Swiss taxes for locals and non-residents
Swiss taxes for locals and non-residents
We've sliced and diced taxes you might be obliged to pay
Swiss tax is an immensely complicated subject - even more so than in other countries. That's because Switzerland is a federal republic (or 'confederation'), in which both cantons and the central government can levy taxes - in fact, the cantonal tax is by far the greater portion of the average family's tax bill.
Cantons have wide discretion to levy taxes, including income taxes; the Confederation only reserves excusive authority to a few taxes, such as VAT (7.7%), stamp duty (transfer tax), and customs duties. So that gives a single country, effectively, 26 different tax systems. Cantons can vary not just the rate of tax, but also the tax thresholds and the expenses that can be offset against tax, as well as social deductions (eg pensions relief, deductions for children, etc).
And in addition to the state and the cantons, Switzerland's 2220 communes and three nationally recognised churches can also raise some taxes on their own account.
Add to this the fact that taxation of foreign citizens resident in Switzerland can also vary, depending on what type of residence permit they possess, and whether or not they're married to a Swiss national, and you'll see that in this article we can only hope to skim to surface of the Swiss tax system - or rather, systems!
Summary of types of property taxes in Switzerland
What taxes you can expect to pay (as a resident and non-resident)?
Switzerland doesn't tax individuals. It taxes families, including married partners and any minor children living at home who are earning money. That means a single tax return for each household. Residents are liable on their worldwide income - what's called an unlimited tax liability. So if you live in Switzerland, you'll pay tax on investment income from abroad, too.
Tax on owner occupation vs tax on rental
Switzerland has a particularly odd tax called the Eigenmietwert or valeur locative; it's a tax on the imputed rental value of your home. The tax authorities generally base that value on around 70% of market rent - it's what you'd get if you rented your home out instead of living in it. The idea of the tax is to level the playing field between owners (who can deduct mortgage interest when calculating tax) and renters (who can't). But it makes property a less tax-efficient investment for Swiss residents than the stock market, where they won't pay tax on the value of their portfolio and also benefit from zero capital gains tax.
If you rent out a property that you own, you'll be taxed on your actual rental income at the relevant marginal rate of income. Usually, you'll have an option of two methods; deducting the actual costs of maintenance, renovation, insurance and management, or taking a 10-30% (depending on canton) rebate on the rental income. Interest paid on mortgages is deductible in Switzerland, so debt financing can make a property investment far more tax-efficient.
Wealth tax is also in the hands of cantonal governments. Households are charged wealth tax on all their cash value assets, excluding ordinary household assets. The tax is based on net wealth, after any debts, mortgages and so on have been deducted from the gross total. Thresholds vary from CHF 51,000 to CHF 260,000 and the wealth tax is generally a progressive tax, with different rates at different levels of net assets.
Lump sum tax
This is another Swiss oddity; foreigners resident in Switzerland who don't work can pay a lower tax based on their living expenses, agreed with the tax authorities at the outset. You'll need CHF 10 million to qualify, but the advantage is that there's no investigation into your worldwide assets or income, which remain untaxed. Some cantons (for instance Zurich, and both Basel Land and Basel Stadt) have abolished the lump sum tax, but for seriously high net worth individuals it's a consideration that has established Switzerland as a fantastic tax haven.
Non-residents have limited liability for tax; they are only liable to taxes with respect to Swiss-sourced income. So for instance if you own a flat and let it out, you'll be liable for tax on your rental income. However, you'll be able to offset the costs of owning and letting the property - maintenance, management, insurance and, importantly, interest payments.
Income tax rates
As we've mentioned, Switerland has 26 different tax regimes making it difficult to sum the up in a single article. The federal base rate (once you reach a threshold of CHF 14,000 single person/ 28,300 married couple which is untaxed) is 0.77% for single people, 28,300 for a married couple, and rises progressively to a maximum 11%. But canton and commune taxes need to be applied on top of that. These are flat rate in Obwalden (just 1.8% on top of federal tax) and Uri. Other cantons have progressive tax bands rising to a maximum marginal rate of 48% in Geneva, 41.5% in Lausanne/Vaud, and 41% in Zurich (including the state level taxes).
Different cantons also have different ways of treating married taxpayers. Some, like Zurich, have two separate scales of tax for single and married taxpayers. Others, like Geneva, have a 'splitting' procedure; in Geneva, married couples pay tax only on 50% of their income. In Valais, couples get a tax rebate, and Vaud uses a kind of 'splitting' that also extends to single parent families and children.
Tax rates, Vaud canton (Lausanne)
An illustration from Zurich based law and tax consulting firm MME shows what happens to a single taxpayer and a married couple earning a gross salary of CHF 150,000, depending on where they live. We've summarised it in the table below. Remember, this summarises the federal and cantonal taxes, and includes various tax allowances - notably on insurance and pension fund contributions.
Double taxation describes how Swiss taxes interlock with other countries' tax systems, for instance if you're a Swiss resident getting income from elsewhere, or a non-resident getting income from Switzerland. Switzerland has double taxation agreements with 80 countries including the UK, US, Canada, most of Europe, China, Russia, India, Argentina, and Mexico.
The Swiss tax year runs 1st January to 31st December. Tax forms must be submitted before the end of March, in some cantons by 15th March.
And one more thing...
If you have a canine friend you'll need to pay the dog tax levied by your canton or commune.
One commune upset animal lovers by declaring: "Pay the tax, or your mutt gets it in the neck." Most are a little more forgiving … but not much!