Anyone who lives in Switzerland and is gainfully employed is also liable to pay tax here. In accordance with the Swiss tax model, the local municipality, the canton and the federal government all levy taxes on income and assets. Depending on their residence status, foreigners must usually pay a withholding tax directly on their earned income. Special feature: the tax rates differ widely depending on the municipality and canton.

Switzerland Tourism
Photo: Switzerland Tourism

“Just over the German border lies a tax paradise…” – this was a recent headline of the German magazine, Fokus. In Switzerland, the tax man is indeed fairly reasonable – at least compared to other countries. The country’s widespread image as a particularly liberal, business-friendly and competitive state is certainly justified. Switzerland’s tax-related attractiveness is also backed up by the numbers. For example, according to a comparison by the OECD, Swiss employees pay only about 11 per cent of their earned income to the tax authorities on average. In many other EU countries, such as Italy, Sweden, Germany and Belgium, the average tax burden is usually much higher.

Swiss tax model

Switzerland also proves extremely attractive when it comes to other social and government-mandated taxes.

The Swiss tax model in a nutshell: income from employment and assets in Switzerland are taxed at three levels; taxes are levied by the taxpayer’s municipality of residence, the canton and the federal government. Unlike in some other countries, taxation is based on an individual tax return submitted by the taxpayer (and is not deducted directly from earned income).

For foreigners in Switzerland, their residence status plays a key role here.

People who work and live in Switzerland are generally subject to the ordinary tax procedure.

Christian H. Kälin, lawyer and Chairman of Henley & Partners.

This applies in particular to people who have been here for a long time and have an unlimited residence permit (C permit).

Withholding tax: dependent on residence status

For employees with a B permit or without an unlimited residence permit, and also for other cases (short stays) or special cases such as refugees, the system of withholding tax applies. The withholding tax also comes into play for people without a tax residence in Switzerland but who work in Switzerland either temporarily or permanently, such as cross-border commuters and weekly residents.

But what does “withholding tax” actually mean? It refers to tax that is deducted directly from the taxpayer’s salary. In this case, their employer is obliged to deduct the tax owed and pay it to the tax authorities.

In addition, the method by which an employed person is taxed under the Swiss tax model often depends on other factors – in particular, the amount of earned income. The situation is different again for entrepreneurs or private individuals who are not gainfully employed in this sense. Switzerland can be particularly appealing to those who can negotiate a simplified lump-sum taxation.

The tax rate is based on the living expenses of the taxpayer and their family.

Christian H. Kälin of Henley & Partners

Swiss taxes: example calculation

Ordinary taxation in Switzerland – on income and assets – is distinctly federalist in nature. In other words, the tax laws and rates vary widely throughout the country. Here is a simplified example: with a taxable income of CHF 75,000 (unmarried, without assets), the taxpayer pays:

  • In the city of Zug, only around 4,900 francs.
  • In Basel, around 11,900 francs.
  • In Lucerne, around 10,500 francs.

The tax havens of Switzerland

The canton of Zug is particularly attractive. With around 120,000 residents, Zug is located in German-speaking Switzerland and is part of the Zurich metropolitan region. Many renowned and innovative companies have their registered offices or larger branches here – such as the Nestlé food group, companies in the biotech sector, retail, as well as numerous start-ups developing new technologies in Switzerland’s “Crypto-Valley”. The top tax rate in the canton of Zug averages around 23 per cent – a dream for taxpayers in many other countries, including Germany.

The municipalities with the lowest taxes in Switzerland also include some rather exclusive residential locations near Geneva (such as Cologny), the canton of Schwyz, as well as some residential communities in the very south of the canton of Ticino. The economic region of Zurich, eastern Switzerland and the canton of Graubünden lie mid-table in the tax-burden league. The tax levies are higher in the canton of Bern, the Basel and Jura regions and the canton of Vaud in French-speaking Switzerland.

What is taxed?

Swiss tax rates are basically progressive. Or to put it another way, the higher the income, the higher the tax rate in percentage terms. This also applies analogously to wealth taxes in Switzerland. While the liability is almost insignificant for assets of CHF 100,000 or 200,000, the tax liability rises sharply for wealthier individuals. All cantons except the canton of Schwyz also levy gift and inheritance taxes. Considerable tax liabilities can therefore be incurred due to transactions between people who are unrelated or not close members of the same family.

In recent years, however, a system under which spouses and direct descendants are exempt from inheritance and gift taxes has prevailed in many cantons. Private capital gains are generally tax-exempt, for example capital gains on securities. However, some restrictions have been introduced in the practice of the cantonal tax authorities.

Switzerland’s tax model – a competitive advantage

Conclusion: the Swiss tax model is not significantly simpler than taxation systems in many other countries. Most national tax models have similar principles, in particular taxation at three different levels (tax model based on place of residence or municipality, region, federal government, etc.). However, if you calculate your remaining income after taxes and social security contributions, you will inevitably conclude that Switzerland is rightly considered a top tax location.

For more information on emigrating to Switzerland, click on the following links: