The Confederation as well as the cantons and municipalities tax individuals' professional income as well as income from other sources such as interest, dividends, or real estate rental income or deemed rental value:
- Federal tax: Swiss federal tax law is uniform throughout Switzerland. Tax rates are progressive with a maximum overall rate of 11.5%.
- Cantonal and municipal taxes: Each of the 26 cantons has a separate law for cantonal taxes. Municipal taxes are levied as a multiple of cantonal taxes. Having said that, income tax rates largely vary over Switzerland and strongly depend on the place of location. The taxes are also levied at progressive rates, with a maximum combined cantonal and municipal rate of approximately 31 % for cantons with the higher rates, minimum tax rate at a cantonal and communal level is of approximately 12 %.
In general, the taxable income consists of all types of income earned by a resident individual, including the following:
- Remuneration from an employer (base salary, bonus, stock options, home leave, and payment of rent, taxes, school fees, and utilities).
- Self-employment or business income.
- Pension payments and compensation for loss of work or health.
- Income from private investments (including interest and dividends ) – However, capital gains are tax exempt in Switzerland.
- Income from real estate.
Although income derived from either a fixed place of business or a permanent establishment located abroad, as well as income derived from real estate located abroad, are exempt from taxation, this income must be properly declared in the Swiss tax return for the determination of the tax rate. The income tax rates by canton applicable for individuals in Switzerland can be found in section XI. SWISS TAX RATES.
People who are employed in a dependent activity are taxed on their income net of social security charges, including all additional allowances such as bonuses, shares, relocation allowances. From this net income, several deductions are possible and may vary from canton to canton.
To determine the dependent activity, the analysis can be carried out, but not only, according to the following criteria:
- The individual is acting in the name and on behalf of someone else.
- They have no significant decision-making power.
- They are required to follow instructions and guidelines.
- They perform regular work for the same employer.
- They use the tools and work equipment provided by the employer.
- They receive periodic remuneration.
All income, in cash or in-kind, derived from the exercise of an independent activity is taxable. The capital gain from the alienation, realization, or accounting revaluation of tangible and intangible elements of the business assets is part of the ordinary income of a self-employed person. As for the dependent activity, some deductions are applicable.
This applies to persons who carry out their activity as individual companies, ordinary partnerships, joint companies, or limited partnerships. The revenue is also subject to the AVS.
The following criteria presume the presence of an independent activity:
- Foreign financing for investments.
- The individual acts in his own name and on his own behalf.
- The individual has his own premises.
- The Individual supports the overhead costs and the risk of loss.
- The individual is not subject to the orders of others.
- The individual executes mandates for several clients.
No wealth tax is levied at the federal level. However, all cantons and municipalities levy a net wealth tax on worldwide assets, except for real estate, a fixed place of business, or a permanent establishment located abroad. Tax rates are reasonably low and vary widely (from 0.2% to 1%), depending on the canton and municipality where the taxpayer resides, as well as the amount of taxable wealth . The wealth tax rates by canton applicable for individuals in Switzerland can be found in section XI. SWISS TAX RATES.
Items subject to wealth tax include, among others, bank accounts, investments, real estate, vehicles, or art objects. The value considered is generally the fair market value as of December 31st of the year considered or at the end of the assessment. For non-listed investments in companies, the Swiss tax authorities apply a valuation method based on past results and net asset value (practitioners’ method).
Debts as of December 31st, or at the date when the tax liability stops, can be deducted from the assets to consider the net taxable wealth.