EXPLAINED: How where you live in Switzerland impacts how much income tax you pay
Income tax in Switzerland is a complicated affair and how much you pay can depend on what you earn, your family status but also where you live. Here's an explanation of how it works.
In Switzerland, tax is levied by the federal government as well as by cantonal and municipal authorities (subject to a few exceptions).
Cantonal tax will usually make up a higher percentage of your tax burden than federal taxes, reflecting the independence of the cantons and the amount of services which remain the obligation of cantonal governments rather than the federal administration.
The amount you pay, even for municipal taxes, is dependent on your income as well as your family status.
This can be difficult to understand at first, particularly for some foreigners who are used to municipal taxes being set at a uniform rate, or determined according to the type of property one owns or lives in.
Please note this report only takes into account income tax rates. Further tax types are also subject to considerable variation depending on geographic and other factors.
How varied can tax burdens be in different parts of Switzerland?
Cantons and municipalities have the power to set their own income tax rates.
This can lead to large differences in the effective rate depending on where you live.
In some cases the difference in the tax rate is negligible, whereas in others it is so significant that it acts as an incentive to move – particularly for the uber-wealthy.
In the vast majority of cases, the differences will be larger from canton to canton than from municipality to municipality within the same canton, although there can also be significant variation within cantons themselves.
What are the differences from canton to canton?
To highlight the differences between cantons we have just looked at the highest tax rates in each canton. While this may not be the rate paid by you, it provides an indication as to each canton's tax rates.
It's important to note that as well as these figures being for the highest tax bracket they also incorporate the 11.5 percent federal tax rate.
Generally speaking, the lowest cantonal tax rates in Switzerland can be found in the smaller, less urbanised, German-speaking cantons in the centre of the country.
The canton of Zug, for instance, has one of the lowest income tax burdens at a cantonal level.
As a result, it has attracted wealthy individuals, with one in eight Zug residents having a net worth of over one million francs.
As noted by KPMG in relation to income tax rates in 2021, including federal taxes of 11.5 percent, Zug had a maximum income tax rate of 22.4 percent, which is followed by 24.1 in Appenzeller-Innerhoden and 24.3 percent in Obwalden.
This is lower than the Swiss average of 33.73 percent (for all federal, cantonal and communal income taxes).
Income tax rates are much higher in urbanised cantons and those in the French-speaking parts of the country.
Including federal taxes of 11.5 percent, Geneva has the highest tax rate in the country of 44.8 percent. This is followed by Basel Country (42.17%), Vaud (41.5%) and Bern (41%).
While this is clearly significantly higher than those in place in other parts of the country, KPMG points out they are still lower than the highest tax rates found in Sweden (57.3%), Denmark (56.3%) and Austria (55%).
What about at a municipal level?
Within a canton, there can also be significant differences depending on the municipality.
Municipal tax or communal tax refers to income tax charged at the municipal level.
This does not take into account other taxes that can be levied as a consequence of living in a particular municipality, like property taxes.
A report from January 2022 showed that the difference in Zurich can be several thousands of francs per year depending on which municipality you live in.
While the calculation of municipal taxes is complex (see below), in Zurich this could result in an effective income tax rate of as high as 46 percent or as low as 35 percent (including federal taxes), depending on which part of the canton you live in.
How are municipal taxes calculated and levied?
Somewhat confusingly, cantonal and municipal taxes are levied together and are often expressed in a single amount (although in some cantons this will be broken down into two line items: municipal and cantonal taxes).
The way in which municipal taxes are levied can be complicated.
Municipal taxes are levied at the municipal level according to the applicable municipal tax quota (German: Gemeindesteuerfuss, French: coefficient de l’impôt communal).
In most cantons the municipal tax quota is expressed as a two or three-digit percentage (or as a decimal).
For argument's sake, consider that your municipal tax quota is 115 percent (or 1.15 in decimal form).
Fortunately, this does not mean you need to pay 115 percent of your income to the municipality.
Instead, it means in that municipality, you need to pay 115 percent of the cantonal tax.
For argument's sake, let's say the cantonal tax is ten percent. With an annual salary of CHF50,000 you are liable for CHF5,000 per year to your canton on the basis of your income.
Note that this figure does not include federal tax, but only takes into account cantonal and communal taxes.
For municipalities with a 115 percent tax rate, you will need to pay CHF5750 in total (as both your cantonal and municipal tax) for the year. This will generally be itemised as one amount on your tax bill.
This percentage can often be lower than 100, for instance 85 percent (or 0.85).
In this case, you would need to pay CHF4250.
What are the exceptions?
Some municipalities do not charge tax at all, with the necessary money coming out of cantonal taxes.
In the tiny canton of Basel City, for instance, no municipal taxes are charged and these are all worked into the cantonal tax. This of course makes sense in Basel City, which is a completely urban canton smaller than many Swiss municipalities.
In effect though, this does not mean that the money paid as part of your cantonal tax in Basel City does not go to the municipality.
Instead, these taxes are paid to the canton, who then apportion part of it for municipal expenses.
This report is intended as a guide only and should not take the place of financial advice from a qualified advisor. Got any questions? Get in touch at [email protected].