international tax summaries——SWITZERLAND（1998）（一）
international tax summaries——SWITZERLAND（1998）（一）
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On January 1, 1995, a VAT system similar to the VAT regime of the European Union countries was introduced. This VAT system was introduced based on an ordinance issued by the Federal Council. This ordinance will now be replaced by a formal federal VAT law, which will enter into force probably effective January 1, 1999 (see item 21).
In 1996, the Swiss Federal Council released a set of corporate income tax reform proposals aimed at strengthening the attractiveness of Switzerland as a site for holding companies. Despite the fact that the package encountered opposition in Parliament, the Swiss government still plans to enact the new legislation effective January 1, 1998. The reform package includes inter alia the following proposals:
q Relief from Swiss stamp duty on equity contributions;
q Elimination or deferral of capital gains taxation on the transfer of participations;
q Introduction of a tax credit for capital tax paid against corporate income tax;
q Introduction of a standard progressive tax rate.
INCOME TAXES ON CORPORATIONS
The federal direct tax on worldwide net profits is imposed at graduated rates. Between the minimum tax rate of 3.63% and the maximum of 9.8%, the rate varies in three brackets according to the yield (i.e., the proportion of taxable profits to equity capital) as follows:
Yield Applicable Tax Rate
4% and less 3.63%
23.15 and above 9.8
2. Local Income Taxes
The majority of the cantons and municipalities impose a tax on
worldwide net profits in a manner similar to the federal direct tax which is in addition to the federal tax. Between the minimum and the maximum basic tax rate specifically laid down in the tax laws the applicable basic tax rate is determined according to the yield. A few cantonal tax laws, even though prescribing graduated rates, do not rely on the yield for determining the basic tax rate. Normally the basic tax rate is multiplied by a certain percentage fixed annually or
periodically. The result gives the effective tax rate.
The total (federal, cantonal, and municipal) tax burden in six Swiss cities as a percentage of the net profits of a corporation is indicated below. In order to give a comprehensive picture, the annual tax on capital has been included. In addition, it is considered that taxes paid are a deductible expense. It is assumed that the corporation is operating in Switzerland and has a capital of SFr.100,000 and net profit of (a) SFr.12,000, (b) SFr.20,000, and (c) SFr.50,000:
Total Tax Burden
Cities (a) (b) (c)
Basel 25.33% 28.36% 27.57%
Berne 19.20 20.24 20.37
Geneva (without business tax) 24.87 32.04 31.45
Lausanne 21.31 25.01 27.40
Zug 15.79 17.95 17.98
Zurich 24.95 27.75 28.50
These figures reflect the situation during the calendar-year 1996 and are subject to change for any subsequent year. SpeCIAl provisions apply to corporations that are in liquidation.
For the tax reliefs available for holding, domicile, and auxiliary companies, see item 34.
3. Capital Gains Taxes
Capital gains realized or accounted for by a corporation are normally included in the taxable profits. In some cantons, capital gains realized on real property are taxed separately.
4. Branch Profits Taxes
A nonresident corporation carrying on business in Switzerland through a permanent establishment is taxed in the same manner and at the same rates as a resident corporation with respect to the net profits attributable to such permanent establishment. There is no withholding on branch profits remitted abroad.
The term permanent establishment?is defined in a similar manner as in most tax treaties to which Switzerland is a party.
According to Swiss tax law, a part of the total net profits of the nonresident corporation should be attributed to the Swiss permanent establishment by applying specific factors such as turnover, capital invested, salaries paid, and the like (so-called indirect method). In practice, however, the Swiss tax authorities take as a tax basis in most cases the profits shown in the books of the permanent establishment, which may be adjusted if necessary (so-called direct method).
5. Foreign Tax Reliefs
In principle, no tax credit is available for taxes incurred by a resident corporation in countries outside Switzerland. As an exception to this rule, several tax treaties provide for a credit against Swiss tax for foreign withholding taxes on dividends, interest, and royalties that are not refunded. In cases where no tax treaty protection is available, a resident corporation, as a rule, may claim a deduction from taxable profits for taxes withheld at the source in a foreign country. Unilateral provisions avoid international double taxation in
certain cases as follows:
q Income (including capital gains) derived from real property situated outside Switzerland is not taxed;
q Income derived from a permanent establishment situated outside Switzerland is tax-exempt.
The tax due by a resident corporation is calculated initially on its total worldwide income and then reduced according to the ratio existing between the worldwide income and the exempt income. Thus, the latter is retained for determining the tax rate applicable in Switzerland. Dividends received by a resident corporation, whether from domestic or foreign sources, may be tax-exempt under speCIAl provisions
more fully explained in item 28. If a Swiss corporation is granted the status of a so-called domicile company (as explained in item 34), international double taxation may also be alleviated.
6. Classification of Corporations
The Swiss Code of Obligations provides for various forms of business enterprises in Switzerland, such as corporations, limited liability companies, and cooperatives. From a tax point of view, a distinction can be made between normally taxed companies on the one hand and holding companies, domicile companies, and service companies on the other hand. For the privileged tax treatment of the second category of companies see items 28 and 34.
7. Payment of Taxes
The federal direct tax is paid annually and assessed on a current-year basis. Most cantons follow the system similar to that of the confederation, but some cantons still apply a two-year tax period. By the end of 2001, all cantons must have adopted the federal system.
8. Other Matters
Avoidance of Double Taxation Within Switzerland. Direct taxes are imposed at all three levels of government albeit under differing legislative frameworks. The Federal Constitution provides for the avoidance of intercantonal double taxation. The Federal Supreme Court has implemented this provision in numerous decisions which are precedents for similar cases. Double taxation between municipalities is avoided by express cantonal provisions usually reflecting the principles applied in intercantonal relations.
INCOME TAXES ON INDIVIDUALS
The federal direct tax on worldwide income is imposed at graduated rates. The maximum rate of 11.5% applies to income exceeding
SFr.501,700 (single), and SFr.595,200 (married).
10. Local Income Taxes
The cantonal and municipal tax burden on worldwide income of an
individual varies substantially. As explained in item 2, the basic tax rates are fixed in the applicable tax law, while the cantons and the municipalities decide annually by which percentage the basic tax rate shall be multiplied to arrive at the effective tax rate.
The following indicates the total (federal, cantonal, and municipal) tax burden in six Swiss cities of a married individual without children, as a percentage of a gross earned income of SFr.100,000. It should be noted that any income received by a married woman is incorporated in her husband taxable income.
These figures reflect the situation during the calendar-year 1996. The figures are subject to change for any subsequent year. Each individual is further liable to an annual cantonal and municipal tax on his wealth. This is more fully explained in item 25. The federal anticipatory tax also applies to individuals (see item 17).
11. Capital Gains Taxes
The federal direct tax is not charged on capital gains realized by an individual, provided the individual is not carrying on any business. If the individual does so, however, realized capital gains are added to his or her other taxable income. All cantonal tax laws provide for the taxation of capital gains realized on the disposal of real property. In a few cantons, these are included in the taxable income. In most cantons, however, they are taxed separately. Normally, the longer the
period during which the taxpayer owned the real property, the lower the tax incidence. Only one canton taxes capital gains realized on the alienation of movable property, e.g., shares. It levies the speCIAl tax only if the capital gain is realized within a limited period of ten years after acquisition. Capital losses may be deducted from capital
gains if the latter are taxable.
12. Foreign Tax Reliefs
See item 5.
13. Tax Period
An individual is required to use the calendar year but may select a different fiscal period of 12 months for the computation of business income.
14. Other Matters
Avoidance of Double Taxation within Switzerland. The information in item 8 also applies to individuals.
INCOME TAXES ON NONRESIDENTS
15. Liability to Tax
A nonresident company is liable to the federal direct tax on certain types of Swiss income only. The principal taxable items are income from real estate located in Switzerland, income from a Swiss permanent establishment, and income from debts secured by mortgages on Swiss real estate. A withholding tax of 35% is usually levied on dividends and bond and bank interest received by a nonresident company. Royalties are exempt from withholding tax. Liability for cantonal taxes is based on similar principles to those described above for the federal direct
tax. A company is regarded as resident in Switzerland if it has its registered office or effective place of management in Switzerland. All companies incorporated under Swiss law must have a registered office in Switzerland and are, therefore, deemed to be resident in Switzerland for tax purposes. The cantons and municipalities generally apply similar rules for their own taxes.
A nonresident individual is liable to the federal direct tax on certain types of Swiss-source income only, those including the types of income that are subject to tax in the case of a nonresident company and, in addition, fees received as a director of a Swiss company and income from the exercise of a profession in Switzerland. Federal anticipatory tax of 35% is levied on dividends and bond and bank interest received by a nonresident individual. Royalties are exempt from tax. Liability for cantonal taxes is based on similar principles to those described above for the federal direct tax. An individual is regarded as resident in Switzerland for federal tax purposes if he or she lives there with the intention of staying permanently. Mere physical presence can also result in residence. An individual who is not employed in Switzerland is considered resident after remaining there for a certain period of time, usually three to six months. An individual employed in Switzerland becomes resident upon arrival.
Similar factors are taken into account in determining whether an individual is resident in a particular canton for cantonal tax purposes. Anticipatory tax can be refunded under a tax treaty (see item 17).
Income tax rates for nonresidents are in principle the same as for residents. Both the confederation and the cantons, however, replace the standard assessment for foreign employees without a resident permit with a withholding tax imposed at speCIAl and simplified rates (see item 18).
17. Withholding Tax Rates
Dividends (including constructive dividends and liquidation proceeds) from Swiss sources are subject to a withholding tax (federal anticipatory tax) of 35% on the gross amount which is deducted at source. The tax also applies to distributions from Swiss mutual funds,except distributed realized capital gains. Interest on private loans, whether or not secured by a mortgage, is not subject to anticipatory tax. Interest on bonds and other certificates of indebtedness issued by a Swiss resident and interest paid by domestic banks also are subject
to anticipatory tax at 35%. Anticipatory tax law applies not only to banks and savings banks subject to Swiss banking law but also to anyone who publicly advertises to take interest-bearing deposits or is continuously in receipt of such. In this case the obligation to withhold anticipatory tax exists where more than 20 interest-bearing accounts are kept. The tax is a prepayment for a Swiss resident who reports such income in his tax return, a