date | theme

06. April 2021 | Taxation in the Channel Islands (Jersey Guernsey Alderney)

17. May 2021 | Tax law in Austria: ESt KöSt VAT & real estate income tax

29. November 2021 | Taxes on Malta: fashionable tax haven in the Mediterranean?

21. Dezemeber 2021 | San Marino – no sales tax in the oldest republic in the world

29. April 2022 | The tax law of Swiss citizens: how to pay taxes in Switzerland (this contribution)

Income spread (in CHF) | applicable tax rate

up to 14.500.00 | 0 %

14,500.01 – 31,600.00 | 0.77%

31.600.01 – 41.400.00 | 0.88%

41,400.01 – 55,200.00 | 2.64 %

55,200.01 – 72,500.00 | 2.97 %

72,500.01 – 78,100.00 | 5.94 %

78,100.01 – 103,600.00 | 6.6%

103,600.01 – 134,600.00 | 8.8%

134,600.01 – 176.000.00 | 11.0%

176.000.01 -755.200.00 | 13.2%

over 755,200.00 | 11.5%

Income spread (in CHF) | applicable tax rate

up to 28.300.00 | 0 %

28.300.01 – 50.900.00 | 1%

50,900.01 – 58,400.00 | 2%

58,400.01 – 75,300.00 | 3%

75,300.01 – 90,300.00 | 4%

90,300.01 – 103,400.00 | 5%

103,400.01 – 114,700.00 | 6%

114,700.01 – 124,200.00 | 7%

124,200.01 – 131,700.00 | 8%

131,700.01 – 137,300.00 | 9%

137,300.01 – 141.200.00 | 10%

141.200.01 – 143.100.00 | 11 %

143.100.01 – 145.000.00 | 12%

145,000.01 – 895.800.00 | 13%

895.800.01 – 895.900.00 | 12.5%

over 895,900.00 | 11.5%

In Switzerland, taxes are paid at three levels: federal, cantonal and local level. With regard to federal tax, there is only a taxation right for certain types of tax. In particular, direct taxes in Switzerland are covered by this. Thus, both natural and legal persons are subject to income tax at the federal level. In addition, there are also other taxes that the Confederation is entitled to. This includes VAT in particular. On the other hand, the design of tax law at the cantonal level is significantly more varied. Because here the cantons decide, for example, on the collection of a property tax, a gift tax or an inheritance tax.

Switzerland is a relatively small country in the heart of Europe. Enclosed by the majestic Alps and the Jurag Mountains, they are a symbol of economic success. Although Switzerland has few natural resources, the Swiss have managed to develop one of the highest living standards in the world. A little more than 100 years ago, fiscal policy had to be fundamentally reorganised. Due to the outbreak of the First World War, the financing of the Federal budget, which was previously based on tariffs, floundered. In 1915, the right to collect taxes at federal level in Switzerland was introduced for the first time. At the level of the cantons, however, taxation of income has been known for some time. In addition, the individual municipalities also collect taxes in Switzerland. In this respect, this picture reminds us of the conditions that exist in part in Germany or the USA.

Since you have to carry out a differentiated analysis in the question of how to pay taxes in Switzerland, we are faced with the colossal task of doing this both at the federal level and at least at the level of the cantons when describing federal tax law. With 26 cantons, this is of course almost absurd within the framework of a single article (not to mention the 2,172 municipalities). Therefore, in this overview article, we focus primarily on the taxes incurred in Switzerland at federal level. However, we are happy to enrich this approach with some selected examples of tax law in the individual cantons.

In the meantime, the right to collect taxes at federal level in Switzerland has become part of its federal constitution. More specifically, this is enshrined in Article 128 of the Federal Constitution. However, due to the federal structure of Switzerland, this right is only valid for a limited period of time (Article 196 paragraphs 13 and 14 of the Federal Constitution). The current regulation, which allows taxation at federal level, expires at the end of 2035. It is likely that a new decision on the extension of this right will be taken. That would require a referendum. Because an extension of this taxation right requires a new amendment of the Federal Constitution. But the cantons also have a say in this. After all, they are primarily responsible for the actual sovereignty to collect taxes in Switzerland. And the cantons are very aware of this.

Although it is primarily the cantons that hold the right to tax, the Federal Constitution contains some provisions on the direct taxes that Switzerland is entitled to on a temporary basis at federal level. First of all, these are so-called direct taxes and VAT. In fact, these two taxes mainly contribute to the tax revenue at the federal level. In addition, special excise duties are also provided for. These concern taxes on tobacco products, fuels, natural gas and petroleum products, automobiles and spare parts, and on spirits and beer. The only duties on which the Federation can actually decide independently are customs duties, stamp duties, withholding taxes and withholding taxes.

The legal bases for direct federal taxes are contained in the Federal Act on Direct Federal Tax (BDG). Furthermore, the Federal Government can decide on general tax exemptions. The cantons are obliged to observe these as well. Therefore, the cantons can be regarded as semi-autonomous, at least with regard to tax legislation.

Direct taxes in Switzerland include income tax and profit tax. In both cases, both the Confederation and the cantons receive taxes. In addition, the Confederation also levies a withholding tax as a direct tax in certain cases. In addition, in Switzerland, the performance principle is also considered a requirement for the collection of taxes.

The collection procedure provides that the cantons also collect taxes on behalf of the Federation. The federal government receives 78.8% of the taxes. If there are tax obligations in more than one canton, taxes are divided. This avoids domestic double taxation.

In Switzerland, a distinction is made between an unlimited and a limited tax liability. However, the terms personal affiliation for unlimited tax liability and economic affiliation for limited tax liability also apply. When assessing affiliation in Switzerland, the residence of a person is of primary importance. But the stay can also be decisive here. For this purpose, two criteria are considered decisive. Either a natural person stays in Switzerland for at least 30 days a year and pursues an occupation. Or you stay in Switzerland at least 90 days a year. In both cases, a temporary interruption of presence is of no relevance.

Also known from our own circumstances in Germany is the world income principle, according to which you also pay taxes in Switzerland. So if you are taxable in Switzerland, you have to tax your entire assets there in principle. The same applies to global wealth tax. However, Switzerland has reached a number of double taxation agreements with foreign countries, including Germany.

Both requirements apply at both federal and cantonal level. For this purpose, the Confederation drew up corresponding harmonization regulations in accordance with the cantons.

In addition, there are only four types of income. This includes income from earnings, earnings, substitutes and other income.

3.2.1. Income tax

3.2.1.1. Income tax at federal level

The income tax, which the federal government levies as direct taxes, is progressive. The progress levels in this regard are shown in the following table based on Article 36(1) BDG:

There are different approaches for unmarried people as well as for married couples and so-called one-parent families. In the case of spouses and partnerships treated as equals for tax purposes, the common income is used as a basis for assessment. You pay taxes in Switzerland according to the following table:

When determining taxable income, certain deductions may be relevant. On the one hand, they are comparable to the advertising costs in German tax law. On the other hand, pension expenses and certain donations can also reduce taxable income. In addition, loss carry forwards in connection with business assets in Switzerland are also envisaged. However, these can only be applied over a period of a maximum of seven years.

Tax-free, on the other hand, are gains from the sale of securities and other comparable capital gains, provided they have previously been held in private assets. However, such transactions from business assets are taxed.

It is also very important that the income tax paid at the level of the cantons and municipalities is taken into account in the federal tax.

Furthermore, a church tax at federal level is unknown.

3.2.1.2. Income tax at cantonal and municipal level

In addition, the cantons and municipalities are also entitled to collect income tax. Depending on the place where a natural person is taxable, the income tax can be between 16% and 29%. In addition, a church tax may also be associated with this.

At cantonal and municipal level, very different tax rates are applied when calculating your own income taxes. The combined effective tax rates in the main cities range from around 22.38% to 44.75%. The cantons of Inner Switzerland offer particularly favorable tax rates. Here the cantons Uri, Schwyz, Obwalden, Nidwalden and Zug stand out in particular. You are all aware of combined effective top tax rates below 30%. In 2021, the Canton of Zug was the one with the lowest top tax rate in the Schhweiz. In contrast, Geneva imposed the highest income tax rate of all cantons in the same year. However, on a nationwide average, the income tax rate is about 33.73 percent.

3.2.2. Taxation after expense (lump-sum taxation)

In addition, there is also taxation according to the expense, which can alternatively be described as flat-rate taxation. This is a departure from the world income principle. Instead, an approach of the estimated cost of living of taxpayers who opt for this alternative finds approach. However, flat-rate taxation can only be applied under certain conditions. This applies only to taxpayers in Switzerland who are not citizens and do not earn income in Switzerland. For married couples, both partners must meet these conditions. Of course, this approach facilitates the preparation of the income tax return, since the information on foreign income is omitted. Much more relevant, however, is the fact that in this case you can also significantly save taxes. Because if you earn a large income abroad and this can be taxed transparently, then this income is practically tax-free in Switzerland.

Nevertheless, the flat-rate tax is also a financial levy. The tax is based on the maximum amount of four alternative tax bases. On the one hand, seven times the value of the annual rental costs or its equivalent for a home is relevant, if you run your own household. If there is no own household, then counts three times the cost of accommodation and food, which is spent in the assessment year in Switzerland. The third alternative is a sum of various gross amounts. This includes all income from movable and immovable property, capital assets, the exploitation of intangible assets as well as pensions and comparable benefits incurred in Switzerland, as well as tax relief arising from double taxation agreements. However, if a maximum amount lower than CHF 400,000 is reached in this comparison, this amount applies as a minimum tax base.

The profit tax corresponds to the German corporate tax. In Switzerland, too, these taxes only affect legal persons. This primarily includes the capital companies GmbH and AG as well as cooperatives. A tax rate of 8,5 % is provided for these legal persons. Other corporations, such as associations and foundations, pay only 4.25% tax in Switzerland. However, these tax rates apply only to profit tax at the federal level.

Because the cantons and their municipalities also collect profit taxes. The combined effective peak tax rates in the main cities range from 11.85 % to 21.04 %. And here, too, the Swiss cantons compete for the lowest tax rates. Zug is again the cheapest canton. At the other end of the spectrum is Bern.

Furthermore, it is noticeable that Switzerland is not aware of group taxation in the area of profit taxes. This prevents corporations from offsetting internal losses with profits.

Moreover, in certain cases a withholding tax deduction is provided for in Switzerland. This applies in particular to cross-border workers working in Switzerland from abroad. For this purpose, the employer in Switzerland retains a withholding tax and transfers it to the financial administration. This withholding tax deduction takes place for tax purposes at all levels.

Similar to the withholding tax, another cross-border tax is known in Switzerland, namely the withholding tax. It arises from dividends distributed by a Swiss-based corporation to its shareholders abroad. The tax rate is 35 % of the amount distributed. And even these taxes come to Switzerland only at federal level. However, if there is a double taxation agreement, you can get at least part of the withholding tax back.

On the other hand, a property tax in Switzerland is only known at the cantonal and municipal level. Some municipalities follow the cantonal laws on property tax. However, in such cases, the tax rates differ from those at the cantonal level. Other municipalities, in turn, create their own tax laws on which their wealth tax is based.

Nevertheless, the property tax includes only the net assets. Thus, for example, debts can be deducted from valuable assets. Taxable assets include, in particular, cash and bank assets as well as securities, real estate, receivables of all kinds, cars, planes, yachts, objects of art, jewelry and much more. On the other hand, household items and other everyday items are exempt from property tax.

In addition to individuals, families and registered civil partnerships are collectively taxable. In Switzerland, the assets of such a community are considered to be directly or indirectly linked to all members.

In order to determine net assets adjusted for liabilities, one must generally consider the market value of the assets. However, other valuation methods are prescribed for certain assets (such as the income-value method for agricultural holding assets). Furthermore, many cantons also recognize the deduction of certain social deductions (for example, for minor children). In addition, in some cantons, certain regulations apply that spare pensioners. Furthermore, some cantons offer benefits for operating assets. In addition, a tax-free minimum or a personal deduction can also influence the tax base.

On the net worth is applied the tax rate provided for it. There are two options for taxation. Most cantons set a progressive tax rate. Others, such as the Canton of Schwyz, use a proportional tax rate. The tax rate in the individual cantons is between about 0.2 ‰ and 1.35 ‰.

Under certain circumstances, a taxpayer may be subject to property tax in several cantons and municipalities. In this case, taxes are also divided between the cantons involved, because Swiss federal law prohibits double taxation between cantons.

VAT has parallels with German VAT. This also involves an all-phase taxation with a deduction of input control. This therefore means that entrepreneurs charge VAT on each sale transaction. At the same time, as an entrepreneur, you can get the VAT amount refunded as input tax when you receive a service. After all, in Switzerland you pay these taxes only as a consumer.

On the one hand, taxation takes place at a general tax rate of currently 7.7%. In parallel, however, there is also a reduced tax rate. It shall be 2,5 % of the net amount. The reduced tax rate applies in particular to foodstuffs, the supply of performance water, medicines and printed media. However, fertilisers, plant protection products and other goods required for agriculture and livestock farming also benefit from the reduced VAT rate.

Just as in Germany, there are also a large number of other taxes in Switzerland, which are hardly comparable with income tax in terms of volume. These include, for example, the dog tax or the car tax. Others, on the other hand, can be quite substantial, if only occasionally. The gift tax and inheritance tax are good examples here. And still others are completely unknown to us in Germany. So we've put together some interesting examples here.

In Switzerland, unlike in Germany, you have to distinguish between gift tax and inheritance tax. In addition, both taxes are only common at the cantonal level. Some municipalities also collect these taxes in Switzerland. The federal government, on the other hand, lacks the right to collect these taxes.

5.1.1. Gift tax

In Switzerland, there are only three cantons that do not levy taxes on donations: Lucerne, Obwalden and Schwyz. However, the Canton of Lucerne treats a donation made by the donor less than five years before his or her death as an anticipated inheritance. All other cantons have each created their own regulations for these taxes. But also the municipalities can be involved in the gift tax or even issue their own regulations for the collection. For example, the Canton of Uri and its municipalities share the inheritance and gift taxes collected on their territory.

5.1.2. Inheritance tax

Almost all cantons also have an inheritance tax. Only the cantons of Obwalden and Schwyz waive such a tax. For the other cantons, however, one must distinguish between a pure estate tax and an inheritance tax. Because the estate tax, unlike the inheritance tax, also applies to close relatives.

Different methods are used when calculating taxes. On the one hand, there are cantons that carry out a purely proportional taxation. Others, on the other hand, provide a progressive tax rate. The latter applies in particular to those cantons that collect an inheritance tax. In addition, there are also various approaches to tax exemptions (e.g. for household items) and tax exemptions and other deductions. The individual tax rates are equally varied.

Another example of taxes in Switzerland is the poll tax. Only natural persons who are taxable without restriction in a canton pay an annual tax of CHF 50.00. Cohabiting partners and spouses as well as their minor children jointly bear this tax. In addition, there are a few exceptions, for example for religious. In some cantons, the poll tax only applies at the municipal level. In most cases, the poll tax goes to both the municipalities and the canton.

Profits realised in the sale of real estate are subject to cantonal taxes in Switzerland; The coil is also excluded from this. In Switzerland, these taxes are called property profit tax. The cantons can collect this tax either as a special tax, i.e. according to special laws, or as part of the income tax or profit tax.

The cantons use one of two taxation systems. On the one hand, they can choose the monistic tax system, on the other hand, the dualistic tax system. In the monistic system, taxation takes place under a special tax. This avoids a one-time increase in income and its impact on progression. This also applies to the dualistic system, but only if the taxpayers are natural persons and the real estate sale takes place out of private assets. For legal persons or natural persons who engage in commercial real estate trading, however, real estate profits achieved are always included in the calculation of the profit tax or the income tax.

Due to the fact that very different taxation methods are used in Switzerland, a direct comparison of these taxes makes little sense at this point.

Federalism can be so different. Both Switzerland and Germany are federal states. In both cases, this requires legislation to be made at several levels; The same applies to tax legislation. However, the scope of this right is very different in Switzerland than in Germany. In Switzerland, the individual member states are much more autonomous than in the Federal Republic. As a result, the widespread autonomy of local authorities in Switzerland allows for much more tax diversity than in Germany. On the other hand, this has the consequence that in Switzerland the right to own tax revenue at federal level depends heavily on the approval of the voting population and the individual cantons. Only in the case of income tax, profit tax and VAT is the federal government decisive, albeit temporary, lead.

In addition, the Confederation must ensure that the cantons achieve a certain degree of harmonisation in the area of taxes in Switzerland. However, the measures taken to harmonise cantonal tax laws primarily concern systemic aspects, such as taxation procedures. Apart from this, however, the cantons retain full sovereignty to collect and thus also to determine the amount of taxes.

This justifies the much-noticed national tax competition, which the cantons face as business locations. And this in turn contributes to Switzerland’s ability to promote itself in international competition with low taxes.

This also includes the option for flat-rate taxation. Although it is only preferred by a few thousand people annually, it makes it a small tax haven for wealthy foreigners. In any case, it can be said that Switzerland sets taxes in a very creative, but above all, diverse way.