SWITZERLAND Law and Practice Contributed by: Natalie Dini and Peter Vogt, Tax Partner AG
The ordinary income and wealth tax rates apply and, under the lump sum regime, income from foreign sources is in principle not taxed unless a treaty ben - efit is claimed. The lump sum regime is applied for by filing a written tax ruling with the competent cantonal tax authority. Inheritance and Gift Tax Based on current legislation, no estate, inheritance or gift tax is levied at federal level. The cantons and com - munes can levy inheritance and gift taxes on transfers of assets on death or by gift (a couple of cantons have abolished the inheritance and gift tax altogether). The tax is due in the canton of residence of the donor/ descendant or, for real estate, in the canton where the property is located. Tax rates are usually progressive and can reach up to 50% for distant relatives and non-related beneficiar - ies. Social Security Contributions: Social security contributions (for old age, disability, income compensation and unemployment) are due by all Swiss residents until reaching the retirement age of 65. The contributions are levied on employment or self-employment income and have no salary cap for old age, disability and income compensation (AHV/ IV/EO). Non-employed individuals are also subject to social security contributions, which are calculated based on their net assets. 1.2 Exemptions The cantons of Obwalden and Schwyz have fully abol - ished the inheritance and gift tax. Lucerne applies no gift tax but has maintained inheritance tax. The spouse and (in most cantons) direct descendants are exempt from inheritance and gift tax. A charity exemption applies to gifts or bequests to Swiss-recognised public-benefit bodies and tax- exempt charitable institutions. In principle, no real estate capital gains tax or real estate transfer taxes apply if real estate is gifted,
inherited or transferred in the course of a division of matrimonial property.
1.3 Income Tax Planning Capital Gains Tax Exemption
For Swiss resident individuals, any capital gain real - ised on the private (non-business) sale of movable assets – shares, bonds, funds, crypto, precious met - als, works of art, yachts, etc – is exempt from federal, cantonal and communal income tax. The main caveats are as follows. • Share transposition ( Transponierung ): when an individual sells shares in their own company to a corporation they control (or a related-party com - pany) and the price paid exceeds the shares’ nominal value plus any paid-in capital, the surplus is recharacterised as a taxable dividend instead of a tax-free private capital gain. • Indirect partial liquidation ( Indirekte Teilliquidation ): if an individual sells 20% or more of a company’s shares to a purchaser who holds the shares in the business assets and, within five years, the com - pany distributes pre-existing hidden reserves or surplus liquidity to help fund the purchase price, that distribution is traced back to the seller and the corresponding portion of the sale proceeds is ret - roactively taxed as a taxable dividend rather than a tax-exempt capital gain. • Professional trader: the assets must be held in a purely private capacity (if the tax authorities requalify the seller as a “professional trader”, the gain is re-taxed as ordinary income. • Real estate: the exemption never covers Swiss real estate, where each canton levies its own real estate capital gains tax. • Share buy-back: A Swiss share buy-back is tax- free only if the company holds the shares within the statutory treasury-share limits and resells them promptly; if the shares are cancelled (or the limits are breached) the amount above par is deemed a dividend, taxed in the hands of the seller and sub - ject to 35% Swiss withholding tax – unless and to the extent it can be booked against capital contri - bution reserves.
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