Taxation in Switzerland
Encyclopedia
Taxes in Switzerland are levied by the Swiss Confederation, the cantons
and the municipalities. Switzerland is sometimes considered a tax haven
due to its general low rate of tax
ation, its political stability as well as the various tax exemptions or reductions available to Swiss companies doing business abroad, or foreign persons resident in Switzerland.
in which the sovereignty
of the constituent states (the cantons) is limited by the enumerated powers
delegated to the federal state (the Confederation) through the federal constitution. Consequently, the original authority to levy taxes is vested in the individual cantons of Switzerland
through their constitutions. Within the bounds of the authority delegated to them by cantonal law, the municipalities may also levy taxes. The extent of that authority varies from canton to canton. While the formal framework of the most important cantonal direct tax
es has been harmonised through the 1990 Federal Tax Harmonisation Law, the cantons (and, as the case may be, the municipalities) remain free to set their tax rates or establish new taxes, except on tax objects already taxed under federal law.
Since after World War II
, the federal constitution authorises the Confederation to levy a number of taxes, the most significant of which are an income tax
, a withholding tax
and a value added tax
. However, Switzerland is unique among modern sovereign states in that the authority to levy these taxes is limited in duration and extent. The Constitution imposes an upper limit on the federal tax rates and causes the federal authority to levy taxes to expire in 2020. A renewal of that authority requires a constitutional amendment, which must be approved in a popular referendum by both a majority of the popular vote and the cantons. If that renewal is not approved at the polls (as it has been six times since 1958), the Confederation itself will conceivably dissolve for lack of funds. All attempts to remove this limitation by amending the constitution to provide for a permanent federal authority to levy taxes have been rejected in Parliament or – no less than five times – by popular vote, most recently in 1991.
, Swiss tax rates are in practice set directly by the voters through instruments of direct democracy
.
The constitution mandates that taxation must be general and equal in nature, and it must be proportionate to one's ability to pay. The Federal Supreme Court has interpreted this as prohibiting a regressive tax
,although flat rate taxes (as instituted in several cantons) are held to be constitutional by tax law scholars. Moreover, double taxation
by several cantons is constitutionally prohibited, as is a confiscatory rate of taxation.
, permanent business establishments or pensions. The income and assets of spouses
are pooled and taxed jointly, but at a lower rate to offset the effects of tax progression.
or proportional
income tax
is levied by the Confederation and by the cantons on the income
of natural person
s. The income tax is imposed as a payroll tax
on foreign workers without a residence permit, and in the form of a withholding tax
on certain transient persons, such as foreign musicians performing in Switzerland.
Taxable income includes all funds accruing to a person from all sources, in principle without deduction of losses or expenses, and including the rental value of a house lived in by its owner. However, capital gain
s on private property (such as profits from the sale of shares) are tax-free, except where the cantons levy a tax on real estate capital gains. Certain expenses are also deductible. These include social security or pension fund payments, expenses related to the gain of income (such as employment expenses and maintenance costs of real estate) and alimonies
. Gift
s and inheritance
s are also exempt from the income tax, but are subject to separate cantonal taxes.
Non-working foreigners resident in Switzerland may choose to pay a "lump-sum tax" instead of the normal income tax. The tax, which is generally much lower than the normal income tax, is nominally levied on the taxpayer's living expenses, but in practice (which varies from canton to canton), it is common to use the quintuple of the rent paid by the taxpayer as a basis for the lump-sum taxation. This option contributes to Switzerland's status as a tax haven, and has induced many wealthy foreigners to live in Switzerland.
of around 0.3 to 0.5 percent is levied by the cantons on the net worth
of natural persons. The tax is levied on the value of all assets (such as real estate, shares or funds) after the deduction of any debts.
system in which a corporation and its owners or shareholders are taxed individually, causing economic double taxation
.
All legal persons are subject to the taxation of their profit and capital, with the exception of charitable organisations. Tax liability arises if either the legal seat or the effective management of a corporation is in Switzerland. To the extent non-resident companies have Swiss sources of income, such as business establishments or real estate, they are also liable for taxation. Conversely, as a unilateral measure to limit double taxation, profits from foreign business establishments or real estate are exempted from taxation.
as accounted for in the corporate income statement
, as adjusted for tax purposes. For instance, expenditures that have no business reason such as excessive depreciation
s, accrual
s or reserve
s, as well as disguised dividend
s are taxed as profits.
A number of provisions limit the double taxation of profits at the corporate level and contribute to Switzerland's tax haven status. To begin with, a "participation exemption" is granted to companies who hold 20 percent or more of the shares of other companies; the amount of tax due on the corresponding profit is reduced in proportion to the percentage of shares held. At the cantonal level only, a "holding privilege" applies to pure holding companies
. They are exempt from the cantonal corporate profit tax. Moreover, cantonal law confers a "domicile privilege" on companies who are only administered in Switzerland, but whose business is conducted abroad; including shell corporations
. The cantons tax only around 10 percent of the worldwide profits of such companies.
) of companies. Thinly capitalised
companies are taxed, moreover, on the liabilities that function as equity. This also means that debts paid on such liabilities cannot be deducted for purposes of the profit tax, and are subject to the federal withholding tax.
(VAT; Mehrwertsteuer / Taxe sur la valeur ajoutée) is one of the Confederation's principal sources of funding. It is levied at a rate of 8 percent on most commercial exchanges of goods and services. Certain exchanges, including those of foodstuffs
, drugs, books and newspapers, are subject to a reduced VAT of 2.4 percent. Yet other exchanges, including those of medical, educational and cultural services, are tax-exempt; as are goods delivered and services provided abroad. The party providing the service or delivering the goods is liable for the payment of the VAT, but the tax is usually passed on to the customer as part of the price.
(Verrechnungssteuer / impôt anticipé) is levied at a rate of 35 percent on certain forms of income, most notably dividend
payments, interest
on bank loans and bonds
, liquidation
proceeds, lottery prizes and payments by life insurances and private pension funds. The debtor of such payments is liable for the payment of the tax; they must pay the creditor only the net amount.
With respect to creditors resident in Switzerland, the withholding tax is only a means of securing the payment of the income or profit tax, from which the creditor may then deduct the amount already withheld, or request its refund. The same applies to foreign creditors to the extent that a tax treaty
provides for it. Other foreign creditors are not eligible for a refund; with respect to them, the withholding tax is a genuine tax.
.
The issue tax (Emissionssteuer) is levied on the issue of certain securities such as shares and bonds
. Exceptions are made, inter alia, for securities issued in the course of a commercial reorganization, and the first million CHF of funds raised are in effect exempt from taxation. The tax amounts to one percent of the funds raised and is payable by the issuer. The trade in shell companies (Mantelhandel) is also subject to the issue tax.
The transfer tax (Umsatzsteuer) is levied on the trade in certain securities by certain qualified traders (Effektenhändler; mostly stockbrokers and large holding companies). The tax amounts to 0.15 or 0.3 percent depending on whether Swiss or foreign securities are traded. Finally, an insurance premiums tax of 5 or 2.5 percent is levied on certain insurance premiums.
, but are now more important as an instrument of trade policy. Additional federal taxes of lesser economic importance include taxes on the importation or manufacture of spirits
, beer
, tobacco
, automobiles and mineral oil
, as well as on gambling
establishments. Citizens exempt from military service are required to pay a tax in compensation.
(Erbschaftssteuer) and a gift tax
(Schenkungssteuer), although there is a trend towards abolishing those. Moreover, the cantons are required by federal law to levy a tax on the profit from the sale of real estate
(Grundstückgewinnsteuer / impôt sur les gains immobiliers). Most also levy a tax on the value of the property sold (Handänderungssteuer / impôt sur les mutations) so as to discourage speculation
in real estate. Taxes are also frequently levied on the ownership of dog
s and motor vehicle
s, on lotteries, on the sale of tickets
to public entertainments, or on overnight stays in certain tourist destinations.
and tax fraud with respect to the federal and cantonal income, profit, property and capital taxes.
It is a criminal offence under cantonal and federal law to wilfully cause one's taxes to be incompletely assessed. The statutes distinguish, however, between tax evasion and tax fraud. Tax evasion is the act of causing a tax to be falsely assessed, such as through the failure to report taxable income. It is classed as a misdemeanour (Übertretung / contravention) and is punishable by a fine of 33% to 300% of the amount of tax evaded. Tax fraud, on the other hand, occurs if a tax evasion is committed by using false documents (such as untrue corporate financial reports) for deceptive purposes. It is classed as a crime (Vergehen / crime) and is punishable by additional imprisonment of up to three years or an additional fine of up to 30,000 CHF
.
This distinction is of particular importance with respect to the level of international judicial assistance
afforded by Swiss authorities to foreign states that prosecute their own citizens for tax evasions committed in Switzerland, such as by depositing undeclared income with a Swiss bank. Up until recently, Swiss law prohibited all support to foreign jurisdictions for the prosecution of fiscal offences, except to the U.S. under the terms of a 1973 agreement. Since 1983, enforcement assistance is provided (such as the search and seizure of accounts and documents) for the prosecution of fiscal crimes (notably, tax fraud) but not for the prosecution of fiscal misdemeanours (notably, tax evasion). Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will abolish the distinction between tax fraud and tax evasion
in dealings with foreign clients. The Swiss authorities will from now on also provide judicial assistance in the event of tax evasion by a foreign client. The distinction remains valid for domestic clients.
134 billion in taxes were levied in Switzerland, of which roughly one third was levied by the Confederation, the cantons and the municipalities, respectively.
The overall fiscal rate was 38.5 percent of GDP in 2002. The effective individual tax rate is subject to considerable variation depending on the canton and municipality of residence. For instance, companies subject to ordinary taxation paid between 13 and 25 percent of income tax in 2006, and the maximum individual tax rates in major cities ranged between 12.3 percent in the canton of Zug
and 32.3 percent in the canton of Jura
.
Cantons of Switzerland
The 26 cantons of Switzerland are the member states of the federal state of Switzerland. Each canton was a fully sovereign state with its own borders, army and currency from the Treaty of Westphalia until the establishment of the Swiss federal state in 1848...
and the municipalities. Switzerland is sometimes considered a tax haven
Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
due to its general low rate of tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
ation, its political stability as well as the various tax exemptions or reductions available to Swiss companies doing business abroad, or foreign persons resident in Switzerland.
Fiscal sovereignty
Switzerland is a federal republicFederal republic
A federal republic is a federation of states with a republican form of government. A federation is the central government. The states in a federation also maintain the federation...
in which the sovereignty
Sovereignty
Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided...
of the constituent states (the cantons) is limited by the enumerated powers
Enumerated powers
The enumerated powers are a list of items found in Article I, section 8 of the US Constitution that set forth the authoritative capacity of the United States Congress. In summary, Congress may exercise the powers that the Constitution grants it, subject to explicit restrictions in the Bill of...
delegated to the federal state (the Confederation) through the federal constitution. Consequently, the original authority to levy taxes is vested in the individual cantons of Switzerland
Cantons of Switzerland
The 26 cantons of Switzerland are the member states of the federal state of Switzerland. Each canton was a fully sovereign state with its own borders, army and currency from the Treaty of Westphalia until the establishment of the Swiss federal state in 1848...
through their constitutions. Within the bounds of the authority delegated to them by cantonal law, the municipalities may also levy taxes. The extent of that authority varies from canton to canton. While the formal framework of the most important cantonal direct tax
Direct tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.-General meaning:In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed...
es has been harmonised through the 1990 Federal Tax Harmonisation Law, the cantons (and, as the case may be, the municipalities) remain free to set their tax rates or establish new taxes, except on tax objects already taxed under federal law.
Since after World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, the federal constitution authorises the Confederation to levy a number of taxes, the most significant of which are an income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
, a withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
and a value added tax
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
. However, Switzerland is unique among modern sovereign states in that the authority to levy these taxes is limited in duration and extent. The Constitution imposes an upper limit on the federal tax rates and causes the federal authority to levy taxes to expire in 2020. A renewal of that authority requires a constitutional amendment, which must be approved in a popular referendum by both a majority of the popular vote and the cantons. If that renewal is not approved at the polls (as it has been six times since 1958), the Confederation itself will conceivably dissolve for lack of funds. All attempts to remove this limitation by amending the constitution to provide for a permanent federal authority to levy taxes have been rejected in Parliament or – no less than five times – by popular vote, most recently in 1991.
Constitutional limits to taxation
The federal constitution imposes certain limits on taxation at the federal cantonal and municipal levels. To begin with, it provides that no tax may be levied except where provided for by federal, cantonal or municipal statute. Because statutes can at all levels be made subject to a popular referendumPopular referendum
A popular referendum is a type of a referendum that provides a means by which a petition signed by a certain minimum number of registered voters can force a...
, Swiss tax rates are in practice set directly by the voters through instruments of direct democracy
Direct democracy
Direct democracy is a form of government in which people vote on policy initiatives directly, as opposed to a representative democracy in which people vote for representatives who then vote on policy initiatives. Direct democracy is classically termed "pure democracy"...
.
The constitution mandates that taxation must be general and equal in nature, and it must be proportionate to one's ability to pay. The Federal Supreme Court has interpreted this as prohibiting a regressive tax
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...
,although flat rate taxes (as instituted in several cantons) are held to be constitutional by tax law scholars. Moreover, double taxation
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
by several cantons is constitutionally prohibited, as is a confiscatory rate of taxation.
Direct taxes on natural persons
All persons resident in Switzerland are liable for the taxation of their worldwide income and assets, except on the income and wealth from foreign business or real estate, or where tax treaties limit double taxation. For tax purposes, residence may also arise if a person stays in Switzerland for 30 days, or for 90 days if he or she does not work. Moreover, non-residents are also taxed on certain Swiss assets or on the income from certain Swiss sources, such as from real estateReal estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, permanent business establishments or pensions. The income and assets of spouses
Marriage
Marriage is a social union or legal contract between people that creates kinship. It is an institution in which interpersonal relationships, usually intimate and sexual, are acknowledged in a variety of ways, depending on the culture or subculture in which it is found...
are pooled and taxed jointly, but at a lower rate to offset the effects of tax progression.
Income tax
Either a progressiveProgressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
or proportional
Proportional tax
A proportional tax is a tax imposed so that the tax rate is fixed. The amount of the tax is in proportion to the amount subject to taxation. "Proportional" describes a distribution effect on income or expenditure, referring to the way the rate remains consistent , where the marginal tax rate is...
income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
is levied by the Confederation and by the cantons on the income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
of natural person
Natural person
Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...
s. The income tax is imposed as a payroll tax
Payroll tax
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...
on foreign workers without a residence permit, and in the form of a withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
on certain transient persons, such as foreign musicians performing in Switzerland.
Taxable income includes all funds accruing to a person from all sources, in principle without deduction of losses or expenses, and including the rental value of a house lived in by its owner. However, capital gain
Capital gain
A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...
s on private property (such as profits from the sale of shares) are tax-free, except where the cantons levy a tax on real estate capital gains. Certain expenses are also deductible. These include social security or pension fund payments, expenses related to the gain of income (such as employment expenses and maintenance costs of real estate) and alimonies
Alimony
Alimony is a U.S. term denoting a legal obligation to provide financial support to one's spouse from the other spouse after marital separation or from the ex-spouse upon divorce...
. Gift
Gift
A gift or a present is the transfer of something without the expectation of receiving something in return. Although gift-giving might involve an expectation of reciprocity, a gift is meant to be free. In many human societies, the act of mutually exchanging money, goods, etc. may contribute to...
s and inheritance
Inheritance
Inheritance is the practice of passing on property, titles, debts, rights and obligations upon the death of an individual. It has long played an important role in human societies...
s are also exempt from the income tax, but are subject to separate cantonal taxes.
Non-working foreigners resident in Switzerland may choose to pay a "lump-sum tax" instead of the normal income tax. The tax, which is generally much lower than the normal income tax, is nominally levied on the taxpayer's living expenses, but in practice (which varies from canton to canton), it is common to use the quintuple of the rent paid by the taxpayer as a basis for the lump-sum taxation. This option contributes to Switzerland's status as a tax haven, and has induced many wealthy foreigners to live in Switzerland.
Property tax
A proportional property taxProperty tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
of around 0.3 to 0.5 percent is levied by the cantons on the net worth
Net worth
In business, net worth is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time...
of natural persons. The tax is levied on the value of all assets (such as real estate, shares or funds) after the deduction of any debts.
Corporate taxation
Switzerland has a "classical" corporate taxCorporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...
system in which a corporation and its owners or shareholders are taxed individually, causing economic double taxation
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
.
All legal persons are subject to the taxation of their profit and capital, with the exception of charitable organisations. Tax liability arises if either the legal seat or the effective management of a corporation is in Switzerland. To the extent non-resident companies have Swiss sources of income, such as business establishments or real estate, they are also liable for taxation. Conversely, as a unilateral measure to limit double taxation, profits from foreign business establishments or real estate are exempted from taxation.
Profit tax
A proportional or progressive tax is levied by the Confederation (at a flat rate of 8.5%) and the cantons (at varying rates) on corporate profits. The tax is based on the net profitNet profit
Net profit or net revenue is a measure of the profitability of a venture after accounting for all costs. In a survey of nearly 200 senior marketing managers, 91 percent responded that they found the "net profit" metric very useful...
as accounted for in the corporate income statement
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
, as adjusted for tax purposes. For instance, expenditures that have no business reason such as excessive depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
s, accrual
Accrual
Accrual of something is, in finance, the adding together of interest or different investments over a period of time. It holds specific meanings in accounting, where it can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting...
s or reserve
Reserve (Accounting)
In financial accounting, the term reserve is most commonly used to describe any part of shareholders' equity, except for basic share capital. Sometimes, the term is used instead of the term provision; such a use, however, is inconsistent with the terminology suggested by International Accounting...
s, as well as disguised dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s are taxed as profits.
A number of provisions limit the double taxation of profits at the corporate level and contribute to Switzerland's tax haven status. To begin with, a "participation exemption" is granted to companies who hold 20 percent or more of the shares of other companies; the amount of tax due on the corresponding profit is reduced in proportion to the percentage of shares held. At the cantonal level only, a "holding privilege" applies to pure holding companies
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
. They are exempt from the cantonal corporate profit tax. Moreover, cantonal law confers a "domicile privilege" on companies who are only administered in Switzerland, but whose business is conducted abroad; including shell corporations
Shell (corporation)
A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. Shell corporations are not in themselves illegal and have legitimate business purposes. However, they are a main component of the underground economy,...
. The cantons tax only around 10 percent of the worldwide profits of such companies.
Capital tax
A proportional tax is levied by the cantons (at varying rates) on the Eigenkapital (ownership equityOwnership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
) of companies. Thinly capitalised
Thin capitalisation
A company said to be thinly capitalised when its capital is made up of a much greater proportion of debt than equity, i.e. its gearing, or leverage, is too high...
companies are taxed, moreover, on the liabilities that function as equity. This also means that debts paid on such liabilities cannot be deducted for purposes of the profit tax, and are subject to the federal withholding tax.
Value added tax
The value added taxValue added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
(VAT; Mehrwertsteuer / Taxe sur la valeur ajoutée) is one of the Confederation's principal sources of funding. It is levied at a rate of 8 percent on most commercial exchanges of goods and services. Certain exchanges, including those of foodstuffs
Foodstuffs
Foodstuffs is a group of three New Zealand grocery and liquor retailers' cooperatives based in Auckland, Wellington and Christchurch which collectively control an estimated 57% of the New Zealand grocery market...
, drugs, books and newspapers, are subject to a reduced VAT of 2.4 percent. Yet other exchanges, including those of medical, educational and cultural services, are tax-exempt; as are goods delivered and services provided abroad. The party providing the service or delivering the goods is liable for the payment of the VAT, but the tax is usually passed on to the customer as part of the price.
Federal withholding tax
The federal withholding taxWithholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
(Verrechnungssteuer / impôt anticipé) is levied at a rate of 35 percent on certain forms of income, most notably dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
payments, interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
on bank loans and bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, liquidation
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
proceeds, lottery prizes and payments by life insurances and private pension funds. The debtor of such payments is liable for the payment of the tax; they must pay the creditor only the net amount.
With respect to creditors resident in Switzerland, the withholding tax is only a means of securing the payment of the income or profit tax, from which the creditor may then deduct the amount already withheld, or request its refund. The same applies to foreign creditors to the extent that a tax treaty
Tax treaty
Many countries have agreed with other countries in treaties to mitigate the effects of double taxation . Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes...
provides for it. Other foreign creditors are not eligible for a refund; with respect to them, the withholding tax is a genuine tax.
Stamp duties
Stamp duties are a group of federal taxes levied on certain commercial transactions. The name is an anachronism and dates back to the time when such taxes were administered with physical stampsRevenue stamp
A revenue stamp, tax stamp or fiscal stamp is a adhesive label used to collect taxes or fees on documents, tobacco, alcoholic drinks, drugs and medicines, playing cards, hunting licenses, firearm registration, and many other things...
.
The issue tax (Emissionssteuer) is levied on the issue of certain securities such as shares and bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. Exceptions are made, inter alia, for securities issued in the course of a commercial reorganization, and the first million CHF of funds raised are in effect exempt from taxation. The tax amounts to one percent of the funds raised and is payable by the issuer. The trade in shell companies (Mantelhandel) is also subject to the issue tax.
The transfer tax (Umsatzsteuer) is levied on the trade in certain securities by certain qualified traders (Effektenhändler; mostly stockbrokers and large holding companies). The tax amounts to 0.15 or 0.3 percent depending on whether Swiss or foreign securities are traded. Finally, an insurance premiums tax of 5 or 2.5 percent is levied on certain insurance premiums.
Border duties and miscellaneous federal taxes
The Confederation is constitutionally empowered to levy tariffs, which were its principal sources of funding up until World War IWorld War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, but are now more important as an instrument of trade policy. Additional federal taxes of lesser economic importance include taxes on the importation or manufacture of spirits
Distilled beverage
A distilled beverage, liquor, or spirit is an alcoholic beverage containing ethanol that is produced by distilling ethanol produced by means of fermenting grain, fruit, or vegetables...
, beer
Beer
Beer is the world's most widely consumed andprobably oldest alcoholic beverage; it is the third most popular drink overall, after water and tea. It is produced by the brewing and fermentation of sugars, mainly derived from malted cereal grains, most commonly malted barley and malted wheat...
, tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
, automobiles and mineral oil
Mineral oil
A mineral oil is any of various colorless, odorless, light mixtures of alkanes in the C15 to C40 range from a non-vegetable source, particularly a distillate of petroleum....
, as well as on gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
establishments. Citizens exempt from military service are required to pay a tax in compensation.
Other cantonal taxes
In addition to the taxes mentioned above, the cantons are free to introduce others. Several cantons levy an inheritance taxInheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
(Erbschaftssteuer) and a gift tax
Gift tax
A gift tax is a tax imposed on the gratuitous transfer of ownership of property. The United States Internal Revenue Service says a gift is "Any transfer to an individual, either directly or indirectly, where full consideration is not received in return."When a taxable gift in the form of cash,...
(Schenkungssteuer), although there is a trend towards abolishing those. Moreover, the cantons are required by federal law to levy a tax on the profit from the sale of real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
(Grundstückgewinnsteuer / impôt sur les gains immobiliers). Most also levy a tax on the value of the property sold (Handänderungssteuer / impôt sur les mutations) so as to discourage speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
in real estate. Taxes are also frequently levied on the ownership of dog
Dog
The domestic dog is a domesticated form of the gray wolf, a member of the Canidae family of the order Carnivora. The term is used for both feral and pet varieties. The dog may have been the first animal to be domesticated, and has been the most widely kept working, hunting, and companion animal in...
s and motor vehicle
Motor vehicle
A motor vehicle or road vehicle is a self-propelled wheeled vehicle that does not operate on rails, such as trains or trolleys. The vehicle propulsion is provided by an engine or motor, usually by an internal combustion engine, or an electric motor, or some combination of the two, such as hybrid...
s, on lotteries, on the sale of tickets
Ticket (admission)
A ticket is a voucher that indicates that one has paid for admission to an event or establishment such as a theatre, movie theater, amusement park, zoo, museum, concert, or other attraction, or permission to travel on a vehicle such as an airliner, train, bus, or boat, typically because one has...
to public entertainments, or on overnight stays in certain tourist destinations.
Tax-related criminal law
Depending on the nature of the tax at issue, criminal offences related to the nonpayment of taxes are regulated in substantially different ways by cantonal and federal statutes. This section will therefore discuss only the outlines of the harmonised rules governing tax evasionTax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
and tax fraud with respect to the federal and cantonal income, profit, property and capital taxes.
It is a criminal offence under cantonal and federal law to wilfully cause one's taxes to be incompletely assessed. The statutes distinguish, however, between tax evasion and tax fraud. Tax evasion is the act of causing a tax to be falsely assessed, such as through the failure to report taxable income. It is classed as a misdemeanour (Übertretung / contravention) and is punishable by a fine of 33% to 300% of the amount of tax evaded. Tax fraud, on the other hand, occurs if a tax evasion is committed by using false documents (such as untrue corporate financial reports) for deceptive purposes. It is classed as a crime (Vergehen / crime) and is punishable by additional imprisonment of up to three years or an additional fine of up to 30,000 CHF
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
.
This distinction is of particular importance with respect to the level of international judicial assistance
Judicial assistance
Judicial Assistance is the admittance and enforcement of a judicial order by a court from one jurisdiction to a court in another jurisdiction. Such admittance requires a treaty between the governments of the two jurisdictions...
afforded by Swiss authorities to foreign states that prosecute their own citizens for tax evasions committed in Switzerland, such as by depositing undeclared income with a Swiss bank. Up until recently, Swiss law prohibited all support to foreign jurisdictions for the prosecution of fiscal offences, except to the U.S. under the terms of a 1973 agreement. Since 1983, enforcement assistance is provided (such as the search and seizure of accounts and documents) for the prosecution of fiscal crimes (notably, tax fraud) but not for the prosecution of fiscal misdemeanours (notably, tax evasion). Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will abolish the distinction between tax fraud and tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
in dealings with foreign clients. The Swiss authorities will from now on also provide judicial assistance in the event of tax evasion by a foreign client. The distinction remains valid for domestic clients.
Tax rates and statistics
In 2002, some CHFSwiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
134 billion in taxes were levied in Switzerland, of which roughly one third was levied by the Confederation, the cantons and the municipalities, respectively.
The overall fiscal rate was 38.5 percent of GDP in 2002. The effective individual tax rate is subject to considerable variation depending on the canton and municipality of residence. For instance, companies subject to ordinary taxation paid between 13 and 25 percent of income tax in 2006, and the maximum individual tax rates in major cities ranged between 12.3 percent in the canton of Zug
Canton of Zug
The Canton of Zug is one of the 26 cantons of Switzerland. It is located in central Switzerland and its capital is Zug. With 239 km² the canton is one of the smallest of the cantons in terms of area. It is not subdivided into districts.- History :The earlier history of the canton is...
and 32.3 percent in the canton of Jura
Canton of Jura
The Republic and Canton of the Jura , also known as the Canton of Jura or Canton Jura, is one of the cantons of Switzerland. It is the newest of the 26 Swiss cantons, located in the northwestern part of Switzerland. The capital is Delémont...
.