (4th. ed.). Berne: Cosmos. ISBN 3-85621-171-3.
  • Linder, Wolf (2005). Schweizerische Demokratie: Institutionen, Prozesse, Perspektiven (in German) (2nd. ed.). Berne: Haupt. ISBN 978-3-258-06842-8.
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