The Swiss federal government levies a direct federal tax on an annual basis. The tax applies to the incomes of residents and the profits of legal entities registered in Switzerland. A single tax schedule is used to calculate the direct federal tax for taxable entities countrywide.
The direct federal tax applicable to individuals follows a tight tax progression regime. Even minor changes in taxable income levels can lead to a change in a person’s tax bracket. A taxpayer’s income is divided into multiple brackets. The tax schedule stipulates the tax applicable to each tax bracket. A flat tax charge can be applied to each 100 Swiss francs within a tax bracket as per the tax schedule.
The federal tax administration may make changes to tax brackets on an annual basis in order to neutralize the effects of cold progression. However, the schedule is not adjusted in the event that the tax burden decreases due to deflation.
Income tax on personal income
The amount of direct federal tax which private individuals must pay is primarily based on two factors: their taxable income and their civil status (taxable income can vary depending on the number and scope of applicable deductions). Depending on an individual’s civil status, one of two different tax schedules will be used: The first schedule applies to single adults who do not share their household with children or other dependents. The second schedule applies to married couples, single-parent families and registered partners.
Additionally, child deductions also apply. For each child and other dependent in a taxpayer’s care, a flat 251 francs can be deducted from their taxable income.
Direct federal tax: Example based on a family
A family with two children has a Swiss taxable income of 114,499 francs.
Income taxable in Switzerland: CHF 114,499
Tax for a tax bracket of CHF 105'000: CHF 2234
Tax per CHF 100 in excess of tax bracket: CHF 6
Income in excess of CHF 105,000: CHF 114,499 – CHF 105,000 = CHF 9499
Rounded to CHF 100: CHF 9400
Tax on income in excess of CHF 105,000: CHF 9400 / 100 * 6 = CHF 564
Tax before child deductions: CHF 2234 + 564 = CHF 2798
Child deductions: – CHF 251 * 2 = – CHF 502
Direct federal tax: CHF 2798 – 502 = CHF 2296
The tax rate increases alongside increases in taxable income, with the tax rate increasing more steeply in the lower income range than in the higher income range. The highest income tax rate applicable to direct federal tax is 11.5 percent, regardless of civil status.
Profit tax applicable to legal entities
Depending on the type of entity in question, one of two unified tax rates applies.
One tax rate applies to corporations (AG), corporations with unlimited partners (KMAG), limited liability companies (GmbH) and cooperatives. This 8.5% rate is applied to net profits.
The second tax rate applies to all other entities, including foundations and associations. This 4.5% tax rate is applied to net profits. Entities which perform social functions and entities with net profits of less than 5000 francs can obtain exemptions from profit tax.