SWITZERLAND Law and Practice Contributed by: Natalie Dini and Peter Vogt, Tax Partner AG
1. Tax 1.1 Tax Regimes
Real Estate Capital Gains Tax The cantons/communes levy a separate capital gains tax on the net gain resulting from the sale of real estate. The exact rules vary from canton to canton and several exceptions apply (eg, if the proceeds resulting from the sale of the primary home are reinvested in a new primary home in Switzerland). The holding period reduces the tax exposure. No real estate capital gains tax is levied at federal level. Federal Withholding Tax A federal withholding tax of usually 35% is levied on Swiss-source dividends, bond interest and certain insurance proceeds. The federal withholding tax is fully refundable to Swiss residents who declare the income, and partially or fully reclaimable by foreign residents based on respective double taxation trea - ties. Wealth Tax No wealth tax is levied at federal level in Switzerland. The cantons and communes, however, levy a wealth tax on the worldwide net assets of Swiss resident individuals. Foreign real estate, businesses and per - manent establishments are usually exempt (under an exemption with progression method). Tax rates are mostly progressive and in the top brack - ets range (approximately) from 0.1%–1.1%, depend - ing on the canton/commune in question. Expenditure-Based (“Lump Sum”) Taxation Foreign nationals who take Swiss residence for the first time (or after a ten-year absence) and do not have any work activities in Switzerland may opt to be taxed on a deemed income and wealth (lump sum) basis. The lump sum is determined taking into account vari - ous factors such as a multiple of the annual rental value of Swiss housing or the worldwide expenditure (costs of living) of the taxpayer. Some cantons have abolished this regime. Cantons that still apply it require certain minimum amounts of taxable bases, which can vary.
In Switzerland, taxes are levied at three levels: fed - eral, cantonal and communal. The exact rules and applicable tax rates can vary between cantons and communes. Unlimited and Limited Tax Liability In Switzerland, unlimited tax liability applies to anyone who is domiciled or deemed resident in a canton – ie, someone who makes habitual stays of 30 days or more with gainful activity, or 90 days or more without, in that canton. The individual is taxed by that canton and the Confederation (ie, the nation of Switzerland) on worldwide income and net assets. By contrast, limited tax liability applies to non-resi - dents who merely derive income from specific Swiss- source items – such as Swiss real estate, a fixed place of business, or Swiss employment – and they are taxed only on those Swiss-source income streams and on the taxable value of Swiss-situs assets. Swiss individuals file an annual tax return reporting their income and wealth to the cantonal tax authori - ties. Income Tax Swiss resident individuals pay an income tax at fed - eral, cantonal and communal level on their worldwide net income. Income from foreign real estate, business - es and permanent establishments is usually exempt (under a progression exemption). Tax rates are mostly progressive and in the top brack - ets range from approximately 20% to 45% (depending on the canton/commune in question). Dividends from qualifying participations (minimum 10%) benefit from a reduced income taxation. Capital gains derived from the sale of privately held moveable assets such as shares benefit from an income tax exemption. However, several exceptions to this apply.
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