The Swiss taxation system is highly attractive for companies and private persons alike. Here are the most important facts of the system.
Taxation on three levels
The Swiss tax system is shaped by the country's federal structure. Companies and individuals are taxed at three different levels in Switzerland:
- national level (federal taxes)
- cantonal level (cantonal taxes)
- communal level (communal taxes)
The largest portion of taxes is levied by the cantons and municipalities, resulting in intense tax competition at these two levels. Each canton has its own tax laws, which the population can vote on democratically and directly. However, all taxes are collected by a single authority.
Companies are taxed at their place of value creation, i.e. where the company is based or where it carries out its business activities.
Low corporate taxes
Compared with other countries in Europe, corporate taxes are very low in Switzerland. Federal taxes are charged at a flat rate, while cantonal tax rates vary by location and sometimes by level of capital or profit. Taxes are currently levied in the following ranges:
- Direct federal taxes on profits: 8.5%
- Cantonal tax on profits: 5.9% - 16%
- Cantonal tax on capital: 0.05% - 0.3%
- Total tax burden: 14.5% - 25%
Taxation on after-tax profits (effective taxes)
Direct federal taxes are charged at a regular rate of 8.5%. Because taxes are levied on after-tax profits, this yields an effective tax rate of 7.83%.
Other reductions through company-specific tax models
Tax optimization makes it possible to lower tax rates to below 10%. Companies may solicit a binding (advance) tax ruling for their effective tax burden from the tax authorities. Tax benefits are granted on a case by case basis, depending on the location and the type of business.
Low taxes for individuals
Natural persons (employees) pay taxes at their place of residence. Federal tax varies by income, while cantonal and communal tax rates vary by place of residence, income and size of assets. Taxation is progressive, whereby the maximum rate takes effect only at very high income levels. For self-employed people, special regulations apply.
- 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 taxes on assets (examples):
- Assets of CHF 100'000: 0% - 0.225%
- Maximum rate: 0.89%
- Church tax (depending on denomination): 0% - 2.3%
Case-by-case treatment in case of expatriates
For expatriates, i.e. taxable foreign nationals on a temporary work assignment in Switzerland, there are special federal tax benefits. Most cantons also give expatriates preferred tax treatment.
Expatriates are treated on a case by case basis. Either they are assessed by process of law, or they are subject to withholding tax, which the employer deducts directly from their pay check. The tax rates include certain tax-free allowances for work-related expenses, insurance premiums and family upkeep. Expenses such as moving costs or tuition for international schools are also deductible.
Avoiding double taxation
Intergovernmental treaties are in place to prevent double taxation. Switzerland has signed double taxation conventions with almost 60 states, including nearly all Western industrial nations.
Lowest value-added tax in Europe
Switzerland has by far the lowest value-added tax (VAT) rate anywhere in Europe. Regular VAT is 8%. Hotels are taxed at 3.8%, and necessities/convenience goods at just 2.5%. Other goods and services, such as medical care and education, are completely exempt from VAT.
No inheritance taxes for immediate descendants
No inheritance tax is charged at the federal level. In most cantons, immediate descendants are exempt from inheritance taxes. The inheritance and capital transfer tax rates for third parties range between 10 and 50%.
Other federal taxes
- Capital gains and lottery winnings: 35%
- Life annuity and pensions: 15%
- Other insurance benefits: 8%
Other cantonal and communal taxes
- Tax on capital gains on real estate: 3% - 64%
- Real estate transfer tax (abolished in some places): 0.8% - 3.3%