Value-added tax (VAT)
As a matter of principle, proceeds of sales made and services provided in Switzerland are subject to VAT at the standard rate of 7.7% since 1 January 2018 (previously 8%). Goods for basic needs are subject to VAT at the reduced rate of 2.5% (this rate remained unchanged). Furthermore, services in connection with the provision of lodging are subject to VAT at the special rate of 3.7% (previously 3.8%).
Any person, regardless of legal form, objects, and intention to make a profit, is liable to VAT if that person carries on a business and is not exempt from the tax liability. A person carries on a business if the person independently performs a professional or commercial activity with the aim of sustainably earning income from supplies and acts externally under the person's own name. Taxable persons must register with the Swiss Federal Tax Administration of their own accord in writing within certain deadlines. A registered taxpayer generally is entitled to offset the amount of VAT charged by suppliers or paid on imports against the VAT payable.
Since 1 January 2018, an increased number of foreign companies are subject to Swiss VAT. The tax liability of foreign companies that supply goods to Switzerland is calculated on their worldwide turnover. Accordingly, if a company generates less than CHF 100,000 from the supply of goods to Switzerland, but at least CHF 100,000 in turnover globally, it is, since 1 January 2018, liable for VAT in Switzerland from its first Swiss franc of turnover.
Since 1 January 2019, foreign-based mail-order companies are liable for VAT in Switzerland if they generate at least CHF 100,000 annual turnover from small consignments to Switzerland. Such foreign-based mail-order companies are equated with the Swiss companies for VAT purposes.
The VAT rates are dependent on the goods sold or the services provided. Some supplies are exempt from tax without credit (e.g. hospital treatment, cultural services, insurance and reinsurance turnovers, specific turnovers in the field of money and capital transactions), and some supplies are fully exempt from tax (e.g. supply of goods that are transported or dispatched directly abroad). The difference relates to the fact that input VAT related to supplies exempt from tax without credit cannot be deducted, whereas supplies exempt from tax are fully eligible for input VAT deduction.
All goods arriving in Switzerland from abroad are generally subject to customs duty and import VAT. The customs duty is calculated on the gross weight of imported goods, where category-specific weight rates apply. Products like alcoholic drinks, tobacco products, food, and textiles are typical categories of higher duty rates. Furthermore, imported goods are subject to import VAT of generally 7.7% since 1 January 2018 (previously 8%). A reduced rate of 2.5% applies on certain goods (e.g. food, non-alcoholic beverages, books, magazines, pharmaceutical products).
In Switzerland, various excise taxes are levied. To name a few, the following excise taxes are levied at the federal level:
- VAT (see above).
- Petroleum tax.
- Performance-related Heavy Vehicle Fee.
- National road tax (motorway tax sticker).
- Beer excise tax/Tax on alcohol.
- Tobacco excise tax.
- Radio and television fee (corporate fee).
With regard to the ownership and the transfer of real estate property in Switzerland, property taxes may apply. Depending on the location of the real estate property, ownership-related property taxes are levied at the cantonal and/or communal levels or do not exist at all.
In case of the sale of real estate property, real estate transfer tax and taxes on the capital gain may apply.
At the federal level, capital gain realised on the sale of real estate property is subject to ordinary CIT. At the cantonal and communal levels, depending on the canton concerned, capital gain realised is either subject to the ordinary CIT (dualistic method) or subject to a special real estate capital gain tax (monistic method).
It is at the discretion of the authority of the cantons to decide how real estate capital gains shall be taxed within their territory.
Securities transfer tax
Swiss securities transfer tax (often known as 'securities turnover tax' or 'transfer stamp tax') is levied on the transfer of Swiss or foreign securities, in which Swiss security dealers participate as contracting parties or as intermediaries. The ordinary tax rate of Swiss securities transfer tax is 0.15% for securities issued by a tax resident of Switzerland and 0.3% for securities issued by a tax resident of a foreign country.
Swiss security dealers are defined as any person professionally engaged in buying or selling of securities for one's own account or for another person, including Swiss banks and other Swiss bank-like institutions. The definition also includes companies holding taxable securities whose book value exceeds CHF 10 million and remote members of a Swiss stock exchange.
Taxable securities include, but are not limited to, shares and bonds. Options and many other derivative instruments are not subject to Swiss securities transfer tax. However, the exercise of such financial instruments or derivatives may result in a taxable transfer of a security.
Various transactions are exempt from the Swiss securities transfer tax. Generally, no Swiss securities transfer tax is levied in the case of a merger or a reorganisation in which a Swiss security dealer is involved and taxable securities (including participation) are transferred. Furthermore, the like-kind exchange of a participation by a Swiss security dealer is also exempt from the Swiss securities transfer tax. This is particularly important for holding companies, which may qualify as Swiss security dealers.
Issuance stamp tax
Issuance stamp tax (often known as ‘capital duty’) on equity contributions to Swiss corporations is levied at the rate of 1% on the fair market value of the contribution. An exemption on the first CHF 1 million of equity in exchange for ownership rights applies, whether made in an initial or subsequent contribution.
A multitude of transactions qualify for an issuance stamp tax exemption. In particular, special tax provisions allow for most reorganisations to take place on a tax neutral basis. In addition, an existing non-resident company may generally transfer assets to Switzerland without incurring Swiss issuance stamp tax. However, if the company was formed abroad and re-domiciled to Switzerland exclusively or mainly in order to avoid Swiss stamp taxes, issuance stamp tax may apply.
The issuance of Swiss bonds and money market instruments is not subject to Swiss issuance stamp tax.
In addition, the conversion of certain contingent convertible bonds (CoCos) into equity will also not trigger Swiss issuance stamp tax on the newly created equity. In more detail, this relief applies to CoCos according to the Swiss banking law only; other convertible bonds will still trigger Swiss issuance stamp tax if converted into equity.
Corporate capital tax is only levied at the cantonal and the communal levels (not at the federal level). It is based on a corporation’s equity (i.e. the taxable equity corresponds to the sum of nominal capital, paid in surplus, retained earnings, other equity reserves, and, according to Swiss thin capitalisation rules, potentially existing deemed equity). The ordinary capital tax rates vary between 0.001% and 0.508%, depending on the company’s location of corporate residence in Switzerland.
Due to the entry into effect of TRAF on 1 January 2020 and the abolishment of the special cantonal tax regimes (e.g. the regimes for holding companies, domicile companies, mixed trading companies), the Swiss tax law will no longer permit a reduced capital tax rate in this regard. However, the Swiss tax reform will allow the cantons to introduce an adaptation of the capital tax base for participation, patents, and loans to group companies (see Federal Act on Tax Reform and AHV Financing (TRAF) in the Significant developments section).
The cantons are allowed to foresee in their tax law that CIT is creditable against a corporation’s capital tax. As of 1 December 2019, the following cantons have implemented such credit system: Argovie, Appenzell Innerrhoden, Bern, Basel-Land, Geneva, Neuchâtel, St. Gallen, Solothurn, Schwyz, Thurgau, and Vaud. The following cantons are planning to implement such a credit system as a part of the TRAF: Appenzell Ausserrhoden, Fribourg, Glarus, Jura, Obwalden, and Ticino.
Wage tax withholding (tax at source)
Employees meeting certain criteria (e.g. Swiss tax resident foreign nationals without a permanent residence permit, non-Swiss tax resident individuals) are subject to wage tax withholdings. In such case, it’s the employer’s obligation to withhold the appropriate wage tax on the employee’s gross salary. The wage taxes cover the employee’s federal, cantonal, and communal taxes as well as church tax (if applicable) (see the Taxes on personal income section of Switzerland’s Individual tax summary).
Social security contributions
Employers, in general, are required to account for social security contributions on the salaries of their employees. If the employee is subject to the Swiss social security system, the following compulsory social security contributions are concerned (see the Other taxes section of Switzerland’s Individual tax summary):
- Old-age, survivors’, and disability insurance (2019: 10.25%; as of 1 January 2020: 10.55%; the employee’s share is one half).
- Unemployment insurance/supplementary unemployment insurance (approximately 2.2%; the employee’s share is one half).
- Family compensation fund (0.3% to 3.63%; usually fully employer financed).
- Occupational accident insurance (approximately 0.17%; fully employer financed).
- Occupational pension scheme (2nd pillar) (contributions depend on pension plan; the employee’s share is usually half of the total contribution, where the employer bears the other half).