In 2019 there was a complete makeover of the Swiss tax system. What changed? And is Switzerland still an excellent place to pay less tax?
What changed?
The reform is far going and brings some huge changes to the Swiss corporate tax landscape. Most Swiss companies are paying between 13 to 24% taxes, some international and foreign companies (like holdings) had a privileged tax status and paid nearly 5%. This special status is abolished. Instead, new tax incentives were introduced and the cantons may reduce taxes. Probably most Swiss cantons will provide tax rates between 12 to 14%. In some cases maybe 10% can be reachable.
To compensate , the Swiss will introduce:
° a patent box: the new patent box regime is in accordance with OECD Standards. In some cases income derived from patents could enjoy a reduction of 90%.
° R&D super-deduction: the cantons also have the right to provide up to 150% of the expenses of R& D activities, and these expenses can be deducted from cantonal and municipal taxes.
° notional interest deduction
So the Swiss tax system will become more in accordance with the EU-rules and OECD standards. It will become less spectacular.
First conclusions?
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Switzerland will stay a ‘business friendly’ location. But of course, they are, already a few years, alternatives… Countries like Bulgaria, Hungary, Ireland, Malta Georgia, the UAE… are valid alternatives for Switzerland.
Those alternatives have a simple tax straight forward tax system, like low flat tax rates or no tax at all. Switzerland is a more sophisticated jurisdiction and with the help of some smart and expensive tax lawyer you could minimize your taxes in Switzerland. So for the big players and companies not much will change. But smaller players maybe need first to have a look at the alternatives…Because Switzerland is expensive and sometimes a complicated place…
Withholding tax stays problematic?
And as soon you want to distribute dividends from a Swiss company there is 35% withholding tax. There are ways to avoid this 35%, if there is an active parent company in an EU country, but even then …it is not always easy. Again with some creative tax planning solutions can be found.
BUT why not avoid all this complexity and go for a country like Bulgaria with just a straightforward flat tax rate of 10%. And with salaries which are 80% lower than in Switzerland…?
Switzerland, still a good choice for the (ultra)rich?
In Switzerland individuals are taxed on their worldwide income.
BUT income from foreign businesses, foreign branches and foreign immovable property, are tax-exempt. When are you a Swiss tax resident? An individual is deemed to be resident in Switzerland if he/ she intends to stay in Switzerland permanently (as indicated by the location of the center of personal and business interests), if he/she is physically present in Switzerland for at least 30 days to carry out a professional activity or if he/ she is physically present in Switzerland for at least 90 days (regardless of purpose).
Again they are important differences between the cantons! Check it out! The cantons levy a separate capital gains tax on the sale of real property, but no canton levies tax on personal capital gains from movable property that is not considered an asset of a business. But a tax rate between 20 to 33% in total will be average, so of course better than the 50% or more in Western Europe but worse compared with 10% in some East European countries.
Conclusion: Switzerland is not very attractive for wealthy people because personal income tax rates are not really attractive. And of course it is a very expensive country to live!! Daily life, housing…are over the top. So maybe they are better choices! Contact us on: info@dehoon-dhp.com.
But for the ‘ultra-rich’ Switzerland could be an option! Why?
Because they have in some cases and in some cantons (!), a so called lump sum tax or the so called Pauschalsteuer !
It means that under certain circumstances the Swiss tax system allows, instead of the general tax, a tax measured by the actual cost of living also known as “Pauschalbesteurung” (i.e. Pauschal taxation). T
This tax is based on the actual cost of living. Including this are also costs for food, clothing, rent, education, and so forth. In practice, it is almost impossible to quantify all the costs of living and therefore what is often used is the monthly rent x 5 as the taxation’s minimum amount. People who are taxed by the Lump Sum are also exempt from any requirement to report their foreign assets and income.
What are the criteria to enjoy the ‘lump sum taxation’:
° you have to be a foreigner
° cost of living per year: at least CHF 400,000 – CHF 600,000, depending on the Canton
° wealth: at least CHF 10 million must be demonstrable
More questions or remarks!? Contact us on: info@dehoon-dhp.com.
