Talk tax to most foreigners, and the chances are Switzerland will be fingered alongside Monaco, Jersey and the Virgin Islands as an international haven.
The same conversation with a native, however, brings a much more nuanced response. Some cantons, like Zug and Schwyz, are particularly low tax. But others, such as Geneva, wield a much heavier burden. And everywhere, individuals are taxed on their wealth as well as their income.
Unusually of late, the debate about tax in Switzerland has been inflamed by locals, rather than foreigners. This month’s popular initiative on raising taxes on unearned income, proposed by the Young Socialists, was rejected. But talk about hoisting taxes on capital and ‘levelling up’ has gained popularity in here, just as in many neighboring countries, particularly after the gaping holes left in public finances because of the pandemic.
More than thought
Swiss residents in fact face significantly higher taxation than most outsiders believe. While spared inheritance tax (at least for immediate heirs) and cantonal income tax rates vary widely, wealth is taxed nationwide, albeit at slightly differing cantonal rates.
That levy is both unfamiliar abroad and contrary to recent international trends. In the past two decades, Germany, Austria, Denmark, Sweden and Luxembourg have all abolished wealth taxes. By contrast, the levy in Switzerland – paid, admittedly, by a small minority of residents, has, if anything, mounted.
In three recent blogs, Avenir Suisse researcher Marco Salvi has dug into capital taxation – with fascinating results.
He notes that only about half of all taxpayers are liable for wealth tax (as pensions savings are excluded). Allowing for that, and the fact that cantons offer a CHF 100,000–200,000 floor before wealth taxes bite, about 90 percent paid less than CHF 1,000 a year, based on 2017 figures. Some two thirds paid less than CHF 100 annually.
Unsurprisingly, wealth emerges as being highly concentrated. But even the moderately wealthy get snared in the net (not to mention additional taxes applied to transfers and capital gains on property). In the canton of Zurich, for example, the richest 1 per cent of taxpayers account for some 40 per cent of total wealth.
In all cantons, wealth tax is progressive – meaning the burden rises disproportionately for the ever richer. In Zurich, net wealth of ‘only’ CHF 940,000 is enough to make the top 10 percent of wealth owners. For those resident of the city itself, that means wealth tax of CHF 1,900 a year. A taxpayer with taxable wealth of CHF 5.5 million – the threshold to the wealthiest 1 percent – must cough up a chunky CHF 27,000 in annual wealth levy. Nationwide, wealth tax generates about CHF 7 billion in revenues a year.
Salvi draws attention to the difficulties of finding suitable data sources – let alone those allowing meaningful comparisons with other countries.
Nevertheless, his research offers some real revelations. While Swiss taxation on individuals’ earned income has remained relatively stable, the amount generated by levies on capital has risen over the years. That defies both popular belief and the widespread view in the media that wealth is taxed lightly here. In total, about one third of total individual tax revenues stem from assorted levies on capital, Salvi reckons.
Recent blogs by Marco Salvi on capital taxation (available in German and French)
That puts Switzerland around the European average, and certainly above similar countries such Austria or the Netherlands. So, contrary to what the Young Socialists – let alone uninformed foreign critics – may claim, capital in Switzerland is actually taxed relatively heavily by international standards.