Brief Review

Taxes

The following are the most commonly encountered types of taxes in Switzerland. They include:

Income tax | You pay taxes in the canton where you live, and these taxes are divided between the federal government, the canton and the community. There are wide variations in tax rates between cantons and even cities, and your overall tax bill will very much depend on where you live, even though it is usually less than 30%.

Swiss tax laws (federal and cantonal/municipal) apply a rather broad concept of income. It includes income from gainful activities (employment, self-employment), income from movable and immovable property, retirement income, compensations, etc. All types of income are pooled and taxed together. Income from husband and wife is aggregated and taxed together, unless they are separated or divorced. Alimony payments are deductible for the one paying and taxable for the recipient. The rental value of owner-occupied dwellings is taxable income. The valuation, which is made by the cantonal tax authorities, varies between 50% and 100% of fair market values.

For temporary residents with limited work permits from 90 to 120 days, taxation is limited. Check with the taxation office in your home country to determine what, if any, of your income is taxed while working abroad for a limited time.

Lump sum taxation | Foreigners with no income activity, can choose to pay a lump sum annual tax, which is calculated on their rental payments (or the rental value of their house or apartment), and which has no relation to their real income or wealth. Otherwise, those with no income will have their tax bill calculated on their assets. You need to be a Swiss resident with a B or C permit, and not have worked in Switzerland for the last 10 years. The tax is based on your spending - not your income. In practice, your annual rent is taken as an approximation of your spending. Your taxable income is equal to 5 times this annual rent, to which the normal tax rate for the city and canton you live in is applied.

Social Insurance Tax | Anyone living or working in Switzerland must pay social insurance tax (OASI). If you are gainfully employed, 5.05% of your gross salary will be deducted automatically from your pay check. If you are over age 20 and are not employed (and this includes people living on their savings), you still must make a mandatory minimum annual contribution of 425 CHF. This tax covers payments for a pension during your retirement or in the event of your disability. In the event of your death, your family members will receive a survivors’ pension.

Wealth tax | In Switzerland, the cantons tax the assets of individuals, though this is not done at a federal level. Here, too, differences between the cantons are considerable. The tax schedules are usually structured progressively. For assets up to 250,000 CHF the tax ranges between 0.2% and 0.4% in most cantons. For assets of 1,000,000 CHF and more it is between about 0.4% and 0.7% per year.

Estate tax | Inheritance and gift taxes are only levied by the cantons (and/or municipalities), as there is no federal inheritance tax in Switzerland. The rates differ from canton to canton. In general, the rates are progressive, depending on the degree of relationship and the amount received.

Almost no cantons tax transfers between husband and wife. In about 13 of the 26 cantons transfers between parents and children are tax-free too. Where children are taxed, the rates are usually very low (1% - 3% to a maximum of about 6%). Transfers between non-related persons, however, are taxed at much higher rates, up to 50% or even 60% in some cantons.

Capital gains tax | Switzerland does not apply capital gain taxes, except for professional equity and real estate traders.

Value Added Tax (VAT) | Subject to VAT are the supply of goods and services in Switzerland, self supply of goods and services, the import of services, and the import of goods. People are taxable if they own a business in Switzerland where turnover exceeds CHF 75,000 CHF per year. The legal form of the business has basically no influence on liability to VAT. All persons, including private individuals, must pay VAT if they import services for more than 10,000 CHF per year. In addition, any person importing goods from abroad is subject to VAT if he or she is liable for customs duties. The VAT rates in Switzerland are 7.6% (standard rate), 2.4% (reduced rate) (e.g. food, medicine, newspapers, books), and 3.6% for lodging services.

Church tax | In most cantons, the parishes of the three national churches (the Reformed, the Roman Catholic and, in the cantons where such churches exist, the Christian Catholic Church) collect church taxes from their members and most often also from tax-paying legal entities in the canton.