Introduction to Switzerland
Location and history
Switzerland is a confederation of 26 cantons in Central Europe. It is bordered by Germany, France, Austria, Italy and Liechtenstein. The original confederation was founded in 1291 and gained its independence from the Holy Roman Empire in 1499. Switzerland has had a turbulent history and its borders have changed from time to time as a result of upheavals in Western Europe. The present borders were established in 1815 and Switzerland became a federal state in 1848. It has a land area of some 41,300 sq. km. and a population of 7.5 million. The capital is Berne.
Swiss Government
Switzerland has a system of government quite unlike any other and the voters in referenda make the final decision on many matters. The President is the Head of State and Head of Government. The Cabinet is Federal Council elected by the Federal Assembly from amongst its members for a four-year term.
Swiss Taxation
Due to the federal structure of Switzerland there is no centralized tax system, with some taxes being levied exclusively by federal authorities whereas the cantons, the communes and the federal authorities levy others concurrently. Even among the cantons there are significant differences in both the taxes levied and the rates payable. In addition to the taxes described below, there is capital gains tax and a property transfer tax on real estate transactions. Switzerland imposes a wealth tax on individuals, an inheritance tax and a range of stamp duties. For companies there is a net worth tax. Whether an individual is or is not subject to Swiss personal income tax is determined by residence. A person is deemed resident in Switzerland if:
- He has Swiss employment (to work in Switzerland a non-national needs a work permit
- He carries on a business in Switzerland; or
- He lives in Switzerland for not less 180 days in any one year. If however he remains in the same abode the time required to be a resident for tax purposes drops to 90 days
Wealthy foreign nationals who wish to make Switzerland their home but do not wish to work in the country may qualify to pay personal income tax under the 'fiscal deal' or 'lump sum assessment' basis which entitles them to pay considerably less tax than a Swiss national with an equivalent income. This is the only discriminatory personal income tax levy that exists in Switzerland.
For corporate income tax purposes a company is deemed resident in Switzerland if it is either incorporated in Switzerland or effectively managed from there. The General Assessment Rule is that resident companies are assessed on their worldwide income except for profits generated by enterprises, permanent establishments and real estate situated abroad, whereas non-resident companies are only assessed on profit generated by enterprises, real estate and permanent establishments situated in Switzerland as well as interest on loans secured on Swiss real estate.
Corporate income tax is levied at a federal, cantonal and communal level. The level of corporate income tax payable varies amongst the cantons. Corporate income tax payable to the federal authorities may be tax deductible for the purposes of an assessment to cantonal corporate income tax and vice versa.
Advance tax rulings on the level of corporate income tax payable are available and are advised as a matter of prudence.
Generally speaking capital gains are taxed as corporate income at federal, cantonal and municipal levels
Switzerland is not covered by the European Savings Tax Directive but, in the interests of maintaining a harmonious relationship with its mighty neighbour, imposes a withholding tax on savings interest paid to EU residents.
Regulation of the Swiss Financial Services Industry
The Federal Banking Commission of Switzerland is the regulator and supervisor of the banking industry. The Swiss Federal Bureau of Private Insurance regulates insurance companies and Investment Fund companies. The Money Laundering Control Authority supervises financial intermediaries who are not subject to special rules.
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