THE SWISS TAX SYSTEM INDIVIDUALS / CORPORATE Seminar Swiss-American Chamber of Commerce 21 September 2010 Andrio Orler Partner Tavernier Tschanz Source: David Ryser, Seminar «Introduction to the Swiss Tax System», Zürich www.taverniertschanz.com
Switzerland / Political 2
Introduction and overview Corporate and value added taxes (a few words) 3
Introduction Cantonal Tax competences Subsidiary right of the federal government to levy taxes Federal direct tax Capital issuance and stamp taxes on securities Withholding tax VAT 4
Introduction 1 Federal income tax law 26 Cantonal income & wealth tax laws 1 Federal tax harmonisation law 5
Some general principles (Individuals) Types of taxes Income taxes - cantonal - federal Net wealth taxes Capital gains taxes - real estate Real estate transfer taxes VAT Estate and gift taxes 6
Some general principles (Individuals) Income taxes Progressive rates Substantial difference in max. marginal rates - federal 0-11.5% - cantonal 0-36.6% Combined maximum marginal rates - Range 0-48.2% Rates exclude church Tax (prot. / cath.) 7
Some general principles (Individuals) Income taxes Couples generally file joint return Special rates apply Concept of fictitious rental income on real estate for private use Employment income for foreigners not benefiting from a C permit is generally subject to taxation at source (exceptions) 8
Some general principles (Individuals) Income taxes Capital gains arising from the sale of private assets are not subject to the income tax (exceptions) Dividends arising from participations of at least 20% are subject to a favorable taxation Pension plans are subject to a favorable tax treatment (pension plan contributions are fully deductible and pension plan payments are subject to a favorable tax rate) Expatriates benefit from a special regime during the first 5 years No CFC rules 9
Some general principles (Individuals) Social Security contribution 50/50 contributions by employee and employer Up to CHF 126 000.00 Total 12.1% As of CHF 126 000.00 10.1% No cap! 10
Some general principles (Individuals) Social Security contribution 8.4% AHV (Old age insurance) 1.4% IV (Invalidity insurance) 0.3% EO (Compensation for activity losses due to military and civil service) 2.0% ALV (Unemployment insurance) 12.1% Total In addition, pension plan contributions 11
Some general principles (Individuals) Intercantonal tax allocation Residence A Employment B C Holiday Home 12
Some general principles (Individuals) Intercantonal tax allocation Exemption principle Employment income - Canton of residence Income from real estate - Canton of real estate Investment income (Securities, Bonds, Interest etc.) - Canton of residence Partnership and income from self employment - Canton of the place of business 13
Some general principles (Individuals) International tax allocation Residence concept Worldwide income & wealth concept Exemption principle Credit concept exceptionally for foreign interest, dividends, licence income under a double tax treaty No CFC nor subject to tax rules 14
Some general principles (Individuals) Net wealth tax Cantonal and communal tax Substantial differences Progressive rates 0.1-0.87% No caps (exceptions) 15
Some general principles (Individuals) Withholding tax Rate 35% deducted on: - Swiss Bank Interest on deposits of any kind - Swiss Bonds etc. - Swiss Dividends - Certain insurance products - Swiss Funds - Swiss Lottery gains 16
Some general principles (Individuals) Swiss "Lump Sum" Taxation mode for individuals Concept is provided for in the federal and cantonal laws Conditions - Non Swiss Citizen - No residence in Switzerland in the past 10 years - No gainful activity in Switzerland Recent developments 17
Some general principles (Individuals) Swiss "Lump Sum" Taxation mode for individuals Taxation Base at least: - 5x the yearly rental value (or rent paid) on Swiss real estate Moving up! No remittance concept Indefinite access as long as conditions are adhered to Possibility to use the Swiss treaty net (exceptions) Swiss estate and donation taxes apply 18
Some general principles (Corporate taxation) Federal income tax rate: Flat 8.5% of profit after tax Cantonal/communal income tax rates: rates vary widely! Range of maximum rates: approx. 6% to approx. 23.5% of profit after tax The maximum combined federal and cantonal/communal income tax burden on a profit before tax basis amounts to approx. 12.7% - 24.3% 19
Some general principles (Corporate taxation) Some cantonal tax rates are progressive Both federal and cantonal income taxes are assessed by the cantonal tax authorities. The federal tax authorities have a mere supervisory function with regard to income taxes The federal tax authorities are in charge for withholding tax and stamp tax assessments 20
Some general principles (Corporate taxation) The concept of consolidated or group return is unknown under the current tax laws; each corporation is treated as a separate taxpayer and files its own return The statutory accounts form the basis for taxation (commercial books), i.e. no separate tax books are to be kept 21
Some general principles (Corporate taxation) Most common special tax status Holding company status Mixed company status Principal company Financial branch 22
Some general principles (Corporate taxation) Administrative / Mixed company status Special tax status only available for cantonal/communal taxes, not for federal tax Swiss source income: taxed at normal rates Foreign source income: only a quota is taxed at normal rates (in general 1/10 to ¼ of the foreign income, depending on canton and scope of activity) 23
Some general principles (Corporate taxation) Administrative / Mixed company status This results in the following combined maximum federal and cantonal/communal income tax burden on profit before taxation: - On foreign source income 8.4 11% - On swiss source income 12.7 24.3% 24
Some general principles (Corporate taxation) Administrative / Mixed company status Conditions to be met - At least 80% foreign source income - At least 80% foreign source cost Company may have physical presence (i.e. office premises and personnel) and management (i.e. Management & Control in Switzerland) Les aspects touchant les personnes morales de la RIE II 25
Some general principles (Corporate taxation) Administrative / Mixed company status Advance Ruling Specialities in various cantons 26
Some general principles (Corporate taxation) Holding company tax status Special tax status only available for cantonal/communal taxes, not for federal tax Complete exemption from cantonal/communal income tax (i.e. also non-holding income is exempted!) 27
Some general principles (Corporate taxation) Holding company tax status Conditions to be met in order to obtain the holding tax status - Holding purpose; no commercial activity in Switzerland - At least 2/3 of total assets must be holding assets (=Investments) or - At least 2/3 of total income must be holding income (=dividends) - Federal income tax: maximum 8.5% of profit after tax. However, dividend income can benefit from participation exemption 28
Some general principles (Corporate taxation) V A T 2010 2011 Standard Rate 7.6% 8.0% (Going up 2011) Special Rates 2.4% 2.5% 3.6% 3.8% Group (consolidated) reporting possible Exemptions - healthcare - social work - culture and sports - education - insurance & banks - real estate - other 29
Thank you for your attention Andrio Orler, Partner, LL.M., Certified tax Expert orler@taverniertschanz.com Tavernier Tschanz 11bis rue Toepffer 1206 Genève Tél: +41 (0) 22 704 37 00 Fax: +41 (0) 22 704 37 77 30