Taxable income and tax rate in Switzerland

Income from work and income from capital are the income subject to tax in Switzerland. For employees, salaries, bonuses, i.e. earnings in cash, as well as allowances in kind, such as apartments, constitute the taxable income. For small and large business owners, the taxable base is the turnover or profit earned by the taxpayer during the calendar year. Interest, dividends, royalties and property income constitute capital income. Interest, dividends and internal and external royalties are taxed. Real estate income is derived from the rental or sale of property located in Switzerland only.

The tax rate in Switzerland for companies

Since 1999, the tax on the profits of corporations and cooperative firms has been defined on the basis of a fixed relative rate at the regional, municipal and federal levels.

• Confederation (statutory rate): 8.50
• Canton and commune (statutory rate): 23.49
• Total (statutory rate): 31.99

The tax rate is considered in relation to the profit that remains after subtracting regional, municipal and federal taxes. The latter are considered as a deductible expense on the taxable income. This proves that there is a big difference between the so-called statutory rate and the effective rate, expressed as a percentage of pre-tax profit.

For the examples given above, the statutory rate is 31.99%, while the effective rate, which is expressed as a function of pre-tax profit, is 24.24%.

Again for this example, the pre-tax profit is 100%. The net profit after taxes is therefore 75.76%. Following to the compulsory allocations to reserves, the latter may be distributed to the shareholders and will be subject to withholding tax when each share is allocated.

The tax rate in Switzerland for individuals

Swiss tax law provides for progressive taxation of taxable activities. While the law differs from one municipality or canton to another, the progressive rate was recently adopted at the cantonal level.

Therefore the progressive rate takes into account the income categorization of each individual and each household.

As a result, taxes are calculated on the basis of the total taxable activities of a household or individual minus the discounts provided by law. This is how the splitting is integrated into the calculation of household taxes.

Splitting reduces by half the total taxable income in a household, including the income of both spouses living together.

Formalized cohabitants can also benefit from splitting.

Divorced parents with dependent children also benefit from this reduction.

According to article 39, paragraph 2 LIPP, households with dependent relatives can also benefit from the 50% tax rebate.