Location, location, taxation

Monday, 17 February 2014
Marc Renggli provides an overview of the Swiss tax regime and its cantonal variations.

Switzerland’s tax system reflects its federal structure; it has 26 cantons and approximately 2,500 municipalities. All cantons have the right to levy taxes, although the federal government has an exclusive right to levy certain taxes, including value-added tax and withholding tax. As a consequence, Switzerland taxes both at the federal and the cantonal/municipal level.

Taxation of income at federal and cantonal/municipal level

Income tax is governed by federal and cantonal laws. The cantons are authorised to levy the tax, while municipalities can also set their own income tax rates to the extent that they are authorised by the respective canton.

Taxation of the individual taxpayer

Individuals with a permanent or temporary residence in Switzerland are subject to federal and cantonal/municipal tax. The tax scales are progressive, recognising family status, children and faith. Individuals are taxed on their worldwide income, with certain exemptions for business carried out abroad. The highest income tax rates for a single person, without children and excluding church taxes, can vary from 22 per cent to almost 45 per cent depending on the canton.

Taxation of corporate taxpayer

Corporations with their registered office or effective place of management in Switzerland are subject to federal corporate income tax, which is a flat 8.5 per cent, and also to cantonal corporate income tax, as well as tax on equity (paid-up capital and reserves). The basis of taxation is again worldwide income, with exemptions for business carried out abroad. Corporate income tax rates across the different cantons can vary from 12 per cent up to 25 per cent.

Wealth tax

Wealth tax is only levied at the cantonal and municipal level, and is based on the taxpayer’s worldwide assets. Taxable property includes real estate, movable capital assets, redeemable life and annuity insurances, and business assets. The wealth tax charged by the various cantons is normally within a range of 0.1 per cent to 1 per cent.

Gift and inheritance tax

The Swiss federation does not currently levy any inheritance or gift taxes at a national level. However, with the exception of the canton of Schwyz, all cantons levy inheritance tax. The canton of Lucerne has waived the right to levy gift tax; however, gifts made during the last five years before death are included in the inheritance tax calculation. Gift and inheritance taxes are mostly progressive and are based on the degree of relationship between the donor/deceased and the beneficiary and the amount received by the latter. All cantons exempt spouses from gift and inheritance taxes, while in most cantons direct descendants are also exempt.

Gift tax

Transfers of wealth between living persons are subject to gift tax at cantonal level. Gift tax on movable property is levied by the canton where the donor is domiciled at the time of the donation. Gift tax on immovable property is levied by the canton where the property is located (lex rei sitae). Gift tax rates for beneficiaries who are not related to the donor can vary from 0 per cent up to

50 per cent depending on the canton.

Inheritance tax

The estate on death is subject to inheritance tax at cantonal level. The right to tax lies with the canton of the deceased’s last domicile, with the exception of immovable property, which is taxed at the place where it is situated. The beneficiaries of the estate are liable for the tax. An inventory of the estate must be made at the death of the deceased, which serves as a basis for the assessment of inheritance tax. Inheritance taxes for beneficiaries who are not related to the deceased vary from 10 per cent up to 50 per cent.

The majority of Switzerland’s taxes are set at a cantonal and municipal level, which leads to very significant variations in effective rates of tax depending on where the taxpayer is based. For this reason, it is recommended that anyone planning to move to Switzerland, or considering setting up a business there, should carefully consider their likely tax exposure before choosing a location.

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Marc Renggli

Marc Renggli TEP is a Senior Lawyer at Hawksford LSS GmbH.

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