Residents in Switzerland are taxed on their worldwide income and wealth. On the other hand, non-tax residents are taxed on the Swiss source of their income and wealth.
Income Taxes in Switzerland are applied across three different levels:
- The federal level – this is the same across all of Switzerland.
- The cantonal level – this is same across a given caton.
- Municipal level – municipalities are supposed to abide by the law set by Canton, unless there is an exception.
In exception to some of the cantons where there is a flat rate of tax applicable, a progressive rate of taxation applies at a federal level, as well as a canton level.
All the income earned in Switzerland is taxed on the basis of same tax returns. Additionally, the same rate of taxation is applicable too. This implies that all the income is added together under one head, which is subsequently used for computation of personal income tax. However, all allowed deductions are subtracted from the income.
Personal Income Tax Rates in Switzerland
As far as personal income tax rates concerned, it can be seen that they are first categorized into federal, cantonal and municipal. Subsequently, they are also characterized by the marital status of the taxpayer. The tax rates and tax slabs are given below:
- Direct Federal Tax – for single tax payers: The direct federal tax for tax payers in Switzerland ranges from 0% to 11.5%. There are several different slabs that are in place in order to facilitate those with lower incomes. A purely progressive tax rate is in place in this regard. There are several different taxable income slabs, which need to be referred to in order to calculate the payable tax for the particular year.
- Direct Federal Tax – for married taxpayers (or single parents with minor children): The difference between single and married taxpayers tends to be the fact that the percentage varies from 1% to 11.5%. However, the taxable income slab begins from 50,900 CHF (Swiss Francs). This is also a purely progressive tax regime, which facilitates taxpayers with a lower taxable income.
- Zurich Cantonal Tax – for single tax payers: For single tax payers, the tax slabs for cantonal tax begins from an income threshold of 6700 CHF. The rates also vary between 2% and 13%.
- Zurich Cantonal Tax – for married taxpayers (or single parents with minor children): For married couples or single couples with married children, there is a leverage in the sense that for married individuals, with an income of less than 13,500 CFH, there is no cantonal tax levied. Other than that, it is also a progressive tax regime with rates varying between 2% and 13%.
- Geneva Cantonal Tax: The Geneva Cantonal Tax is a tax that does not really follow a stringent income threshold system. The tax rates tend to increase on a continuous basis, due to an increase in income. Basically, it follows a premise of incremental income. The tax rate that is applicable to all taxpayers filing a return.
- Geneva Communal Tax: Each commune of canton of Geneva helps to determine the multiplier that is applied on cantonal tax. This is basically aligned with spending on the financial needs of the business. Therefore, communal taxes vary from year to year, as well as from commune to commune.
Corporate Income Taxation in Switzerland
For corporate income taxation, the rules vary depending on the status of the company being a resident company or not.
Corporate Income Tax for Resident Companies
As far as resident companies are concerned, it can be seen that resident corporate companies are subject to Swiss corporate income tax on the taxable profits that are generated in Switzerland. The tax is levied across three levels: federal, cantonal and communal. However, as far as foreign sourced income is concerned, it can be seen that foreign source income that is attributable to foreign permanent establishments (PE) is not accounted for in the calculation for Swiss tax base. The same procedure is applicable for income generated from real estate property.
Corporate Income Tax for Non-Resident Companies
As far as non-resident companies are concerned, it can be seen that non-resident companies are taxed on the income that is generated from Swiss sources only. In the same manner, it can be seen that Non-Resident companies might be subject to Swiss Corporate Income Tax if they have a Permanent Establishment (PE) in Switzerland, or if they own a real estate property in Switzerland. In the same manner, they are also subject to Corporate Income Tax if they have partnered with a Swiss business, or have dealings in Swiss Real Estate.
Corporate Income Tax Rate – at a Federal Level.
As far as Corporate Income Tax is concerned, it can be seen that Swiss companies are liable to bear direct federal tax rate of 8.5% on profit after tax. In the same manner, corporate income tax is also deductible for tax related purposes. This reduced the applicable tax base, and hence the direct applicable corporate income tax rate on profit after tax amounts to 7.83%.
Corporate Income Tax – At Cantonal Level
Each respective canton and commune in Switzerland has their own tax rules. Hence, the tax burden on corporates varies from canton to canton. In most cases, they are applied at progressive rates.
Overall Tax Rates: Given the overall fluctuation in tax rates across different cantons, it is often difficult to get a clear cut idea regarding the incidence of taxation from the perspective of companies. In this regard, it can be seen that the approximate aggregate range of maximum tax payable as Corporate Income Tax varies from 11.9% 21.6%. This range might give an idea regarding the applicable tax rate in the particular year.
In addition to taxation on profits, a consumption tax is also levied in the form of Value Added Tax in Switzerland. The VAT is applicable at a rate of 7.7%. As far as basic necessities are concerned, they are taxed at a reduced rate of 2.5%.