Residency and Tax Liability
In Switzerland, residents are taxed on their worldwide income and assets, with exceptions for income and wealth from foreign business or real estate. Residence for tax purposes can be established if a person stays in the country for 30 days or 90 days if not working. Non-residents are also taxed on Swiss assets and income from specific sources, such as real estate or pensions. For married couples, income and assets are pooled and taxed jointly but at a lower rate to reduce the effects of tax progression. Switzerland’s tax system is often considered advantageous.
Income Tax
Income tax is imposed by both the Confederation and the cantons, either progressively or proportionally, depending on the location. Foreign workers without a permanent residence permit are subject to payroll taxes, while certain transient persons, such as foreign musicians, are taxed via withholding. Taxable income includes most forms of earnings, though capital gains on private property, such as the sale of shares, are typically tax-free. Some expenses are deductible, including social security payments, pension contributions, and real estate maintenance costs. Gifts and inheritances are exempt from income tax but are taxed separately by the cantons.
Non-working foreigners in Switzerland can opt for a lump-sum tax instead of regular income tax, which is generally lower. This tax is usually based on living expenses, often calculated as a multiple of the taxpayer’s rent. In 2011, federal income tax rates ranged from 1% to 11.5%, with exemptions for low earners. Cantonal tax rates vary significantly, from as low as 1.8% in Obwalden to higher rates in Zurich and Geneva.
Wealth Tax
Wealth tax is levied by the cantons at rates between 0.3% and 0.5%, applying to the net worth of individuals after deducting debts. This tax encompasses real estate, shares, and other assets.
Corporate Taxation
Corporate taxation in Switzerland is structured as a classical system, where both corporations and their shareholders are taxed, leading to economic double taxation. Corporate tax liability arises if a corporation’s legal seat or management is in Switzerland. Non-resident companies with Swiss-based income are also taxed. Swiss tax law offers several provisions to mitigate double taxation and enhance the country’s appeal as a tax haven. For example, the participation exemption allows companies holding 20% or more of another company’s shares to reduce their tax obligations. Additionally, holding companies are exempt from cantonal corporate profit tax, and shell companies with no business in Switzerland enjoy a domicile privilege, being taxed only on a fraction of their worldwide profits.
Capital Tax
Cantons also impose capital taxes on companies, taxing ownership equity and, in some cases, liabilities that function as equity. Many cantons implement minimum taxes on capital, which disproportionately affect smaller companies.
Global Minimum Corporate Tax Rate
Switzerland has implemented the global minimum corporate tax rate starting in 2023, affecting companies with at least €750 million in annual turnover. While this impacts only about 1% of Swiss companies, it does not eliminate all special tax regimes, including those benefiting holding companies.
Value Added Tax (VAT)
The value-added tax (VAT) is a significant source of federal revenue in Switzerland, levied at 8.1% on most goods and services. Certain items, such as foodstuffs and medications, are subject to reduced rates, and some services, including medical and educational, are exempt from VAT. In 2014, VAT revenues reached nearly CHF 11 billion, reflecting the scale of taxable transactions in the country.
Federal Withholding Tax
Switzerland also levies a federal withholding tax on certain forms of income, including dividends, interest, and lottery winnings. The standard rate is 35% for movable capital revenue and large lottery winnings, with lower rates for pensions and insurance benefits. For Swiss residents, the withholding tax serves as a prepayment of income tax, while foreign residents may receive refunds if tax treaties allow it. Otherwise, the withholding tax is final for non-eligible foreign creditors.