Swiss tax system

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Taxes in Switzerland are one of the factors explaining the attractiveness of this republic for doing any business. However, income tax and corporate income tax rates can vary significantly between cantons and Gemeinde. Therefore, before starting activities in Switzerland, you need to know all the features of the Swiss tax system.

Historical tax summaries

Until 1848, Switzerland was a true Confederation, within which the cantons were, in fact, sovereign states. Only they had the competence to establish and levy taxes. Accordingly, the latter differed depending on where the respective resident resided.

After 1848, Switzerland officially became a Federation. As a result, the latter received part of the tax competence. Because of this, there are a number of federal taxes in place today. However, the cantons, while retaining some of their tax sovereignty, also have the right to set their own taxes and rates.

Therefore, today the amount of taxes for the same taxpayer can vary significantly depending on the place of residence. Moreover, within the same canton, the amount of taxes depends on the reminder – the political components of the cantons of residence:

• federal taxes are the same for everyone, depending on their situation;
• cantonal and Gemeinde taxes depend on which Gemeinde you live in.

Stability of the Swiss tax regime

Taxes in the country may change slightly from time to time. For example, a canton may decide to raise property taxes or lower VAT because there is no tax rate freeze.

However, in Switzerland, there are legal guarantees of the stability of the tax regime. These guarantees make the Confederation practically unique in international comparison: in fact, through a referendum on the adoption and amendment of constitutions and laws, the taxpayers themselves, who have citizenship, determine how much they want to pay taxes. Some specific legal guarantees for the stability of the tax regime:

• The Swiss constitution determines what taxes the Federation can levy. For example, there is no property tax at the federal level. Even the country’s parliament cannot introduce it, since this requires a mandatory change in the Constitution, that is, a general referendum.
• The Swiss constitution prohibits the cantons from imposing certain types of taxes that could compete with the federal ones. Here we are talking, first of all, about VAT. In other words, the cantons cannot impose their own or additional VAT.
• The constitutions and tax laws of the Federation and the cantons establish maximum tax rates above which tax rates cannot rise.

Cantonal banks

Cantonal banks – credit institutions registered in Switzerland and belonging (in whole or in part) to cantons of Switzerland.

Typically, the activities of cantonal banks are limited by the territory of the corresponding canton. Only with slight exceptions, cantonal banks are accepted as customers of foreigners who are not residents of the Confederation.

National Bank of Switzerland

The National Bank of Switzerland, or the Central Bank of Switzerland, performs the function of the Central Bank of the Confederation. In accordance with the legislation, the National Bank of Switzerland is a joint-stock company with a special status. The shareholders of the National Bank are the Swiss Confederation and its cantons. The National Bank produces bills of Swiss francs. It is noteworthy that the coins of the Swiss franc mints the Swiss Mint.

The increase in currency reserves of the bank can be observed from year to year. In 2012 and 2013, the amount of foreign currency exceeded the mark of 400 billion francs, in 2014 – it was 500 billion francs, and in 2015 reached almost an indicator of 600 billion francs. In 2016, currency reserves totaled about 692 billion francs. In an attempt to reduce financial risks, the National Bank invests its money in a variety of assets. Almost 70 percent of all investments are state loans, and 20 percent are shares. The remaining 10 percent falls on other tools.

The Central Bank of Switzerland prefers to adhere to a passive investment policy. Since 2005, the bank gradually increases the share of investment in securities – from 8 percent to 20 percent. The main problem of the National Bank of Switzerland is the fact that more than 40 percent of the current portfolio is the euro. After the bank refuses to bind the course of the Swiss Frank to the euro, the national currency began to rise in price, which led to the loss of 4.4 percent of income.

The rest of the currency portfolio of the National Bank of Switzerland (that is, in addition to the euro) is an American dollar (over 30 percent), Japanese yen (less than 10 percent), a British pound (about 6-7 percent), a Canadian dollar (1-2 percent) and other monetary units (less than 1 percent for each; in total – about 6 percent).

Switzerland is a friendly country to taxpayers

Switzerland is a country with secrets and enchanting features, which does not cease to amaze the imagination of all those whose interested in the state of the Swiss, their foundations and mentality constantly fuel a desire to learn about the Confederation more and more, especially the tax system.

Both individuals and companies will be pleasant news about a relatively low tax burden in this country. At the same time, it is extremely important to understand that profitable taxes can be found far from all cantons.

Read more: https://taxtaxation.com/top-important-things-about-us-taxation/