Is Switzerland a tax haven?
Switzerland is often referred to as a tax haven because its tax rates are very low compared to many other countries – both for individuals and for companies. But does this really mean that Switzerland is a tax haven? We will answer this question in this article by looking at the tax rates in detail and drawing comparisons with other countries.
Is Switzerland a tax free haven?
First, we clarify the term “tax haven” and look at how supposed tax havens are classified as such around the world.
What is a tax haven?
A tax haven is a state that levies very low or even no income, wealth and/or corporate taxes. Therefore, such countries are very attractive for individuals and companies. Such countries are often accused by higher tax states of supporting tax evasion and using it as a business model.
These so-called tax havens are often very discreet in terms of secrecy. This means that cooperation with tax authorities from other countries is minimal in order to protect the identity of clients. Tax havens are therefore often used by criminals to launder money or evade taxes.
Since the “Panama Papers” scandal, states have been striving to prosecute tax evasion even more closely and want to force so-called tax havens to cooperate. For example, the EU maintains a blacklist of countries that are considered tax havens, including the following countries:
- Cayman Islands
- American Virgin Islands
- Trinidad and Tobago
The non-governmental organization Oxfam also maintains such a list. With the countries already mentioned and numerous others, the Oxfam list also includes four countries from the EU (Luxembourg, Malta, Ireland, the Netherlands), as well as Switzerland.
How does a tax haven work?
The goal of moving a tax residence or company headquarters to a tax haven is to avoid paying tax on income or assets earned in a high-tax country (or to pay tax at much lower rates). In common parlance, this is referred to as tax evasion. Tax havens are characterized by the fact that they are politically stable countries. This is necessary to be attractive for companies and individuals, because it must be guaranteed that sudden political instabilities do not lead to the loss of capital and/or assets.
Why is Switzerland called a tax haven?
Switzerland is often referred to as a tax haven, but compared to other low-tax countries, the tax rates here are higher. An example of the average taxation of corporate profits in 2020 by country (source: handelszeitung.ch):
- Singapore: 17%
- Hong Kong: 16%
- Switzerland: 15.12
- Qatar: 10%
- Bahamas: 0%
- Cayman Islands: 0%
- Dubai: 0%
This means that Switzerland is very attractive for companies, as the corporate tax rate is still low, but it does not lead the top rankings. Since there is no conclusive definition for the term “tax haven”, it is not possible to objectively say whether Switzerland falls into this category or not.
«The fact is: Switzerland offers very low tax rates compared to many other countries in Europe, and coupled with its geographical location and high quality of life, it is a popular destination for wealthy individuals from abroad or for companies.»
Tax in Switzerland for foreigners
In this section, we will now take a closer look at the income and wealth tax in Switzerland for individuals and what the benefits are.
Do you pay income tax in Switzerland?
Anyone who is liable to pay tax in Switzerland is subject to income tax on their income. Income tax is levied by the federal government, the cantons and the municipalities, whereby there are sometimes very large differences between the individual cantons and municipalities with regard to the amount of the tax burden. The calculation of the tax burden is progressive, i.e. the higher the income, the higher the tax rate. The calculation of the tax rate is also based on the worldwide income for subjects with unlimited tax liability. However, only income earned in Switzerland is taxed in Switzerland. Income from abroad is generally taxed in the country of reference, but must be declared in the Swiss tax return in order to determine the tax rate.
Benefits for wealthy individuals
In addition to income tax, Switzerland also has a wealth tax. It applies to both movable and immovable assets in Switzerland and abroad. Every taxpayer in Switzerland is subject to wealth tax. The assets in Switzerland and abroad must be declared in the tax return. Just as with income tax, worldwide assets are used to calculate the tax rate. However, only movable assets and immovable assets located in Switzerland are taxed. The value of a house abroad is therefore included in the calculation of the tax rate, but not in the taxable assets.
With regard to wealth tax, there are some advantages for wealthy taxpayers:
Depending on the canton, there is an exemption amount of between CHF 100,000 and CHF 200,000. Up to this exemption amount, no wealth tax has to be paid on assets.
Wealth tax generally quite low:
Compared to income tax, wealth tax is naturally very low (between 0.13% and 1.1% depending on the canton). On average, the total tax burden (income tax + wealth tax) is between 15% and 22% of net income.
Lump-sum taxation for wealthy foreigners living in Switzerland:
Instead of exact wealth taxation, foreigners can claim a (often more favorable) lump-sum taxation for their wealth if the following criteria are met:
o Taxpayer is not a Swiss citizen
o Taxpayer has unlimited tax liability in Switzerland
o the taxpayer is not gainfully employed in Switzerland
o if married: spouse must meet the same requirements
Comparison tax burden of a family
To make the comparison a little more tangible, we have calculated a rough example. The basis is a married couple, single earner, two children, non-denominational, income 500’000 CHF and 2 Mio. wealth for the tax year of 2021.
Tax in Switzerland for corporations
Corporations (GmbH or AG) with their registered office in Switzerland are subject to profit and capital tax. Taxes are levied by the federal government, canton and municipality as follows:
- Federal: direct federal tax on profits (8.5% on net profit)
- Canton: capital and profit tax (profit: between 12% and 24% depending on the canton, capital: between 0.3% and 0.9% depending on the canton)
- Municipality: various surcharges and deductions to the state tax
Depending on the canton and municipality, the tax burden for companies can vary considerably.
Tax rate per canton
To get an impression of the different profit tax rates for companies, here is a list by canton (profit tax rates from 2021):
|VS 18.72%||AG 18.55%||BL|
|SO 15.75%||GR 14.77%||SG|
|SH 13.94%||FR 13.87%||NE 13.57%||TG 13.36%||AR|
|BS 13.04%||OW 12.74%||AI|
|UR 12.63%||GL 12.32%||LU 12.32%||NW 11.97%||ZG 11.85%|
Do you have further questions about taxation in Switzerland? Contact us for a non-binding quote. We will contact you promptly and discuss your individual situation.