In Switzerland, taxes are often an issue for newcomers. The Swiss taxation system is rather complex. Yet, the situation will change after you see into the matter. The Swiss federal government, each canton, and municipality all impose their own taxes. In this context, choosing a city or a canton in Switzerland to move to or incorporate a company in is no trivial task with multiple solutions to it.
How can you treat and assess your tax status as an individual or a company in Switzerland? How to choose a canton in Switzerland to set up a company in without going wrong? What should be kept in mind when calculating income? What income percentage goes to the country, canton, or municipality? Why are federal taxes oftentimes smaller than regional ones but seldom come with discounts, benefits, or deductions? What Swiss taxes are the most uncomfortable? Let’s delve deeper into the complicated matters above.
Things to know about taxation in Switzerland
In Switzerland, taxation is logical and coherent. The Swiss taxation system is governed by clear and transparent laws. Although false and inaccurate at first sight, the statement is still true. Neither Swiss citizens nor local or international companies present in the confederation experience any significant issues and filing tax returns is nothing major for them.
Those who are about to move to Switzerland and are making plans therefor have it harder. It is rather challenging to unmistakably choose a canton to live in Switzerland with due regard to local and/or regional taxes. The same applies to company incorporation, as low corporate taxes in Switzerland often go hand in hand with high personal charges.
The first thing for you to do is realize and accept that the Swiss taxation system has 3 tiers, namely, the federal (officially, confederate or state tier), canton, and municipal ones. Technically, the fourth tier also exists and it is a church one. As for the taxes per se, they fall into direct and indirect ones.
The former account for income and wealth, while the latter (indirect ones plus VAT) are levied on goods and services. With 26 cantons and 2600 municipalities in Switzerland, tax calculation and assessment is never easy. This is why we recommend at International Wealth you discuss the above tax issues with our seasoned consultants at an individual consultation. The latter may be held in any form you feel convenient. To book a consultation with the International Wealth pros, please message us at info@offshore-pro.info. The same tip comes in handy for business people about to set up a company in Switzerland.
NB: the article below is for information purposes only. Its main objective is to give you an idea of the taxes currently imposed in Switzerland. This means, you should be careful with using the said information for tax planning purposes if you decide to do so, and only you are liable for all the decisions based thereon.
Swiss taxation system: types of taxes
Although the three-tier taxation system in Switzerland makes it more difficult to decide in favor of a certain canton or municipality, it also provides for greater freedom in making decisions as to your residence or principal place of business in the jurisdiction. NB: in any case, you will have to pay both direct and indirect taxes in Switzerland yet their rates and tax exemptions will be different depending on where you live.
Below, the main Swiss taxes and peculiarities thereof are described:
- income tax in Switzerland for natural persons – progressive taxation applies
- corporate tax in Switzerland is paid across all 3 tiers, including the federation, cantons, and municipalities
- value-added tax (VAT) is the most important indirect tax in Switzerland
- withholding taxes are paid inter alia on passive income like interest, royalties, and dividends.
Here are the main federal taxes in Switzerland:
- VAT
- withholding tax
- stamp duty
- border tax, etc.
Direct taxes and charges
The above are taxes and charges paid by both individuals and legal entities or businesses in Switzerland. In the state budget, they are the most important ones, accounting for over 70% of all budget revenues. Here’s what direct taxes and charges include:
- income tax
- corporate profit tax (16% to 25%)
- personal property tax (most often, a progressive taxation scale is used)
- inheritance tax (not imposed on the federal level)
- withholding tax at source (provisional tax), 35%, imposed on the federal level and paid back after the declaration of income and assets.
Income taxes in Switzerland
Swiss income taxes are charged and paid on 2 levels, i.e., at the level of the federation and as canton taxes. They may be both progressive and flat. Employees’ salary is used as a tax assessment basis. Foreigners not employed in Switzerland may decide in favor of lump-sum tax payments, with tax rates depending on a particular canton. Persons whose income is below a certain threshold (CHF 14,500) are exempt from income tax payments. The federal income tax rate ranges from 0.77% to 11.15%, depending on one’s total income amount.
Below, you will find further information as to Swiss income tax rates:
- initial CHF 14,500 are 100% tax exempt
- if you decide in favor of a single tax, the minimum income tax rate makes 0.77%
- if a taxpayer is officially married, the minimum tax rate is 1% (where their income is no more than CHF 28,300)
- the maximum tax rate for single-income taxpayers is 13.2%, and 13% for those of them who are married.
NB: if you are a permanent Swiss resident, you should always account for taxes paid in a certain canton. FYI: you shall by all means get registered with the Swiss Department of Finance.
Main taxes to pay in Switzerland, fast facts:
- 3-tier taxation system, with different tax rates for each tier.
- Direct taxes are paid at the 2 upper tiers, namely, at the federation and the canton tiers. Income tax is considered to be the most important. Both individuals and companies pay income tax.
- Property tax is paid on real estate, shares, and any other assets
- Profit tax is paid on the federation level, while capital tax is collected by cantons.
- VAT and stamp duties are regarded as the most important indirect taxes.
- In Switzerland, property tax varies from 0.3% to 0.5% and is paid on all assets without exception (on canton and municipality levels).
Corporate taxes in Switzerland
In Switzerland, corporate taxes are paid by active companies regardless of their incorporation forms. The risk of being subject to double domestic taxation is rather high in this case, as both company or business owners (in their capacity as legal persons) and the companies or businesses themselves make the corresponding taxable payments. The canton where the company is incorporated and operates almost does not matter here.
NB:
- only charities may apply for capital and profit tax remissions
- in Switzerland, federal corporate tax amounts to 8.5%
- on the canton level, the corporate tax rate ranges from 12% to 24% on average.
Profit tax in Switzerland
- Federal level
- Profit tax in Switzerland is paid at the fixed rate of 8.5% or as provided for by the laws of a certain Swiss canton
- The said profit tax is paid on net profits (as shown in the company’s profit and loss statement)
- Tax exemptions are possible in case of the profit tax (as provided for under the corresponding tax agreements and provisions thereof)
- Certain companies may be 100% tax-exempt as far as the profit tax is concerned. If the issue bothers you, go ahead and message the International Wealth experts to book additional consultations on the subject. Special preparations are required to set up a company in Switzerland that would be exempt from the profit tax (inter alia, this applies to canton selection).
Capital tax in Switzerland
- Canton level (tax rates vary depending on a particular canton)
- Capital tax in Switzerland is paid on the company’s equity capital
- No tax deductions are possible in the case of capital tax.
NB: Swiss companies shall annually submit tax returns for the capital tax (on the canton level)
Federal taxes in Switzerland
In the section below, we will dwell on mandatory taxes and duties paid by all companies and individuals regardless of their canton or municipality. In this case, tax amounts are flat, this is why it is fairly easy to calculate the total tax amount to be paid. If you would like to apply for legal tax deductions or benefits, we recommend you contact the International Wealth experts on Switzerland for extra recommendations and/or advice. Tax optimization remains an option, even if you are a company, yet you need to realize what to do and how to proceed in general.
Below, the main federal taxes and levies are listed:
- value-added tax (VAT)
- stamp duties
- tobacco tax
- liquor tax
- petrol tax and tax on oil products
- motor vehicle tax
- motorway vignette
- truck or heavy transport tax (varies depending on the distance)
- customs duties of all kinds.
For reference, here is a list of typical cantonal and/or municipal fees in Switzerland:
- motor vehicle tax (independent of the corresponding federal tax)
- dog tax
- entertainment tax
- stamp duty and/or registration duty
- water tax
- lottery tax
- guest tax.
Below, we will dwell on the most important Swiss federal taxes in more detail:
- VAT. In Switzerland, VAT is considered to be the main source of state funding. Most often, although not always, the VAT rate in Switzerland is 8%. Certain exceptions like foodstuffs, books, drugs, and traditional hard-copy newspapers (2.5%) do exist. Companies in the hospitality sector (hotels, hostels, and guesthouses) and residential development pay preferential VAT at the rate of 3.8%. They are required to keep accounting records for 10 years. Such companies shall also submit the corresponding reports to local authorities.
FYI: in Switzerland, both national and international companies benefit from VAT rates that are much lower compared to EU averages.
- Withholding tax. A standard withholding tax rate of 35% in Switzerland is pretty high. Passive income subject to withholding tax includes dividends, loan interest, bond yield, lotteries, prizes, insurance payments, payments from private pension funds, etc. Subject to certain conditions and terms, compensation on VAT in Switzerland is provided for.
- Stamp duty. In Switzerland, stamp duty is paid on commercial transactions. Stamp duty in Switzerland falls into 2 categories: issuing stamp duty and transfer stamp duty. The former is paid on shares and stocks, while the latter is on securities sale and purchase transactions if they are carried out by professional traders, stock brokers, or big companies. Actual stamp duty rates in Switzerland range from 0.15% to 0.3%, depending on whether traded securities originate from Switzerland or any other jurisdiction. Some insurance contributions are taxable at 2.5% or 5%. Where payment obligations result from capital contributions to any Swiss companies, the stamp duty is paid at the rate of 1%.
NB: stamp duty is not paid on Swiss company mergers, acquisitions, or reorganization, as well as on foreign company re-domiciliation.
- Customs duties. In Switzerland, customs duties are paid nationally and make an efficient trade policy component.
- Extended taxation in Switzerland. Payment obligations arise where certain types of alcohol, motor vehicles, tobacco, and tobacco goods are produced or imported. Gambling venues pay more taxes compared to regular businesses. Persons who have not performed military service pay tax in return.
FYI: Swiss cantons have the right to impose additional taxes on their territories and are not obliged to report to the federal authorities. Inheritance tax, gift tax, church tax, and house tax are the examples thereof. For more details as to the canton you would like to learn about please turn to the International Wealth experts.
Swiss tax residence for individuals
Residing in Switzerland does not mean that you are a Swiss tax resident by default. The opposite is also true: you may reside outside Switzerland yet have tax liabilities in the jurisdiction. The tax residency status of an individual or a company directly influences the taxes and charges to be paid as well as the amounts thereof.
Below, you can get acquainted with the terms you shall meet to become a Swiss tax resident (not to be confused with Swiss citizenship). Here’s how long Individuals shall reside in Switzerland to be eligible for a residence permit or permanent residence therein:
- 30 days, provided they do not pursue their profession in Switzerland
- 90 days, with no extra requirements.
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NB: the above does not apply to students who study in Switzerland as well as any persons coming there for treatment. Foreigners who do not belong to the above groups shall submit a special-purpose tax form.
Swiss tax residence for legal entities
No matter their incorporation form, companies and businesses incorporated or managed in any Swiss canton are obliged to pay taxes. NB: please mind that non-residents have the right to operate and run businesses in Switzerland. Their non-resident status mostly influences the array of taxes they have to pay and the amounts thereof.
Below, all possible options are described:
- Company founders in Switzerland automatically become Swiss tax residents.
- Persons incorporated abroad with no permanent establishment in Switzerland have the right to purchase and sell goods and services in Switzerland.
- Companies incorporated outside Switzerland but managed from the jurisdiction also become Swiss tax residents. This option is typical for subsidiaries and/or branch offices of foreign companies operating in Switzerland via their official representatives.
NB: if a manager or a shareholder of a foreign company is resident in Switzerland, the above company may be considered a Swiss tax resident.
Hopefully, you have a general idea now of how taxes are calculated and paid in Switzerland. Please remember that the above article is for information purposes only and do not use it for independent tax planning.
Switzerland is a global economic hub and businesses set up in the jurisdiction come with multiple benefits and enormous potential. At International Wealth, we will assist you with every organizational issue you may encounter, as well as company incorporation in the canton that best matches your goals. The range of services the International Wealth experts provide to our customers is exceptionally wide.
What are the costs and expenses associated with buying property in Switzerland?
Apart from the property price per se, the expenses are as follows: land tax – 0.2%-0.6% of the property price, property tax – 0.3%-0.5% of the invested amount (both taxes are paid annually), property transfer tax – 2-4% of the property price, while real estate income tax is a part of the total tax base. In total, the above expenses make 17% to 42% of the total amount to pay, while the property price itself makes around 6% of the total expense amount (provided that you are about to lease out the property in question, even if in reality it is not so). Additional property management and maintenance expenses comprise 15% to 20% of the annual income (for commercial properties). In absolute terms, expenses for an average 3-room apartment of 100 square meters amount to approximately EUR 5000 per year. Whether you live in the said apartment does not matter in this case.
I am about to purchase a house or an apartment in Switzerland. What should I keep in mind?
Please beware that such a buy is profitable long-term but does not bring any immediate profits. Here’s what you should keep in mind when mapping out your action course.
Approximate property prices per square meter range from EUR 6100 to EUR 12,600. The above prices do not account for high-end or low-budget properties.
The average processing time is approximately 3 to 4 months. If you need to expedite the processing of documents, be prepared to pay extra.
Real estate loans are an option. In Switzerland, you can obtain one at a 1% (or higher) interest rate per annum, with a payment term of up to 10 years.
You will have to wait for at least 6 months for your residence permit application to be processed.
The average rental income before taxes reaches 5%.
I would like to incorporate a company in Switzerland. What documents shall I prepare?
In general, you will have to prepare the following documents:
1) If a property owner is a natural person – foreign and national passports plus documents to verify the holder’s residence address (normally, it is a paid utility bill).
2) Company directors submit the same documents.
3) If a property owner is a legal person, such owner shall submit apostilled original copies of all founding documents, as well as the owner’s or the beneficiary’s personal documents. The procedure will take approximately 1 to 2 weeks (for GmbH), plus the time necessary to set up a bank account in Switzerland.
It is possible to set up a Swiss company remotely. For more information on the subject, we encourage you to turn to the International Wealth experts.
