Switzerland Fact-File Part 2:
Individual Business Domestic Taxation
2.3 Switzerland Individual Income Tax Rates and Bands
The Tax Structure for Individuals
in Business
Tax in Switzerland is levied at three levels – federal,
cantonal and communal. Most taxes are levied at cantonal and
communal level and there is competition amongst the cantons
as far as tax rates are concerned.
Artists, sportsmen and other performers are subject to federal
and cantonal withholding tax on their income for performances
or appearances carried out in Switzerland. Costs are usually
agreed at 20% of gross income to arrive at the taxable base
and federal withholding tax is then levied at between 0.8%
and 7%. Cantonal rates are between 7% and 32%.
For a resident individual, federal income tax is imposed
on worldwide income, but there are a number of exceptions,
including certain income from business abroad, and from immovable
property held abroad. Additionally, there are a number of
permitted deductions, both at the federal and cantonal levels.
Individuals involved in a sole proprietorship or a general
partnership are subject to personal income tax and net wealth
tax.
Income tax is imposed by the Federal government and also
by the 26 cantons that make up the country. Tax liability
for a sole proprietor (and any other type of individuals)
is based on income tax on his or her profits. Income Tax (Federal
Direct Tax) is due where a person’s taxable income exceeds
CHF12,600 (CHF24,500 for a married couple, as the income of
married couples is aggregated for tax purposes).
Self-employed persons must file and pay their taxes directly
with the Federal Tax Administration. Employees pay income
tax at source (ie the required amount is withheld by the employer).
Federal income tax rate is progressive up to 11.5%, which
is the top rate, and is imposed on income above CHF655,100
for single taxpayers, and CHF775,900 for married couples.
However, there are a number of permitted deductions, which
are likely to affect income tax liability – expert local
advice should be obtained in this regard.
Cantons impose both direct income tax on individuals and
profits of legal entities, and inheritance and gift taxes;
this is usually comprised of a percentage rate multiplied
by a local coefficient. Communes also impose taxes, but may
only do so where authorized to do so by the Canton in their
fiscal jurisdiction.
The methods for calculating cantonal taxes are complex and
vary significantly from canton to canton; there is competition
between the regions to attract wealthy taxpayers to live there,
and the rates, permitted deductions, and local coefficients
all vary. (Traditionally, there has been standardisation with
regard to the tax treatment of foreigners deriving income
solely from outside Switzerland, based on 5 times the rental
value of property owned by said foreigner. There have, in
recent years, been breakaway cantons, and it has been proposed
– in order to try to maintain uniformity in this area,
that the multiplier be increased to 7 times property rental
value. However, despite these efforts, the situation varies
in certain cantons, and a fully uniform tax policy for such
foreigners is not expected to be in place until 2015.)
An example of the situation for tax
residents in Switzerland, however, would be the canton of
Zurich, where cantonal income tax for a married couple is
a basic rate (average) of 7.2% on income of CHF200,000, multiplied
by the local coefficient of 2.2% (approx), bringing the total
(including federal tax on that amount at around 6.67%) to
23.14%, to which net wealth and other taxes must be added,
and from which deductions are likely to be made. In Schaffhausen
City, meanwhile, the cantonal tax on the aforementioned amount
(including municipal tax) is 8.14%, and the local coefficient
is 1.10%.
In addition to federal and cantonal taxes, communal taxes
are imposed, mainly as surcharges on cantonal taxes, and with
regard to capital gains on real estate.
Communal taxes tend to be based on a percentage of the cantonal
taxes. Church parishes also levy a church tax on individuals
and legal entities in their canton. Church Taxes are only
levied by churches that are recognized by cantonal law –
they do not apply in every canton. The Roman Catholic Church,
Evangelic Reformed Church and Christ Catholic Church are widely
recognized. Israelite communities also levy a local form of
church tax on their members.
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