Switzerland personal tax issues – Introduction
Introduction
Switzerland is a country that levies taxes on three levels: federal, cantonal, and municipal. The tax rates are progressive, meaning they take into account the economic capacity of a taxpayer. Each canton has a set of tax deductions that reduce the tax base and, hence, the marginal tax rate.
Tax residency
In terms of tax residency, individuals are liable to pay tax in Switzerland if they have their tax residency in Switzerland or if their stay in Switzerland exceeds a certain period of time. Swiss tax residents are subject to unlimited taxation on their worldwide income and worldwide assets, with some exceptions for foreign real estate and foreign business income.
Employment income
Swiss-sourced employment income is fully taxable in Switzerland, unless a double taxation agreement provides otherwise. The same tax rate for employment income applies also to interest and dividend income.
Swiss-sourced interest payments and dividends are subject to Swiss withholding tax at a rate of 35%, but Swiss tax residents are entitled to a full refund provided the investment income is declared in their annual tax return.
Dividend income
Dividend payments from a majority shareholding are taxed to the extent of 70% at the federal level and to the extent of 50 to 80% at the cantonal level, depending on the cantonal tax provisions.
Capital gains tax
In terms of capital gains tax, there is no capital gains tax on the disposal of movable assets such as shares and collectibles, but in cases of excessive trading, hedging, and debt-financing, the tax administration may conclude that the individual is a professional securities trader subject to income tax on his or her gains. Gains on immovable property are taxable, and a real estate transfer tax is due in many cantons on the change of ownership of real property.
Wealth tax
All cantons (and all municipalities) levy a wealth tax on global net wealth, which includes all movable, immovable, and business assets, works of art, jewelry, and other collectibles.
Spouses are exempt from gift and inheritance tax in all cantons, and lineal descendants in most cantons.
The right to tax gifts and donations is in the canton where the donor or testator is or was domiciled, and the tax rate is determined by the amount of the gift or inheritance and the degree of kinship.
Common Reporting Standard
Finally, Switzerland has been a signatory to the Common Reporting Standard since 2017 and has entered into various exchange of information programs with a number of participating jurisdictions. Information on a client's Swiss bank accounts will therefore be exchanged with the tax authorities of their home country if that country is a participating jurisdiction.
If you have any queries about Switzerland personal tax issues, or Swiss tax matters in general, then please do get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.