Wealth Tax in Switzerland: Canton Rates Explained
Switzerland is one of the few countries in the world that levies a wealth tax.
The wealth tax is calculated on an individual’s assets, not their annual income, supplementing the income tax.
Accountants at Fiduciaire Karpeo explain how the wealth tax is calculated in Switzerland.
Additionally, we will see a comparison of wealth tax rates according to certain cantons.
Definition of a Taxpayer’s Wealth
Before delving into the estimation of wealth and the calculation of the tax, it’s first necessary to define what is meant by ‘wealth’ in the context of the wealth tax in Switzerland.
What Assets Are Subject to the Wealth Tax?
By ‘wealth,’ the Federal Tax Administration (AFC) means the monetary value of all movable and immovable property owned by the taxpayer. In principle, only net wealth is taxable. This consists of the total assets minus the total established debts.
Below is a detailed list of elements considered as part of an individual’s taxable wealth (this list is not exhaustive):
- Cash and salary accounts, bank or postal savings, cryptocurrencies;
- Securities (bonds, stocks, shares in Swiss companies or foreign entities, participation certificates, options);
- Shares in Swiss and foreign investment funds;
- Mortgage claims and private loans;
- Capital insurance (life insurance) and redeemable annuity insurances;
- Real estate properties;
- Precious metals such as gold, silver, or platinum;
- Cars and boats, as well as horses;
- Collections of all kinds such as stamps, coins;
- Artworks and jewelry.
Since 2001, items that make up furniture and personal objects for everyday use are no longer taxed (for example, furniture, televisions, paintings, dishes).
Cantonal Disparities on Items Subject to the Wealth Tax
The wealth tax is a cantonal tax, meaning it is levied by the cantons. Each canton thus has its definition of wealth. As with calculations related to the rental value of real estate, there are inter-cantonal disparities, especially regarding artworks.
In the canton of Geneva, the cantonal law expressly exempts artworks from the wealth tax. An artwork is considered furniture and is therefore exempt from the wealth tax if it decorates the home of its owner. However, if this artwork is stored in a bank safe, for example, it loses its character as ornamental furniture and is thus taxed.
In Zurich, the cantonal authorities are less flexible and consider that any artwork, even if hung in the living room of the taxpayer, is part of the wealth and must be taxed. This difference can have significant impacts on a taxpayer depending on the value of the asset.
Learn more : Swiss wage and minimum salary in Switzerland
Calculation of Taxable Wealth
Calculating taxable wealth is relatively straightforward. Taxable wealth is the net wealth, meaning debts can be deducted from the taxpayer’s total wealth. Mathematically, this is:
Net Wealth = Market Value Wealth – Debts and Other Authorized Deductions
Assets included in taxable wealth must be valued at market value according to Article 14, Paragraph 1 of the Federal Law on Direct Federal Taxation. Market value means the price at which an asset could be sold to a third party.
Estimation of Taxable Wealth
Assets must be valued at their market value. Let’s see how this value is calculated for certain assets subject to the wealth tax.
Publicly Traded Securities
The market value of publicly traded securities is relatively simple to calculate based on the valuation of the securities. The market value here is equal to the stock market value on December 31.
Non-publicly Traded Company Shares (LLC or SA)
Non-publicly traded shares must undergo a tax valuation according to Circular 28 of the Swiss Tax Conference. The annual financial statements form the basis for establishing the value of the company. The AFC does not use the DCF (discounted cash flow) model to value non-publicly traded company shares. Generally, the AFC will use an alternative method known as the practitioners’ method.
Each canton has its specifics in establishing the value of non-publicly traded shares. It’s important to approach the competent cantonal authorities to understand the valuation method applied.
Cryptocurrencies and Wealth Tax
The tax value of cryptocurrencies is determined annually by the AFC. The taxpayer will thus declare the value of their cryptocurrencies based on the values proposed by the AFC for major cryptocurrencies (Bitcoin, Ether, etc.).
For cryptocurrencies for which no value has been proposed by the AFC, the taxpayer must retain their value at the quotes displayed on December 31 on the exchange platform where they were acquired.
Real Estate
Non-agricultural properties are estimated at their market value. Generally, to avoid having to revalue real estate each year, the market value of a property acquired for consideration corresponds to its purchase price.
There are significant disparities between cantons, with some valuing properties at their market value while others value them based on their yield value.
Debts and Authorized Deductions
The wealth tax is a tax on net wealth. To calculate net wealth, each taxpayer deducts their debts as of December 31 of each fiscal year.
Mortgage debts, unsecured debts, and private debts are therefore deductible from wealth. Each of these debts must, of course, have a justification to be submitted to the tax authorities so that they can control and evaluate the value of these debts.
Other authorized deductions are generally linked to tax exemptions depending on the taxpayer’s social situation. For example, in Geneva, there is an exemption of 82,040 CHF for single individuals without children. For a married couple without children, the exemption is 164,080 CHF. To these social deductions are added additional deductions for children, for example.
Comparison of Wealth Tax Rates for Some Cantons in 2021
Wealth Tax in Geneva
In Geneva, the wealth tax does not apply to all taxpayers, as there is an exemption of 82,040 CHF for singles (164,080 CHF for married couples). Thus, a taxpayer whose wealth is below this amount will not be taxed on wealth. Once this threshold is exceeded, the percentages increase in brackets. Cross-border taxpayers requesting quasi-resident status through a TOU are also subject to wealth tax.
The highest bracket involves a wealth tax rate of 4.5 ‰ (per thousand) plus an additional tax of 1.35 ‰. Therefore, the total wealth tax amounts to 4.85 ‰ for the highest bracket.
Wealth Tax in the Canton of Vaud
In the Canton of Vaud, the tax is also progressive and works in brackets. Tax rates start at 0.24 ‰ for wealth starting at 50,000 CHF, up to 3.39 ‰ for the portion of the wealth exceeding 2,000,000 CHF.
Wealth Tax in Neuchâtel
In the Canton of Neuchâtel, a net wealth of over 50,000 CHF is required to be taxed on wealth. The effective rate is then 2.25‰. Wealth over 500,000 CHF is taxed at 3.6‰.
Wealth Tax in the Canton of Zug
Zug is known for being a canton very attractive in terms of taxation. In Zug, the maximum wealth tax rate is about 3.00 ‰ of the taxable net wealth.
Tax Advice and Tax Declarations in Switzerland
Given the fiscal specificities of each canton and the relatively short deadlines for filing tax declarations, it is important to seek advice from a quality fiduciary during the preparation of your tax declarations.
Our teams of chartered accountants are available to assist you with your tax declaration. Do not hesitate to contact us if you have any questions. Our teams in Geneva and Lausanne can assist you with your tax declaration.