The tax system in Switzerland

The Swiss tax system is shaped by the federal structure of the country.

The tax system in Switzerland

Taxation on three levels

Companies and natural persons get taxed on three different levels in Switzerland:

  • National (federal taxes)
  • Cantonal (cantonal taxes)
  • Communal (communal taxes)

The highest tax portion is levied by the cantons and the communities, which leads to intense competition on both of these layers. In every canton, its population decides on the tax laws via direct democracy. However, all taxes are collected by a single authority.

Companies get taxed in the place where revenue is generated, i.e. at the company domicile or at the place of economic activities.

Low company taxes

Compared to other European countries the taxes in Switzerland are very low. The federal tax is a universal rate—the cantonal tax rates vary in each canton and are sometimes measured by the amount of capital or profit. The current tax rates are in the following range:

Direct federal taxes on profit: 8.5%
Cantonal profit tax: 5.9  16%
Cantonal capital tax: 0.05  0.3%
Total taxation: 14.5 − 25%

Taxation on profit after taxes (effective taxes)

The regular tax rate with the direct federal tax amounts to 8.5%. Because the taxes on profit are calculated after tax, the effective tax rate results in 7.83%

Further reductions through company-specific tax models

Significantly lower tax rates of under 10% can be achieved through tax optimisation. Companies can receive a binding tax ruling on the effective taxation. Tax exemption is granted individually, depending on location and type of business activity.

Low taxes for private persons

Private persons pay taxes at their place of residence. Federal taxes vary based on the amount of income and the amount of assets. The taxation is progressive, whereby the highest rate only applies to very high incomes. Special regulations apply for self-employed people.

Federal income tax (maximum rate) 11.5%

Cantonal and communal income taxes (examples):

• Taxable income of CHF 50,000 5-13%

• Taxable income of CHF 500,000 11-27%

Cantonal and communal asset taxes (examples):

• Assets of CHF 100,000 0-2.250 tenth of a percent

• Maximal taxation: 8.9 tenth of a percent

Church tax (depending on denomination): 0 − 2.3%

Individual case treatment of expats

For so-called expatriates, i.e. taxable foreigners who are temporarily working in Switzerland, there are special tax reduction possibilities with the direct federal taxes. Furthermore, most cantons have a favourable tax treatment for expatriates.

Expats get treated as individual cases. They are either evaluated by standard procedure, or taxes are deducted at source, which the employer deducts directly from the salary. The tax rates take into account certain tax-free amounts for business expenses, insurance fees, and family upkeep. Costs for moving or international schools are additionally eligible for tax reductions.

Avoiding double taxation

The avoidance of double taxation is regulated by international treaties. Switzerland has signed such treaties with over 60 states, including almost all western industrial countries.

Lowest VAT in Europe

Switzerland has the lowest VAT in Europe by far. The normal rate amounts to 8%. Accommodation services are taxed with 3.8%, daily goods are taxed with only 2.5%. Other goods and services such as medical treatment or education are fully excluded from VAT taxation.

No inheritance tax for direct descendants

On the federal level, no inheritance tax applies. In the most cantons direct descendants are excluded from inheritance tax. The rates for inheritance and gift taxes for third parties are between 10 and 50%.

Further federal taxes

• Capital revenue and lottery winnings: 35%

• Life annuities and pensions: 15%

• Other insurance services: 8%

Further cantonal and communal taxes:

• Real estate profit taxes: 3-64%

• Real estate transfer tax (partly abolished): 0.8 − 3.3%

This article has been submitted by STARTUPS.CH 

Taxation on three levels

Companies and natural persons get taxed on three different levels in Switzerland:

  • National (federal taxes)
  • Cantonal (cantonal taxes)
  • Communal (communal taxes)

The highest tax portion is levied by the cantons and the communities, which leads to intense competition on both of these layers. In every canton, its population decides on the tax laws via direct democracy. However, all taxes are collected by a single authority.

Companies get taxed in the place where revenue is generated, i.e. at the company domicile or at the place of economic activities.

Low company taxes

Compared to other European countries the taxes in Switzerland are very low. The federal tax is a universal rate—the cantonal tax rates vary in each canton and are sometimes measured by the amount of capital or profit. The current tax rates are in the following range:

Direct federal taxes on profit: 8.5%
Cantonal profit tax: 5.9  16%
Cantonal capital tax: 0.05  0.3%
Total taxation: 14.5 − 25%

Taxation on profit after taxes (effective taxes)

The regular tax rate with the direct federal tax amounts to 8.5%. Because the taxes on profit are calculated after tax, the effective tax rate results in 7.83%

Further reductions through company-specific tax models

Significantly lower tax rates of under 10% can be achieved through tax optimisation. Companies can receive a binding tax ruling on the effective taxation. Tax exemption is granted individually, depending on location and type of business activity.

Low taxes for private persons

Private persons pay taxes at their place of residence. Federal taxes vary based on the amount of income and the amount of assets. The taxation is progressive, whereby the highest rate only applies to very high incomes. Special regulations apply for self-employed people.

Federal income tax (maximum rate) 11.5%

Cantonal and communal income taxes (examples):

• Taxable income of CHF 50,000 5-13%

• Taxable income of CHF 500,000 11-27%

Cantonal and communal asset taxes (examples):

• Assets of CHF 100,000 0-2.250 tenth of a percent

• Maximal taxation: 8.9 tenth of a percent

Church tax (depending on denomination): 0 − 2.3%

Individual case treatment of expats

For so-called expatriates, i.e. taxable foreigners who are temporarily working in Switzerland, there are special tax reduction possibilities with the direct federal taxes. Furthermore, most cantons have a favourable tax treatment for expatriates.

Expats get treated as individual cases. They are either evaluated by standard procedure, or taxes are deducted at source, which the employer deducts directly from the salary. The tax rates take into account certain tax-free amounts for business expenses, insurance fees, and family upkeep. Costs for moving or international schools are additionally eligible for tax reductions.

Avoiding double taxation

The avoidance of double taxation is regulated by international treaties. Switzerland has signed such treaties with over 60 states, including almost all western industrial countries.

Lowest VAT in Europe

Switzerland has the lowest VAT in Europe by far. The normal rate amounts to 8%. Accommodation services are taxed with 3.8%, daily goods are taxed with only 2.5%. Other goods and services such as medical treatment or education are fully excluded from VAT taxation.

No inheritance tax for direct descendants

On the federal level, no inheritance tax applies. In the most cantons direct descendants are excluded from inheritance tax. The rates for inheritance and gift taxes for third parties are between 10 and 50%.

Further federal taxes

• Capital revenue and lottery winnings: 35%

• Life annuities and pensions: 15%

• Other insurance services: 8%

Further cantonal and communal taxes:

• Real estate profit taxes: 3-64%

• Real estate transfer tax (partly abolished): 0.8 − 3.3%

This article has been submitted by STARTUPS.CH 

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