First of all, for any advice about Swiss taxation and residency we recommend you contact a local Swiss “fiduciaire”.
Income Tax
The income tax is levied at federal, cantonal and communal level. Personal income tax is progressive in nature. The total rate does not usually exceed 40% and in most cases, the maximum tax rate is much lower than this. For example, in the canton of Schwyz, the top rate, inclusive of federal, cantonal/communal tax is approximately 22%. The progressive tax is levied up to a maximum of 11.5% for incomes over CHF682,200 at federal level, and approximately twice that at cantonal level. There is considerable variation between cantons. Municipal rates are usually a small fraction of cantonal rate
VAT
The current VAT rate in Switzerland is 7.7%. Certain goods like food, medicines, books are taxed at the favourable rate of 2.5%.
Social Security Taxes
These taxes are payable by employers, employees and the self-employed. Currently, the total annual old age and disability contribution is 10.1% of total employee remuneration (no ceiling). Half is pad by the employer and half by the employee. Social security represents approcimately 13.1% of an employee’s salary, excluding health insurance costs and some cantonal payments.
The Fiscal Deal
This involves negotiation between the individual and the canton where residency is planned. It is a lump sum method to couple tax payment and residency, it is the easier method and the benefit is that you can end up paying considerably lower tax than a Swiss national.
Corporation Tax
Corporate income tax is levied at federal, cantonal and municipal levels. The federal corporate income tax rate is 8.5% flat. Since income and capital taxes are deductible in determining taxable income, the effective tax that a company pays on its profits before deduction of tax is 7.83%. Cantonal tax rates can be levied at rates of up to 20% and like the federal tax are progressive, using a scale based on the relationship of profits to net worth. The average cantonal tax rate in 2010 was approximately 21%.
UK Comparison
UK VAT rate: recently risen to 20% UK Max. Income Tax: 50% UK Corporation Tax: 26% UK National Insurance: up to 26% (employee 12%, employer 13.8%)
In order to understand the Swiss tax system, it is important to understand that due to its federal structure (26 cantons and approximately 2,300 municipalities) there is no uniform taxation system. Depending on the tax type, some are levied exclusively at a federal level such Value Added Tax (VAT), and some at both levels: federal and cantonal such as income tax.
10 Cantons with the lowest tax in Switzerland
Here is a list with 10 Swiss cantons with the lowest taxes in Switzerland and also around the world.
1. Luzern
The canton of Luzern has the smallest corporate tax, imposed at the rate of 12, 32%.The corporate tax rate of a management companies lies between 10% and 11.5% (incl. 8.5% federal tax). Luzern has lowered tax burdens over recent years and will be continuing to lower the taxes further in the future in its intent to keep pace with the Swiss average for corporate tax relief. Currently, Luzern has taken the lead with the new tax rules for holding companies. For average-income individuals, the tax burden is a bit higher than the corporate, due to the extensive services that Lucerne is required to render as a center.
2. Nidwalden
Nidwalden is another canton with a small corporate tax rate of 12, 66%.Nidwalden also ranks among the best cantons and takes the lead in income and wealth tax for individuals as well as for corporates. In the heart of Switzerland, Nidwalden is easily accessible from any direction, the canton being an exclusive location for private individuals as well as for companies.
3. Obwalden
In Obwalden, the rate is imposed at 12, 89%on the company’s income.The maximum tax on dividends from investments in private assets does not exceed 13.3 percent. The wealth rate is less than 1.4 per thousand. These rates include municipal, cantonal and direct federal tax (excluding church tax). In Obwalden, the tax laws are modern and innovative. The canton of Obwalden was the first one to introduce a flat income tax rate.
4. Appenzell Ausserrhoden
The forth smallest corporate taxes is applied in the Appenzell Ausserrhoden canton, where the rate is imposed at 13,04%. In the case of legal persons, Appenzell Ausserrhoden levies tax on profits and capital. At national level (federal tax), only profit tax is levied. For natural persons, Appenzell Ausserrhoden levies tax on income and wealth. At federal level, only income tax is levied. In Appenzell Ausserrhoden 52,6% of the total local workforce is mainly employed in the canton’s main economic sector – the services sector.
5. Appenzell Appenzell Inner Rhodes
The canton of Appenzell Appenzell Inner Rhodes applies an income tax of 14,16%.
6. Zug
With corporate tax rate of 14, 6%,Zug is viewed as a successful canton. Due to its low tax regime, established location and business friendly environment,Zug is the most chosen canton for establishing a Holding Company in Swiss with 1 in 4 of every Holding Company being incorporated in Switzerland.
Zug economy benefits from the population and jobs increase. One of Zug’s main competitive advantages is its low corporate taxes. Zug’s two economic regions are also highly placed in the ranking list of Switzerland’s 110 economic regions: The Lorzenebene/Ennetsee region is positioned in second place behind the city of Zurich, while the Zug region of Berggemeinden lies ninth. The tax burden on individuals and companies is low. Another advantage is represented by the skilled and highly qualified personnel that are easily available. In addition, thanks to short journey times, the access to the metropolitan areas of Zurich and Lucerne is well above average
7. Uri
The canton of Uri has applied a corporate flat rate tax. Also Uri is another canton which is continuously decreasing the tax rates, now the corporate tax rate being of 15, 11%.Uri has eliminated economic double taxation through a generous relief of 60%. Private individuals living in the canton benefit from the partial-income procedure, whereby dividend payments are subject to only 40% income tax.
8. Schwyz
In canton of Schwyz, there is an applicable rate of15, 27%. Here, legal entities benefit of a minimum tax, based on the company’s equity and is charged as a minimum amount. The effective tax burden for companies based in Schwyz is more attractive than in many well-known places such as Zurich, Dublin, London, New York and Singapore. The only federal tax is corporate income tax.
9. Neuchatel
In Neuchatel, the tax is at a rate of 15,61%. With a rate of 0.005‰, the capital tax deducted in Neuchatel is the lowest in Switzerland for holding companies and domiciled companies. Also, the companies based in canton Neuchâtel can offset their profit income taxes from the capital tax, which is not the case for all cantons.
10. Glarus
With a corporate tax rate of 15,71%,the canton of Glarus is the tenth with the lowest taxes in Switzerland. In 2010, the income tax burden was lowered in Glarus for everyone by an average of ten percent, which made the canton to attract numerous local and foreign companies, large part of them being involved in manufacturing field