In Switzerland, taxes are broken down into a variety of personal and company taxes, and differ from canton to canton.

-- Before you read on: If you wish to calculate your income tax, please click here --

On an administrative level, Switzerland is broken down into communes, cantons (states) and the Confederation, all of which work alongside banks, lawyers, companies and consultants, and can offer assistance with administrative procedures together with financial backing.

In Switzerland, it is necessary to distinguish between personal and company taxes. There are also some other miscellaneous taxes.

Personal taxes
Personal taxes are the taxes that every Swiss resident has to pay on their worldwide income and wealth. The rate of income tax depends on the level of income and also on the canton of residence, with maximum tax rates varying between 24% and 45%. Wealth tax cannot exceed a maximum rate of 1%.

Not only are there differences in the cantonal tax rates but this is also true of the communes within each canton, where there can be considerable variances at the communal tax level. This is why it is essential to consult a Swiss tax advisor before moving to Switzerland.

Income tax of employed foreigners is usually withheld directly by the employer at a fixed canton-specific tax rate and then, depending on the level of their income (and also the canton of residence), a tax return may also need to be filed.

At that time any additional taxes or refund will be calculated, although it should be noted that there is generally quite a lengthy delay before any final assessment is issued. Swiss employees (and permanent resident foreigners) on the other hand, pay their taxes only by assessment (in instalments).

Foreigners who do not have any economic activity inside Switzerland and who have not resided in Switzerland during the previous 10 years may be eligible for lump sum taxation. This means that instead of paying taxes on their worldwide income and wealth, they can negotiate an agreement with the fiscal authorities and pay a fixed amount of taxes every year, calculated broadly on the value of their house and their living expenses in Switzerland.

This system can be very interesting for individuals with substantial income, particularly where all or a large part of that income arises outside of Switzerland (at least greater than CHF 200,000 a year).

NB If a residence permit is granted and lump sum taxation is agreed, the individual is then precluded from taking up employment in Switzerland; clearly therefore this particular situation would not apply to assigned employees from other countries.

Company taxes
Companies have to pay taxes on their net taxable income, the federal tax being at a rate of 8.5% with the cantonal tax varying from canton to canton at rates between 12% and 20%. Once again it is worth making a comparison between cantons.

At the cantonal level, new companies can often get exemption of this tax for up to 10 years. At the federal level an exemption may also be possible if the company is established in a region that has economic difficulties.

Different types of companies can also get certain reductions of their taxation:

Holding companies - These are companies that are holding participations in other companies. They normally have no real commercial activity or only a reduced one and as such, these companies do not have to pay any income tax on the income generated by the participations.
Domicile companies - These companies have only administrative and no commercial activity inside Switzerland, for instance a company that only sells and buys assets outside Switzerland. Those companies can get a reduction of their taxes at the cantonal level. The level of tax is calculated according to the importance of the administrative activity inside Switzerland and is negotiated with the cantonal tax administration.
Service companies - These companies have no income as they are simply providing services (such as marketing, advice) to other companies of the same group. Taxation is based on the company’s overheads in Switzerland ("cost plus" system) and in practice the deemed income is generally considered to be 5% of their overhead costs. They then pay normal corporate tax on this deemed income.

Other taxes
There are of course other relevant taxes in Switzerland, namely:

• VAT, currently at a rate of 7.6 %
•  A withholding tax of 35% on the interest paid on bank accounts and on dividends and bonds of Swiss companies. Note that this tax may be refundable by declaring the income in the Swiss income tax return or by utilising a double-taxation agreement, as appropriate.
• Capital gains tax on Swiss real estate, to be applied only at cantonal level (such gains are not liable at the federal level). The rate of tax depends on the length of ownership of the property; the longer the ownership, the lower the tax rate. 
• Stamp duty on the incorporation of companies and on certain insurance contracts. - Inheritance/gift tax, again only at cantonal level. NB Most of the cantons are in the process, or already have, abolished this tax for direct heirs (spouse and children). 
• Except for real estate, there is generally no capital gains tax on private capital (such as stocks and bonds).

Additional resource
Click here to access the income tax calculator

About the author
Elise Krentzel updated this information in collaboration with Micheloud & Cie http://www.micheloud.com. They can be reached at: telephone ++41 21 331 48 48 or fax ++41 21 331 48 40; and Tim Morris, partner with Deloitte & Touche, SA, Geneva. He can be contacted at timorris@deloitte.com. The original document was compiled by Rob Hyde in April 2002.

[Expatica, 2008]