Canton of Zurich - an attractive tax system
| The taxation system in Switzerland and specifically in the Canton of Zurich | ||
| In Switzerland, taxes are levied on three different levels, as follows: | ||
1. Confederation of Switzerland
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In
Switzerland, taxes are levied on the federal, cantonal and municipal levels. |
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2. Canton of Zurich
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3. Municipalities (communes)
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| On the federal level, the Confederation of Switzerland has its own tax laws applicable to the whole of Switzerland which therefore apply equally to all cantons. Especially important in this context are the direct federal tax, value-added tax, withholding tax on capital yields and taxes levied on issue of and transactions involving securities. The withholding tax is basically a tax levied at source with a safeguarding nature which can be refunded. | ||
| Beneficiaries of income subject to withholding tax, who are domiciled outside Switzerland, may claim restitution of the tax or offset it under existing double taxation treaties. | ||
| The stamp duty levied when corporations are founded or when participation in Swiss corporations or cooperatives is increased basically amounts to 1 %, with the sum of CHF 1'000,000 remaining exempt from tax in each case. Moreover, numerous tax free exceptions (such as for restructuring/reorganization of comp anies) are provided for. A number of different exemptions are also foreseen for tax on turnover, which is between 1.5‰ and 3‰. | ||
| The direct federal tax (levied on the income of natural persons and/or on the net profits of legal entities) is regulated by the Federal Law on Direct Federal Tax (DBG) although it is usually assessed simultaneously by cantonal taxation authorities with cantonal and municipal taxes. The remaining taxes and fiscal charges are assessed by officials at Switzerland's Federal Tax Administration in Berne. | Both the direct federal tax and cantonal and municipal taxes are assessed by the Cantonal Tax Administration office in Zurich | |
| The cantonal tax is regulated by Zurich's Cantonal Law on Direct Taxes of 8 June 1997 (Steuergesetz/StG) and it is levied by Zurich's Cantonal Tax Office. The direct municipal tax is not levied separately, but is rather derived as a percentage (municipal tax factor) of the so-called basic cantonal tax (einfache Staatssteuer) and included as a surcharge on the same tax invoice. | ||
| Inheritance taxes and gift taxes are assessed by Zurich’s Cantonal Tax Office. Direct descendants are exempt from inheritance tax and gift tax. | ||
| The levels for tax on real-estate capital gains and on real-estate transfer are set by the municipal authorities on the basis of the relevant cantonal tax laws. | ||
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| Double taxation treaties | ||
| Switzerland is involved in a dense network of double taxation treaties these having been signed with more than one-hundred states (including Germany, Great Britain, USA, Canada, France). Besides avoiding double taxation of income and wealth, most treaties also aim at reducing taxes at source (withholding taxes) levied on interest and dividends (even down to zero taxation). Switzerland does not levy any tax at source on royalties. | Switzerland is involved in a dense network of double taxation treaties. | |
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| Classes of tax payers | ||
| a) Natural persons The system of direct taxes differentiates between natural persons and legal entities. Natural persons are liable for direct federal tax levied on their income and cantonal and municipal taxes levied both on their income and their net wealth. As a matter of principle, partners in companies such as limited partnerships and general partnerships are subject to taxation as natural persons with respect to the share held in such partnerships. In the case of natural persons the taxable income corresponds to the gross income less business expenditure (professional expenses, outlay for business purposes, etc.), less further deductions such as interest payments, etc. as well as social deductions (for children or for maintenance payments). The tax on net wealth is assessed on net worth after deduction of liabilities. |
Natural persons pay tax on net income less admissible deductions. |
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| b) Legal entities
The bulk of legal entities consists of corporations (such as the joint-stock companies or limited liability companies) and cooperatives and these have to pay direct federal tax as well as cantonal and municipal taxes on net profit (profit after deduction of tax expenditure!). Cantonal and municipal taxes are levied additionally on equity capital. |
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| Foreign trading companies and other partnerships with operating sites or real-estate in Switzerland which do not constitute legal entities, are taxed in the same way as legal entities. | ||
| c) Real-estate
capital gains Taxes on real-estate capital gains levied on single properties cover all real-estate transfers of ownership involving both business-owned and private properties, subject to civil and/or economic law. However, profits derived from business properties are exempt from direct cantonal income tax. |
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| Characteristics of the direct federal tax | ||
| a) Natural persons
The taxation period for the cantonal tax for natural persons is the calendar year. The personal income earned during this period is taxed. At the federal level, no tax on net wealth is levied. |
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| Income tax rates:
The rate of income tax graduates progressively in accordance with the level of income. For married persons with a taxable income of CHF 200,000 the average percentage is 6,673 % and at an income level of CHF 843,600 the rate of taxation is linear at the uniform rate of 11.5 %. The somewhat steeper tax rate curve for singles peaks at a maximum rate of 11.5 % at a taxable income of CHF 712,500. |
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| b) Corporations and
cooperatives The accounting period for tax purposes is identical with the company’s financial accounting business year. Under the current value assessment system the net profit for this time period (after deduction of tax) is taxed. |
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| Rate of profit tax:
The profit tax rate is set proportionally and amounts to 8.5 % on after-tax profits. |
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| Characteristics of cantonal and municipal taxes | ||
| a) General remarks Zurich’s
tax law stipulates the tax rates used to calculate the basic cantonal
tax on which the cantonal and municipal taxes are based. At present
the cantonal tax chargeable amounts to 100 % of the basic cantonal
tax. Current municipal tax rates vary between 72 % and 123 % of the
basic cantonal tax for natural persons (excluding church tax) and between
79,74 % and 137,45 % for legal entities. The following examples show
the total cumulated cantonal and municipal tax rates applied to legal
entities by selected municipalities in the Canton of Zurich as a percentage
of the basic cantonal tax: |
The basic cantonal tax is multiplied by periodically determined tax factors. |
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| City of Zurich | 232,52 % | |
| City of Winterthur | 237,41 % | |
| Illnau-Effretikon | 227,61 % | |
| Kloten/Flughafen | 215,48 % | |
| Wallisellen | 206,80 % | |
| Opfikon-Glattbrugg | 194,65 % | |
| Zumikon | 180,14 % |
The tax and assessment period corresponds to the calendar year. Personal wealth or assets are taxed on the basis of the value at calendar yearend. For corporations and cooperatives the accounting period for tax purposes is identical with the company’s financial accounting business year. Under the current value assessment system the net after-tax profit made during the relevant business year is taxed. Tax on capital is assessed on the taxable capital remaining at the close of the business year. |
In the Canton of Zurich annual current value assessment is applied. |
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| b) Tax rates for natural persons | ||
| Income tax
rates: The rate of income tax graduates progressively in accordance with the level of income. For married persons, the basic rate for cantonal taxes attains an average percentage of 7,218 % at a taxable income of CHF 200,000. The somewhat steeper tax rate curve for singles attains the same average rate at a taxable in-come of CHF 124,500. The maximum tax rate for the basic cantonal tax is 13 %. |
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| Rates of tax
on net wealth: The applicable rate for the net wealth tax varies 0 ‰ to a maximum of 3 ‰ of the basic cantonal tax. |
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| Example: A married manager residing in Zumikon with a taxable income of Fr. 300,000 pays Fr. 44,578 annually for cantonal and municipal taxes. |
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| c) Tax rates for corporations and cooperatives | ||
| Profits tax
rates:
The profit tax rate is set proportionally to 8.0 % of the basic cantonal tax amounts after-tax profits. |
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| The profit tax is set proportionally to 8.0 % of the basic cantonal tax amounts. For a corporation in Opfikon the tax rate is 15,58 % of after-tax profits corresponding to 13,48% of pre-tax profits. | ||
| Rate of tax
on capital: The proportional tax on capital amounts to 0,75 ‰ (per thousand) of taxable equity capital (basic cantonal tax). A reduced rate of 0,15 ‰ applies for holding companies, domicile and mixed companies. |
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| Total tax
burden The overall tax burden
arising from profits taxes (direct federal tax, cantonal and municipal
taxes) for a corporation or cooperative domiciled in the City of Zurich
is 27,11 percent of net profit after deduction for tax. If the total
tax charged is expressed in terms of the tax burden on pre-tax profits
to enable a comparison with other countries, it is seen that the tax
burden is 21.33 % of pre-tax profits. For a company domiciled in Wallisellen
the tax on profits amounts is 20,10 % of pre-tax profits. |
| Examples of tax charges levied by the canton and municipality in the City of Zurich (in CHF) | ||||
| . | A Ltd |
B Ltd |
C Ltd |
Taxation of Holding |
| Taxable net after-tax profit | 80 000 |
150 000 |
500 000 |
500 000 |
| Taxable net equity | 500 000 |
500 000 |
2 000 000 |
2 000 000 |
| Basic profit tax |
6 400 |
12 000 |
40 000 |
--- |
| Basic tax on capital |
375 |
375 |
1 500 |
300 |
| . | . | . | . | . |
| Total profit tax |
14 880 |
27 902 |
93 008 |
--- |
| Total tax on capital |
872 |
872 |
3 487 |
698 |
| . | . | |||
| Examples of tax charges levied by the canton and municipality in Wallisellen (in CHF) | ||||
| . | A Ltd |
B Ltd |
C Ltd |
Taxation of Holding |
| Total profit tax |
13 235 |
24 816 |
82700 |
--- |
| Total tax on capital |
776 |
776 |
3 102 |
621 |
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| d) Tax deductible expenditure
Expenditure incurred in the course of business is tax deductible. Federal, cantonal and municipal taxes count as expenditure as do amortization costs and sums used for the building of reserves. Usually 80 % of the investment price for movable tangible assets can be written off in the purchase year. Further, reserves for research and development projects are also permitted as justifiable tax deductible business expenditure. Building of such reserves is permitted to the extent of 10 % of the taxable profit to a maximum of 1 million francs. It is also permissible to build hiddenreserves on stocks of up to one third of the purchase price or the lower market value. |
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| e) Losses from preceding years
Losses incurred in the preceding seven business years can be set off against future profits. This also applies if the company moves into Zurich from another canton. |
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| Taxation of holding companies and of equity investment companies | ||
| Joint-stock companies whose main purpose is the permanent administration of holdings in other companies who carry out no business in Switzerland and two thirds of whose assets or earnings consist of participating interests or earnings derived from participations pay no tax under Zurich’s cantonal tax laws. Tax on capital is levied at the reduced rate of 0.15‰ (basic cantonal tax). | Companies with
few or little business activities in Switzerland enjoy tax reductions. |
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| Joint-stock companies which on account of their business activities cannot be taxed as holding companies may claim tax relief on their investment earnings and capital gains derived from participations in the form of a participation deduction. A special reduction is granted proportionate to the ratio of the net earnings from participation to the total net earnings. This participation deduction is also granted for cantonal and municipal taxes as well as for the direct federal tax. | ||
| Taxation of domicile and mixed companies | ||
| Joint-stock companies which do not carry on business in Switzerland whose activities are purely administrative in nature and companies whose main business is carried on outside Switzerland and whose activities in Switzerland are minimal pay a reduced rate of cantonal and municipal taxes. | ||
| Earnings and capital gains from participations in companies are tax free. Earnings from foreign sources are added to taxable profits as a quota proportionate to the degree of administrative activity involved. As a rule, this quota is between 5 and 20 %. Here are two examples by way of explanation: a quota of 10 % is usually applied to financing companies, whereas the usual quota for captive insurance companies is 15 %. Consequently, up to 90 % of foreign-derived earnings are not subject to cantonal and municipal taxes. The tax on capital is assessed at the reduced rate of 0.15‰ (basic cantonal tax). Thus, the Canton of Zurich offers companies transacting business abroad an attractive taxation situation. | ||
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| Tax rulings | ||
| Companies interested in a Zurich domicile may ask Zurich's Cantonal Taxation Office to give them preliminary information about taxation modes. In this way, it is possible to determine beforehand bindingly whether a company will be classified as a holding company or a management company, which taxation mode will be valid and which profit surcharge rate will apply to a management company. The taxation authorities cannot of themselves offer tax counseling in the proper sense of the word. Nevertheless, timely consultation of the Cantonal Taxation Office will clarify the tax situation sufficiently so that concrete plans for domiciling a company or for restructuring an enterprise can be made. | Tax authorities provide competent assistance. | |
| Tax relief | ||
| Under certain circumstances it is possible for large foreign corporations wishing to take up domicile in the Canton of Zurich to be granted tax relief in the initial year and for nine subsequent years. This tax relief is only granted to new companies operating in new business sectors which intend to create numerous new jobs and thus benefit the Canton of Zurich. No such tax benefits are granted if companies intend to compete against existing companies subject to normal taxation. Tax benefits are granted in the form of reduced percentages for taxes on profits and on capital. | ||
| Further information Contact addresses in Zurich: Kantonales Steueramt or you may contact the responsible
assesment General information is supplied by: Amt für Wirtschaft und
Arbeit des Kantons Zürich Federal Tax Administration:
Eidgenössische Steuerverwaltung
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+41 31 322 73 49 |
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| Moreover, in the greater economic area of Zurich, all well-known audit companies, chartered accountants and fiduciary agents operating on international level have local offices. In addition, numerous internationally experienced tax experts, business lawyers and specialized management consultants are available for assistance. Banks operating on international level also offer their clients teams of experts for counselling. | ||