Taxes in Switzerland are levied by the Swiss Confederation Switzerland , officially the Swiss Confederation (Confoederatio Helvetica in Latin, hence its ISO country codes CH and CHE), is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe[note 4] where it is bordered by Germany to the north, France to the west, Italy to, the cantons 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. The most recently created canton is the Canton of Jura, which separated from the Canton of and the municipalities A municipality is an administrative entity composed of a clearly defined territory and its population and commonly denotes a city, town, or village, or a small grouping of them. A municipality is typically governed by a mayor and a city council or municipal council. Switzerland is sometimes considered a tax haven Individuals and/or corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition among governments. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and/or companies due to its general low rate of taxation To tax is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law, 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.
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Legal framework
Fiscal sovereignty
Switzerland is a federal 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. Usage of the term republic is inconsistent but, as a minimum, it means a state or federation of states that does not have a monarch in which the sovereignty Sovereignty is the quality of having supreme, independent authority over 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. The concept has been discussed, debated and questioned throughout history, from the time of the Romans through to the present day, of the constituent states (the cantons) is limited by the enumerated powers The enumerated powers are a list of nonspecific responsibilities found in Article 1 Section 8 of the United States Constitution, which iterates the authority granted to the United States Congress. Congress may exercise only those powers that are granted to it by the Constitution, limited by the Bill of Rights and the other protections found in the delegated to the federal state A federation , also known as a federal state, is a type of sovereign state characterized by a union of partially self-governing states or regions united by a central (federal) government. In a federation, the self-governing status of the component states is typically constitutionally entrenched and may not be altered by a unilateral decision of (the Confederation) through the federal constitution The Federal Constitution of 18 April 1999 is the third and current federal constitution of Switzerland. It establishes the Swiss Confederation as a federal republic of 26 cantons (states), contains a catalogue of individual and popular rights (including the right to call for popular referendums on federal laws and constitutional amendments),. Consequently, the original authority to levy taxes is vested in the individual 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. The most recently created canton is the Canton of Jura, which separated from the Canton of through their constitutions.[1] 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.[2] While the formal framework of the most important cantonal direct taxes In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples include some income taxes, some corporate taxes, and transfer taxes such as estate (inheritance) tax and gift tax. In this sense, a direct tax is contrasted with an 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.[3]
Since after World War II Albania · Australia · Austria · Azerbaijan · Belarus · Belgium · Brazil · Bulgaria · Burma · Cambodia · Canada · Ceylon (Sri Lanka) · Channel Islands · China · Czechoslovakia · Denmark · Dutch East Indies · Egypt · Estonia · Finland · France · Germany · Gibraltar · Greece · Greenland · Hong Kong · Hungary · Iceland ·, the federal constitution authorises the Confederation to levy a number of taxes, the most significant of which are an income tax An income tax is a tax levied on the income of individuals or business . 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 tax, corporate income tax, or profit tax. Individual, a withholding tax Payers of amounts may be required to withhold income or other taxes from such amounts and pay the tax to the government levying the tax. Withholding tax or withholding at source may be required against payments to residents or payments to nonresidents of the taxing jurisdiction. Such withheld tax may constitute a final tax or merely a prepayment and a value added tax Value added tax is similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Maurice Lauré, Joint Director of the French Tax Authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954,. However, Switzerland is unique among modern sovereign states in that the authority to levy these taxes is limited in duration and extent.[4][5] 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),[6] 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.[7]
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.[8] Because statutes can at all levels be made subject to a popular referendum In political science, the initiative provides a means by which a petition signed by a certain minimum number of registered voters can force a public vote on a proposed statute, constitutional amendment, charter amendment or ordinance, or, in its minimal form, to simply oblige the executive or legislative bodies to consider the subject by, Swiss tax rates are in practice set directly by the voters through instruments of direct democracy Direct democracy, classically termed pure democracy, is a form of democracy and a theory of civics in which sovereignty is lodged in the assembly of all citizens who choose to participate. Depending on the particular system, this assembly might pass executive motions, make laws, elect or dismiss officials, and conduct trials. Direct democracy.[9]
The constitution mandates that taxation must be general and equal in nature, and it must be proportionate to one's ability to pay.[10] The Federal Supreme Court The Federal Supreme Court of Switzerland is the supreme court of Switzerland. It is located in Lausanne has interpreted this as prohibiting a 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. In simpler terms, a regressive tax imposes a greater burden on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or,[11] although flat rate taxes A flat tax is a tax system with a constant tax rate. Usually the term flat tax would refer to household income (and sometimes corporate profits) being taxed at one marginal rate, in contrast with progressive taxes that may vary according to such parameters as income or usage levels. Flat taxes generally offer simplicity in the tax code, which has (as instituted in several cantons) are held to be constitutional by tax law scholars. Moreover, double taxation Double taxation is the imposition of two or more taxes on the same income , asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to two distinct situations: by several cantons is constitutionally prohibited, as is a confiscatory rate of taxation.[12]
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,[13] or where tax treaties Many countries have agreed with other countries in treaties to limit taxation . Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes. Countries of the European Union (EU) have also entered into a multilateral agreement with respect to value added taxes under auspices of the EU. Tax treaties tend to reduce taxes 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.[14] Moreover, non-residents are also taxed on certain Swiss assets or on the income from certain Swiss sources, such as from real estate Real estate is a legal term that encompasses land along with improvements to the land, such as buildings, fences, wells and other site improvements that are fixed in location—immovable. Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction and include things such as commercial, permanent business establishments or pensions.[15] The income and assets of spouses are pooled and taxed jointly, but at a lower rate to offset the effects of tax progression.[16]
Income tax
Either a progressive 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. It can be applied to individual taxes or to a or proportional A proportional tax is a tax imposed so that the tax rate is fixed as the amount subject to taxation increases. In simple terms, it imposes an equal burden on the rich and poor. "Proportional" describes a distribution effect on income or expenditure, referring to the way the rate remains consistent (does not progress from "low to income tax An income tax is a tax levied on the income of individuals or business . 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 tax, corporate income tax, or profit tax. Individual is levied by the Confederation and by the cantons on the 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 received... in a given period of time." of natural persons 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. The income tax is imposed as a 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' pay, also known as withholding, pay-as-you-earn , or pay-as-you-go (PAYG) tax. The second kind is a tax that is paid from the employer's own funds and that is directly related to employing a worker, on foreign workers without a residence permit,[17] and in the form of a withholding tax Payers of amounts may be required to withhold income or other taxes from such amounts and pay the tax to the government levying the tax. Withholding tax or withholding at source may be required against payments to residents or payments to nonresidents of the taxing jurisdiction. Such withheld tax may constitute a final tax or merely a prepayment 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,[18] and including the rental value of a house lived in by its owner.[19] However, capital gains 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. Conversely, a capital loss arises if the proceeds from the sale of a 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.[20] Certain expenses are also deductible. These include social security or pension fund payments,[21] expenses related to the gain of income (such as employment expenses and maintenance costs of real estate) and alimonies Alimony is an obligation to provide financial support to one's spouse after separation or divorce. It is established by divorce law or family law in many countries and is based on the premise that both spouses have an absolute obligation to support each other during their marriage (or civil union known as common-law marriages). Alimony is the.[22] Gifts 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 social cohesion. Economists have elaborated the and inheritances Inheritance is the practice of passing on property, titles, debts, and obligations upon the death of an individual. It has long played an important role in human societies. The rules of inheritance differ between societies and have changed over time are also exempt from the income tax, but are subject to separate cantonal taxes.[23]
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.[24] This option contributes to Switzerland's status as a tax haven, and has induced many wealthy individuals such as Ingvar Kamprad Ingvar Feodor Kamprad ( pronunciation ; born 30 March 1926) is a Swedish business magnate and the founder of IKEA, a retail (specialty) company. As of 2010[update], he is the eleventh wealthiest person in the world, according to Forbes magazine, with an estimated net worth of around US$23 billion in 2010 or Michael Schumacher Michael Schumacher (German pronunciation: [ˈmɪçaʔeːl ˈʃuːmaxɐ] ; born 3 January 1969 in Hürth, North Rhine-Westphalia) is a Formula One racing driver currently driving for Mercedes GP. Most famous for his legendary ten year-spell with Ferrari, Schumacher is a seven-time World Champion and according to the official Formula One website is & to live in Switzerland.
Property tax
A proportional property tax Property tax, or millage tax, is an ad valorem tax that an owner is required to pay on the value of the property being taxed. Property tax can be defined as "generally, tax imposed by municipalities upon owners of real property within their jurisdiction based on the value of such property." There are three species or types of property: of around 0.3 to 0.5 percent[25] is levied by the cantons on the 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. In the case of an individual, the term estate is used in relation to deceased individuals in 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.[26]
Corporate taxation
Switzerland has a "classical" corporate tax Corporate tax or company tax refers to a tax imposed on entities that are taxed at the entity level in a particular jurisdiction. Such taxes may include income or other taxes. The tax systems of most countries impose an income tax at the entity level on certain type of entities (company or corporation). Many systems additionally tax owners or system in which a corporation and its owners or shareholders are taxed individually, causing economic double taxation Double taxation is the imposition of two or more taxes on the same income , asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to two distinct situations:.
All legal persons The term legal person is a concept in philosophy of law topics wherein an entity is regarded by law to be like a person with such status being granted legal rights to protections and/or privileges under law. It is a term found in business-corporate law and animal rights law contexts, wherein corporations are regarded as highly productive human are subject to the taxation of their profit and capital, with the exception of charitable organisations.[27] Tax liability arises if either the legal seat or the effective management of a corporation is in Switzerland.[28] To the extent non-resident companies have Swiss sources of income, such as business establishments or real estate, they are also liable for taxation.[29] Conversely, as a unilateral measure to limit double taxation, profits from foreign business establishments or real estate are exempted from taxation.[30]
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 profit In accounting, net profit is equal to the gross profit minus overheads minus interest payable plus/minus one off items for a given time period [citation needed] as accounted for in the corporate income statement Income statement, also referred as profit and loss statement , earnings statement, operating statement or statement of operations, is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the, as adjusted for tax purposes.[31] For instance, expenditures that have no business reason such as excessive depreciations Depreciation refers to two very different but related concepts: a) decline in value of assets, and b) allocation of the cost of tangible assets to periods in which the assets are used. The former affects values of businesses and entities. The latter affects net income. Generally the cost is allocated, as depreciation expense, among the periods in, accruals 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. These types of accounts include, among others, or reserves 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 Standards Board. For more information about, as well as disguised dividends 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 paid to the shareholders as a dividend. Many corporations retain a are taxed as profits.[32]
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.[33] At the cantonal level only, a "holding privilege" applies to pure holding companies 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 only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of. They are exempt from the cantonal corporate profit tax.[34] Moreover, cantonal law confers a "domicile privilege" on companies who are only administered in Switzerland, but whose business is conducted abroad; including shell corporations A shell corporation or shell company 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 they may have legitimate business purposes. However, they are a main component of the underground economy, especially those based in.[35] The cantons tax only around 10 percent of the worldwide profits of such companies.[36]
Capital tax
A proportional tax is levied by the cantons (at varying rates) on the Eigenkapital (ownership equity) of companies.[37] 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.[38]
Other federal taxes
Value added tax
The value added 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 7.6 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.[39] Yet other exchanges, including those of medical, educational and cultural services, are tax-exempt; as are goods delivered and services provided abroad.[40] 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.[41]
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Austria and Switzerland are also on the list. 'As of this afternoon Luxembourg will be on the OECD tax haven white list,' Frieden said. ...
Luxembourg leaves OECD grey list Swissinfo
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Switzerland. and Germany have reached agreement in principle on a new double-. taxation. accord.
Q. I will be moving to Switzerland for a minimum of 1 year and I was wondering how I can avoid paying taxes when I get back to Canada. I know that both countries have a double taxation agreement but since taxes are much higher in Canada, they would tax me on the difference. I was told I could become a fiscal non resident of Canada ( i do not own anything and would have to close my bank account, etc.) Could anyone give me more information on how to do this since the CRA isn`t much help. Basically, I just need to know how to avoid paying taxes when I come back from Canada. I am a Canada citizen, was born here and lived here all my life. Thank you
Asked by confusedchemist - Sat Nov 29 19:57:51 2008 - - 1 Answers - 0 Comments
A. For a year, it's basically impossible. The intent of the non-resident status is for someone who has no intention of returning to Canada. it takes a MINIMUM of 2 years outside the country to become non resident. You have to cut off all ties to Canada. Non property, no credit cards, no bank accounts, even family connections can create a problem. It's not a hard and fast set of rules, it's more CRA looking at the situation and determining whether your intent is to leave the country permanently. In any event, for at least 2 years you'll be paying Canadian taxes.
Answered by quizzard123 - Sun Nov 30 11:11:46 2008
