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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. Taxation occurs at the federal, cantonal and municipal levels. Spouses are taxed together. Investment income of a minor child is included in his parents’ income but his earned income is taxed separately.

INCOME TAX

Income from different sources are aggregated and taxed at the federal, cantonal and municipal levels. Different rates apply for married taxpayers (including those widowed, divorced, or single and supporting children or destitute persons) and unmarried taxpayers. Deductions and allowances are available for residents, but vary from canton to canton.

Federal Income Tax

Taxable income is generally computed as the aggregate of all kinds of income, less allowable deductions. The following tax rates apply for 2008:

Cantonal Income Tax

Cantons levy their own tax on income, and the tax rates vary from canton to canton. Just like the federal income tax, the cantonal income tax has progressive rates and is different for married couples and unmarried individuals.

The cantonal tax rates of Geneva are calculated based on a complex formula. The following is a simplified summary containing only selected tax brackets to give an indication of the basic cantonal tax rates in Geneva.

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.

RENTAL INCOME
Rental income in Switzerland is taxable at the federal, cantonal and municipal levels. Administration costs invoiced by third persons, necessary maintenance and improvement costs, as well as interest payments in respect of loans used to acquire income, are deductible from the taxable amount. The rates of the federal, cantonal and municipal income taxes are then applied. Since the cantonal and municipal income taxes are imposed on rental income, the total tax liability varies according to the location of the property.

CAPITAL GAINS
At the federal level, gains from the sale of private property are not taxable, and gains from the sale of business property are taxed as income. At the cantonal and municipal level, a real estate gains tax is imposed on the sale of both private and business property.

The rates for capital gains 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.

Two systems are used to compute for taxable capital gains, the Zurich system and the St. Gallen System. The two systems are highly similar, since the computation for the taxable gains is selling price less acquisition costs and improvement costs for both systems. Their main difference lies in the computation for capital gains on business property. The Zurich system basically applies the same formula to business property as private property, and subjects recaptured depreciation to income tax, while the St. Gallen System subjects all capital gains from business and private property fully to income tax.

PROPERTY TAXATION

Wealth Taxes

Annual wealth taxes are levied at the cantonal level. Individuals pay taxes on enterprise assets and real estate situated in Switzerland. The tax payable varies from canton to canton. The assets are valued at their market value. Personal debts, mortgages, bank loans and overdrafts are deductible, as well as certain personal deductions and allowances from the taxable base, depending on the canton.

Property Taxes

Many municipalities and some cantons impose real property taxes on real estate located in Switzerland. The rates usually range from 0.05% to 0.3%, levied on the value of the property. The rates and the coefficient vary from canton to canton.

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