Tax in Switzerland is levied at three levels – federal, cantonal and communal. Most taxes are levied at cantonal and communal level and there is competition amongst the cantons as far as tax rates are concerned.
Artists, sportsmen and other performers are subject to federal and cantonal withholding tax on their income for performances or appearances carried out in Switzerland. Costs are usually agreed at 20% of gross income to arrive at the taxable base and federal withholding tax is then levied at between 0.8% and 7%. Cantonal rates are between 7% and 32%.
For a resident individual, federal income tax is imposed on worldwide income, but there are a number of exceptions, including certain income from business abroad, and from immovable property held abroad. Additionally, there are a number of permitted deductions, both at the federal and cantonal levels.
Individuals involved in a sole proprietorship or a general partnership are subject to personal income tax and net wealth tax.
Income tax is imposed by the Federal government and also by the 26 cantons that make up the country. Tax liability for a sole proprietor (and any other type of individuals) is based on income tax on his or her profits. Income Tax (Federal Direct Tax) is due where a person’s taxable income exceeds CHF12,600 (CHF24,500 for a married couple, as the income of married couples is aggregated for tax purposes).
Self-employed persons must file and pay their taxes directly with the Federal Tax Administration. Employees pay income tax at source (ie the required amount is withheld by the employer).
Federal income tax rate is progressive up to 11.5%, which is the top rate, and is imposed on income above CHF655,100 for single taxpayers, and CHF775,900 for married couples. However, there are a number of permitted deductions, which are likely to affect income tax liability – expert local advice should be obtained in this regard.
Cantons impose both direct income tax on individuals and profits of legal entities, and inheritance and gift taxes; this is usually comprised of a percentage rate multiplied by a local coefficient. Communes also impose taxes, but may only do so where authorized to do so by the Canton in their fiscal jurisdiction.
The methods for calculating cantonal taxes are complex and vary significantly from canton to canton; there is competition between the regions to attract wealthy taxpayers to live there, and the rates, permitted deductions, and local coefficients all vary. (Traditionally, there has been standardisation with regard to the tax treatment of foreigners deriving income solely from outside Switzerland, based on 5 times the rental value of property owned by said foreigner. There have, in recent years, been breakaway cantons, and it has been proposed – in order to try to maintain uniformity in this area, that the multiplier be increased to 7 times property rental value. However, despite these efforts, the situation varies in certain cantons, and a fully uniform tax policy for such foreigners is not expected to be in place until 2015.)
An example of the situation for tax residents in Switzerland, however, would be the canton of Zurich, where cantonal income tax for a married couple is a basic rate (average) of 7.2% on income of CHF200,000, multiplied by the local coefficient of 2.2% (approx), bringing the total (including federal tax on that amount at around 6.67%) to 23.14%, to which net wealth and other taxes must be added, and from which deductions are likely to be made. In Schaffhausen City, meanwhile, the cantonal tax on the aforementioned amount (including municipal tax) is 8.14%, and the local coefficient is 1.10%.
In addition to federal and cantonal taxes, communal taxes are imposed, mainly as surcharges on cantonal taxes, and with regard to capital gains on real estate.
Communal taxes tend to be based on a percentage of the cantonal taxes. Church parishes also levy a church tax on individuals and legal entities in their canton. Church Taxes are only levied by churches that are recognized by cantonal law – they do not apply in every canton. The Roman Catholic Church, Evangelic Reformed Church and Christ Catholic Church are widely recognized. Israelite communities also levy a local form of church tax on their members.
This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .