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 Ordinary Taxation Personal taxes in Switzerland vary depending on the Canton and Community in which an individual resides, works or has otherwise invested. While Swiss Federal tax applies throughout Switzerland, each of the 26 Cantons has its own tax system and sets its own tax rates. As a rule, individuals who are deemed resident for tax purposes in Switzerland are subject to income tax on their worldwide income regardless of source. An important exception is the possibility of lump-sum taxation for qualifying foreigners (see below). Due to the interrelation of Federal, Cantonal and Communal taxes, the complex tax rate mechanism as well as the different deductions available, it is extremely difficult to give a precise indication of tax rates applicable in Switzerland. Federal income tax rates are progressive. They range from 0% to 11.5 %. However, Cantonal and Communal tax rates vary depending on the Canton and the Community involved. On average, they are generally twice as high as Federal rates, so the total final combined tax rate may exceed 30% for high income earners. Switzerland has a large tax treaty network with over 40 comprehensive tax treaties. For the most part, they follow the general principles of the OECD model treaty. Swiss nationals domiciled in Switzerland as well as "C" permit holders are assessed for income and net wealth tax on the basis of a tax return which is filed by the individual periodically. The individual taxpayer is responsible for tax compliance and the payment of his or her personal income taxes. Border commuters and foreign nationals living in Switzerland who do not hold a "C" permit are usually subject to the "Pay As You Earn" tax system. This is a tax levied at source by employers on gross taxable earned income. The tax rates under this system are progressive and depend on the amount of gross taxable income, the martial status of the employee and the number of his or her dependent children. Wealth tax There is also a supplementary personal wealth tax, which is a Cantonal tax and therefore varies from Canton to Canton. It is mostly progressive and depends on the total value of the net assets (gross assets, less debt). Lump-sum Taxation - Overview For qualifying foreigners there is the interesting possibility of lump-sum taxation, a special tax system whereby Swiss income tax is levied on the basis of expenses (i.e. standard of living) rather than on taxable income. Switzerland offers foreigners who establish their residence in Switzerland for the first time or after an absence from the country for at least 10 years the possibility of paying a fixed amount of taxes every year. This amount is practically based on the rental payments (or the rental value of the appartment or house) in Switzerland, and has no relation to the actual worldwide income or assets. You are not asked to declare your worlwide income or assets. This fiscal arrangement (lump-sum taxation, forfait fiscal or Pauschalbesteuerung) is based on Switzerland's Federal law and is therefore available throughout the country. It is a well-established part of the Swiss tax system and has been in use for a long time. To qualify for lump-sum taxation, you need to be ordinarily resident in Switzerland, retired, and you should not have worked in Switzerland for the last 10 years. You may oversee your investments but you are not allowed to work. Many Cantons have unofficial minimums for the taxable income before a residence permit is granted. However, in most Cantons this required minimum amount is very reasonable. Generally it can be said that you should have a taxable income of no less than CHF 250,000 a year to be eligible. However, the actual tax is based on your spending, not your actual income. In practice, your annual rent is taken as an approximation of your spending. The taxable income is then calculated as five times this annual rent. You then pay the normal tax rate for the town and Canton you live in. The amount of tax effectively payable, however, must exceed the income tax which would be due on certain expenses in Switzerland. It must also exceed the tax which would be due on Swiss source income as well as income for which a partial or total reduction of foreign taxes is requested by virtue of an international tax treaty. A comparative calculation must therefore be made on an annual basis for the most effective tax planning. Lump-sum Taxation - Examples If the rental value of your appartment in Switzerland is CHF 2,500 a month, your annual rent amounts to CHF 30,000. The taxable income is then calculated as five times the annual rent, which amounts to CHF 150,000. This amount serves as the hypothetical annual income on which the normal tax rates apply, which of course vary depending on your place of residence. On an income of CHF 150,000, you may expect to pay approximately 30% in taxes, which amounts to a total annual tax bill of CHF 45,000. This amount is the lump-sum tax payable to the tax authorities and represents the total tax liability. Accordingly, if you own a large property in Switzerland, its rental value will be higher and consequently your annual tax bill will be higher as well. Please note that your overall tax rate depends on the actual place of residence, and there are considerable differences between Cantons and even between the individual communities. Furthermore, there are many issues to be considered when calculating the tax liability of a particular person, especially if further assets are located in Switzerland or if there is an interest to use the Swiss double tax treaties to receive a refund of taxes paid abroad. Inheritance/estate and gift taxes There are no Federal inheritance or gift taxes in Switzerland. Instead, the Cantons levy inheritance and gift taxes in their own competence. The Canton of Schwyz does not levy any inheritance or gift taxes at all. Many Cantons do not levy inheritance taxes between spouses and between parents and children, or levy only a very modest tax of below 10% for descendants. The absence of inheritance and gift taxes, or the very low tax rates, provide interesting possibilities for succession planning. In addition to these tax planning possibilities, the Swiss international private law allows foreigners who live in Switzerland to chose whether to apply the inheritance law of Switzerland or of their country of origin. Henley & Partners are specialised in advising and assisting high-net worth clients to establish their residence in Switzerland. For most clients, the most attractive form of being taxed is the lump-sum taxation arrangement as it offers financial privacy as well as a low level of taxation in one of the most attractive countries in the world. As part of our service we calculate the exact tax liability in the different areas, and we negotiate the final annual tax liability with the respective Cantonal authorities on the client's behalf. Some of the many advantages of Switzerland include:
To establish yourself or your business in Switzerland will require securing relationships with key partners such as government officials, bankers and corporate professionals. You need experienced consultants to build a network of contacts and help you to become established in your new environment. The specialised services of Henley & Partners are a resource and complement to major law and consulting firms. We can help other firms and their clients with the unique and specific details required by the immigration and business relocation process and related tax planning. For more information about personal taxation in Switzerland, contact Henley & Partners. Through our offices in Zurich and Zug, we are in the best position to advise and assist you with all matters regarding Switzerland and Swiss taxation.
Kirchgasse 22 8001 Zurich Poststrasse 6 6300 Zug
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