Taxation in Switzerland

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

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

Legal framework[edit]

Fiscal sovereignty[edit]

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 2020. 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.[6]

Constitutional limits to taxation[edit]

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.[7] 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.[8]

The constitution mandates that taxation must be general and equal in nature, and it must be proportionate to one's ability to pay.[7] The Federal Supreme Court has interpreted this as prohibiting a regressive tax,[7] 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.[7]

Direct taxes on natural persons[edit]

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,[9] 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.[10] 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.[11] The income and assets of spouses are pooled and taxed jointly, but at a lower rate to offset the effects of tax progression.[12]

Income tax[edit]

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 residence permit,[12] 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,[13] and including the rental value of a house lived in by its owner.[14] 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.[15] Certain expenses are also deductible. These include social security or pension fund payments,[16] expenses related to the gain of income (such as employment expenses and maintenance costs of real estate) and alimonies.[17] Gifts and inheritances are also exempt from the income tax, but are subject to separate cantonal taxes.[13]

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 the quintuple of the rent paid by the taxpayer as a basis for the lump-sum taxation.[18] This option contributes to Switzerland's status as a tax haven, and has induced many wealthy foreigners to live in Switzerland.

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).[19][20]

Property tax[edit]

A proportional property tax of around 0.3 to 0.5 percent[21] 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.[22]

Taxes by canton[edit]

Total federal, cantonal, municipal and church taxes in the cantonal capital for various gross incomes, in CHF (2014)[23]
Single Married 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
ZHWappen Zürich matt.svg 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
BEWappen Bern matt.svg Bern 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
LUWappen Luzern matt.svg 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
URWappen Uri matt.svg 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
SZWappen des Kantons Schwyz.svg 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
OWWappen Obwalden matt.svg Obwalden 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
NWWappen Nidwalden matt.svg Nidwalden 361 2,530 5,137 7,905 10,709 25,455 65,696 50 50 812 2,756 5,196 19,159 62,707
GLWappen Glarus matt.svg Glarus 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
ZGWappen Zug matt.svg Zug 148 1,049 2,197 3,586 5,729 19,488 51,434 0 0 0 359 1,059 6,943 45,645
FRWappen Freiburg matt.svg Fribourg 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
SOWappen Solothurn matt.svg Solothurn 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
BSWappen Basel-Stadt matt.svg Basel-Stadt 0 2,770 7,034 11,322 15,586 37,075 110,510 0 0 0 2,987 7,251 28,739 93,319
BLWappen Basel-Landschaft matt.svg Basel-Landschaft 0 2,617 6,498 10,917 15,667 41,732 124,296 0 0 0 2,534 6,180 28,722 107,828
SHWappen Schaffhausen matt.svg Schaffhausen 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
ARWappen Appenzell Ausserrhoden matt.svg Appenzell Ausserrhoden 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
AIWappen Appenzell Innerrhoden matt.svg Appenzell Innerrhoden 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
SGWappen St. Gallen matt.svg St. Gallen 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
GRWappen Graubünden matt.svg Graubünden 22 2,251 5,403 8,962 12,585 32,274 93,439 0 0 390 2,691 5,204 22,378 82,271
AGWappen Aargau matt.svg Aargau 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
TGWappen Thurgau matt.svg Thurgau 179 2,807 6,043 9,344 12,704 31,388 91,205 0 0 683 3,109 5,747 22,647 80,293
TIWappen Tessin matt.svg Ticino 307 1,998 5,295 9,065 13,138 35,748 110,578 40 40 721 1,841 4,189 24,016 99,484
VDWappen Waadt matt.svg 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
VSWappen Wallis matt.svg 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
NEWappen Neuenburg matt.svg 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
GEWappen Genf matt.svg Geneva 25 1,969 5,788 10,398 15,103 39,708 123,070 25 25 25 348 3,093 24,145 98,891
JUWappen Jura matt.svg 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[edit]

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.[24] Tax liability arises if either the legal seat or the effective management of a corporation is in Switzerland.[25] To the extent non-resident companies have Swiss sources of income, such as business establishments or real estate, they are also liable for taxation.[25] Conversely, as a unilateral measure to limit double taxation, profits from foreign business establishments or real estate are exempted from taxation.[25]

Profit tax[edit]

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.[25] For instance, expenditures that have no business reason such as excessive depreciations, accruals or reserves, as well as disguised dividends are taxed as profits.[26]

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.[27] At the cantonal level only, a "holding privilege" applies to pure holding companies. They are exempt from the cantonal corporate profit tax.[27] Moreover, cantonal law confers a "domicile privilege" on companies who are only administered in Switzerland, but whose business is conducted abroad; including shell corporations.[28] The cantons tax only around 10 percent of the worldwide profits of such companies.[28]

Capital tax[edit]

A proportional tax is levied by the cantons (at varying rates) on the Eigenkapital (ownership equity) of companies.[29] 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.[30]

Other federal taxes[edit]

Value added tax[edit]

The value added tax (VAT; Mehrwertsteuer / Taxe sur la valeur ajoutée / Tassa sul valore aggiunto) is one of the Confederation's principal sources of funding. It is levied at a rate of 8 percent on most commercial exchanges of goods and services. Certain exchanges, including those of foodstuffs, drugs, books and newspapers, are subject to a reduced VAT of 2.5 percent.[31] Yet other exchanges, including those of medical, educational and cultural services, are tax-exempt; as are goods delivered and services provided abroad.[32] 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.[33]

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.[34]

Federal withholding tax[edit]

The federal withholding tax (Verrechnungssteuer / impôt anticipé / Imposta preventiva) is levied at a rate of 35 percent on certain forms of income, most notably dividend payments, interest on bank loans and bonds, liquidation proceeds, lottery prizes and payments by life insurances and private pension funds.[35] The debtor of such payments is liable for the payment of the tax; they must pay the creditor only the net amount.[36]

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.[37] The same applies to foreign creditors to the extent that a tax treaty provides for it.[38] Other foreign creditors are not eligible for a refund; with respect to them, the withholding tax is a genuine tax.

Stamp duties[edit]

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.[39]

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.[40] The tax amounts to one percent of the funds raised and is payable by the issuer.[41] The trade in shell companies (Mantelhandel) is also subject to the issue tax.[42]

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.[43] Finally, an insurance premiums tax of 5 or 2.5 percent is levied on certain insurance premiums.[44]

Border duties and miscellaneous federal taxes[edit]

The Confederation is constitutionally empowered to levy tariffs,[45] which were its principal sources of funding up until World War I, but are now more important as an instrument of trade policy. Additional federal taxes of lesser economic importance include taxes on the importation or manufacture of spirits, beer, tobacco, automobiles and mineral oil, as well as on gambling establishments.[46] Citizens exempt from military service are required to pay a tax in compensation.[47]

In 2014 tariffs and similar taxes brought in CHF 11.7 billion (short scale), a slight decrease from 12.2 billion in 2013.[34]

Other cantonal taxes[edit]

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.[48] 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).[49] 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.[50] Taxes are also frequently levied on the ownership of dogs and motor vehicles,[51] on lotteries, on the sale of tickets to public entertainments, or on overnight stays in certain tourist destinations.[52]

Tax-related criminal law[edit]

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.[53] This section will therefore discuss only the outlines of the harmonised rules governing tax evasion and tax fraud with respect to the federal and cantonal income, profit, property and capital taxes.

It is a criminal offence under cantonal and federal law to wilfully cause one's taxes to be incompletely assessed. The statutes distinguish, however, between tax evasion and tax fraud. Tax evasion is the act of causing a tax to be falsely assessed, such as through the failure to report taxable income.[54] It is classed as a misdemeanour (Übertretung / contravention) and is punishable by a fine of 33% to 300% of the amount of tax evaded.[55] Tax fraud, on the other hand, occurs if a tax evasion is committed by using false documents (such as untrue corporate financial reports) for deceptive purposes.[56] It is classed as a crime (Vergehen / crime) and is punishable by additional imprisonment of up to three years or an additional fine of up to 30,000 CHF.[57]

This distinction is of particular importance with respect to the level of international judicial assistance afforded by Swiss authorities to foreign states that prosecute their own citizens for tax evasions committed in Switzerland, such as by depositing undeclared income with a Swiss bank. Up until recently, Swiss law prohibited all support to foreign jurisdictions for the prosecution of fiscal offences, except to the U.S. under the terms of a 1973 agreement.[58] Since 1983, enforcement assistance is provided (such as the search and seizure of accounts and documents) for the prosecution of fiscal crimes (notably, tax fraud) but not for the prosecution of fiscal misdemeanours (notably, tax evasion).[59] Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will abolish the distinction between tax fraud and tax evasion in dealings with foreign clients. The Swiss authorities will from now on also provide judicial assistance in the event of tax evasion by a foreign client.[60] The distinction remains valid for domestic clients.

Tax rates and statistics[edit]

In 2002, some CHF 134 billion in taxes were levied in Switzerland, of which roughly one third was levied by the Confederation, the cantons and the municipalities, respectively.[61]

The overall fiscal rate was 38.5 percent of GDP in 2002.[62] 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.[63]

See also[edit]

Notes and references[edit]

  1. ^ Locher, 49.
  2. ^ Locher, 50.
  3. ^ Locher, 89 et seq.
  4. ^ Linder, 263.
  5. ^ a b Locher, 47 et seq.
  6. ^ Locher, 46.
  7. ^ a b c d Amonn, 26.
  8. ^ Linder, 161 and 263.
  9. ^ Amonn, 61.
  10. ^ Amonn, 33.
  11. ^ Amonn, 34.
  12. ^ a b Amonn, 65.
  13. ^ a b Amonn, 35.
  14. ^ Amonn, 52.
  15. ^ Amonn, 40.
  16. ^ Amonn, 46.
  17. ^ Amonn, 58.
  18. ^ Amonn, 59.
  19. ^ "Switzerland capital gains tax rates, and property income tax". Globalpropertyguide.com. Retrieved 2016-07-29. 
  20. ^ "Obwalden votes for flat rate tax - SWI". Swissinfo.ch. 2007-12-16. Retrieved 2016-07-29. 
  21. ^ Mäusli-Allenspach, 149.
  22. ^ Mäusli-Allenspach, 145.
  23. ^ "Belastung des Bruttoarbeitseinkommens durch Kantons-, Gemeinde- und Kirchensteuern nach Steuersubjekt und Kantonshauptorte". Swiss Federal Statistical Office. 4 March 2016. 
  24. ^ Amonn, 69.
  25. ^ a b c d Amonn, 70.
  26. ^ Amonn, 71.
  27. ^ a b Amonn, 76.
  28. ^ a b Amonn, 79.
  29. ^ Amonn, 80.
  30. ^ Amonn, 81.
  31. ^ Amonn, 179.
  32. ^ Amonn, 172.
  33. ^ Amonn, 169.
  34. ^ a b "Mehrwertsteuer nach Wirtschaftssektoren". Swiss Federal Statistical Office. 12 June 2016. 
  35. ^ Amonn, 86.
  36. ^ Amonn, 89.
  37. ^ Amonn, 91.
  38. ^ Amonn, 92.
  39. ^ Mäusli-Allenspach, 325.
  40. ^ Amonn, 93 et seq.
  41. ^ Amonn, 96.
  42. ^ Amonn, 94.
  43. ^ Amonn, 98 et seq.
  44. ^ Mäusli-Allenspach, 360 et seq.
  45. ^ Locher, 44.
  46. ^ Locher, 221 et seq.
  47. ^ Locher, 57.
  48. ^ Locher, 205.
  49. ^ Locher, 188.
  50. ^ Locher, 204.
  51. ^ Locher, 223.
  52. ^ Locher, 225.
  53. ^ Locher, 357.
  54. ^ Locher, 363.
  55. ^ Locher, 373; see Art. 175 of the Federal Direct Tax Statute.
  56. ^ Locher, 364.
  57. ^ Locher, 372; see Art. 186 of the Federal Direct Tax Statute.
  58. ^ Locher, 478.
  59. ^ Locher, 479.
  60. ^ [1][dead link]
  61. ^ Linder, 151.
  62. ^ Linder, 153.
  63. ^ "Switzerland - Taxes and Accounting". Country Profiles. Federation of International Trade Associations. Retrieved 2008-08-16. 

Bibliography[edit]

Tax law[edit]

  • 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. 

Others[edit]

  • Linder, Wolf (2005). Schweizerische Demokratie: Institutionen, Prozesse, Perspektiven (in German) (2nd. ed.). Berne: Haupt. ISBN 978-3-258-06842-8. 

External links[edit]