Switzerland: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. An individual becomes a resident in Switzerland if he maintains a residence in Switzerland. The same rule applies for the cantons and municipalities. Married couples are taxed jointly.

INCOME TAX

Residents are liable to pay taxes at the federal, cantonal and municipal levels. Taxable income is generally an aggregate of all kinds of income and is usually computed as gross income less general deductions and allowances. Married couples and unmarried people are taxed differently. Deductions and allowances are available for residents, but vary from canton to canton.

Federal Income Tax

Federal income tax is imposed at progressive rates. Different rates apply to married taxpayers and unmarried taxpayers.

Cantonal Income Tax

Cantons in Switzerland are authorized to levy their own taxes on income. Like the federal income tax, the cantonal income tax has progressive rates, with a cantonal coefficient applied. The cantonal coefficient is set annually by the local authorities and varies from canton to canton. Married and unmarried taxpayers are also taxed differently.

Municipal Income Tax

Municipalities, like cantons, levy their own tax on income. The municipal income tax is generally levied in accordance with the cantonal income tax. A municipal coefficient, which varies from municipality to municipality, is also set by the local authorities.

Church Taxes

A church tax is imposed on the income of members of churches recognized by the cantonal laws. The Evangelic Reformed Church, the Roman Catholic Church, the Christ Catholic Church and the Israelite communities levy taxes on the income of the members of their religious communities. The church tax is imposed in accordance with the municipal income tax. A coefficient is also set by the church. Individuals who are not members of the churches are not liable to pay the church tax.

Capital Gains

Capital gains on the sale of private property are subject to tax, not at the federal level, but at the cantonal level. Gains on the disposal of business property are generally regarded as business income and taxed at the federal level at the normal income tax rates. Cantons use two systems to compute for taxable capital gains, the Zurich system and the St. Gallen System. The two systems are quite alike, in that they both compute for taxable capital gains as selling price less acquisition costs and improvement costs. The difference between the two is their treatment of gains from the sale of business property. While the Zurich system treats gains from business property the same way as gains from private property, the St. Gallen system subjects both gains from private and business property to income tax.

The rates of capital gains tax are usually progressive and the longer the property is owned, the lower the taxes. A shorter owning period would require a surcharge and both cantonal and municipal levels are applicable. The following are the cantonal rules for the disposal of immovable property:

• The standard rate is applicable after the holding period of four to five years. The top burden usually ranges from 25% to 50%.
• Tax is gradually reduced after exceeding the four to five years of ownership. The maximum relief allowed is 50% to 70% of the payable tax.
• A surcharge of up to 50% of the normal tax may be imposed on short term gains i.e. properties sold within the first four or five years.

Switzerland - more data and information

• Lawyers (attorneys) with property law practices in Switzerland

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