The Swiss tax system

Cantonal taxes: diversity and autonomy

A central element of the Swiss tax system is the autonomy of the cantons in setting their own tax rates. This leads to a wide range of tax rates across the country, as each canton can shape its own tax policy based on its economic needs and political goals.

Cantonal taxes include

• Income tax for individuals (natürliche Personen): the level of income tax varies considerably between the cantons. As a general rule, the higher the income, the higher the tax burden.
• Profit and capital tax for legal entities (juristische Personen): companies must pay taxes on their profits and their capital in every canton in which they operate. Here too, the tax rates vary considerably.

Federal taxes: uniformity and relevance

In addition to the cantonal taxes, the Confederation (Bund) also levies taxes. These federal taxes apply uniformly throughout Switzerland. The most important ones for businesses and their owners are:

• Direct federal tax (direkte Bundessteuer) for individuals: this tax is progressive, i.e. the higher the income, the higher the tax rate.
• Direct federal tax for legal entities: corporations (Kapitalgesellschaften) and cooperatives pay a profit tax of 8.5% of their net profit (Reingewinn) (Art. 68 DBG). The rate is flat and does not rise with the profit. The Confederation does not levy a capital tax; that is a cantonal tax.
• Value added tax (VAT, MWST): VAT is an indirect tax levied on the consumption of goods and services. The VAT rate in Switzerland is 8.1%. There are, however, also reduced rates: 2.6% for certain goods such as food, books and medicines, and 3.8% for accommodation services.
• Withholding tax (Verrechnungssteuer): the Confederation levies it on investment income, for example on dividends from an AG or GmbH and on bond interest. It amounts to 35% and is deducted directly from the payment (Art. 4, 13 and 14 VStG). Anyone resident or with their registered office in Switzerland who declares the income properly gets it back; anyone who conceals it in their tax return loses this entitlement (Art. 22 to 24 VStG).
• Stamp duties (Stempelabgaben): the Confederation levies them on the issue of equity securities such as shares and capital contributions (Stammanteile), on trading in securities and on certain insurance premiums (Art. 1 StG). When an AG or GmbH is formed or increases its capital, the first one million francs of contributions are exempt from the issuance stamp duty (Emissionsabgabe) (Art. 6 para. 1 let. h StG).

Municipal and church taxes: local additions

In addition to the cantonal and federal taxes, municipalities (Gemeinden) and parishes (Kirchgemeinden) may also levy their own taxes. These local taxes can increase the overall tax burden further, but vary considerably from one municipality to another.

Tax competition and attractiveness as a location

The differences in cantonal tax rates lead to tax competition between the cantons. This means that cantons with low tax rates aim to attract companies and private individuals in order to promote economic development. This competition has led to some cantons being regarded as particularly attractive locations for companies and private individuals.

Impact on companies and private individuals

The choice of place of residence or place of business in Switzerland therefore has a considerable impact on the individual or corporate tax situation. When choosing a location, companies should carefully consider the cantonal tax rates and other location factors. Private individuals should also find out about the differences in cantonal tax rates, as these can affect their income tax burden.

Conclusion: the Swiss tax system is complex and multi-layered. The differences in cantonal tax rates and the additional levels of federal and local taxes can lead to a high tax burden. Nevertheless, the system also offers certain advantages, such as the possibility of optimising the tax burden through the choice of place of residence or place of business.