Wealth tax

Wealth tax is a cantonal tax in Switzerland, varying from one canton to another. It is levied on the total value of an individual’s wealth. All Swiss cantons apply a progressive tax rate, meaning that the higher an individual’s wealth, the higher the tax rate will be. Wealth tax is considered a wealth tax and aims to ensure a fair distribution of wealth in Swiss society. 

Subject to wealth tax

In Switzerland, the liability for wealth tax depends on the value of the taxpayer’s net wealth. An individual with a net wealth exceeding a certain threshold is subject to wealth tax. This threshold varies from one canton to another and can also vary depending on the taxpayer’s family situation. According to article 3 paragraph 1 of the Federal Law on Direct Federal Tax (LHID), individuals are subject to wealth tax as soon as they are domiciled in the canton or as soon as they stay there for at least 30 days while carrying out a gainful activity, or for at least 90 days without carrying out any gainful activity. This is liability based on personal attachment. The definition of domicile is given in article 3 paragraph 2 of the LHID. An individual is domiciled in the canton as soon as they live there with the intention of establishing themselves permanently. However, individuals who are neither domiciled nor staying in the canton are subject to wealth tax when they operate a business, a permanent establishment, own real estate, have the enjoyment of it, or engage in real estate trading. This is liability based on economic attachment.

Calculation of wealth tax in Switzerland

According to article 13 paragraph 1 of the LHID, the entire net wealth constitutes the object of the wealth tax. The calculation of wealth tax in Switzerland is based on a progressive scale, which varies from one canton to another. In general, the higher a taxpayer’s net wealth, the higher the tax rate. The calculation of wealth tax also takes into account certain elements of the wealth that can be deducted or considered non-taxable. The details of these elements will be discussed in points D and E below. In Switzerland, wealth tax is generally levied annually. Taxpayers must therefore declare the value of their wealth each year to the tax administration of their canton of residence. It is important to note that the notion of wealth includes all goods and property rights of a person, including real estate, shares, bonds, bank accounts, vehicles, and valuables. In other words, all the elements constituting an individual’s wealth are taken into account for the calculation of wealth tax. Finally, it should be mentioned that wealth is generally estimated at market value, although the yield value may be taken into account appropriately (article 14 of the LHID).

Non-taxable wealth elements in Switzerland

Certain assets are expressly excluded from the calculation of wealth tax in Switzerland, either because they are considered non-taxable under tax law, or because they are exempt from tax by an international tax treaty. This means that the value of these assets will not be taken into account in the calculation of the wealth tax. Among the non-taxable wealth elements in Switzerland, we can notably mention:
Movable and immovable property located abroad: although these assets are taken into account for the calculation of income tax in Switzerland, they are not subject to wealth tax, except for a contrary agreement with the foreign country.

Common use goods: common use goods, such as furniture, clothing, jewelry, and works of art, are not taken into account for the calculation of wealth tax in Switzerland.

Welfare benefits: welfare benefits, such as life annuities, pensions, and social security benefits, are not subject to wealth tax in Switzerland.

It should be emphasized, however, that tax rules are complex and that each case must be examined individually. It is therefore strongly recommended to consult a Swiss tax lawyer for personalized advice on tax optimization and wealth management.

Possible deductions in the calculation of wealth tax in Switzerland

In addition to non-taxable items, certain amounts can be deducted from a taxpayer’s total wealth for the calculation of wealth tax. Among the possible deductions, it is particularly worth mentioning debts. Indeed, debts can be deducted from the value of a taxpayer’s net wealth. Debts must be real debts and must have been incurred to acquire or maintain elements of the wealth. Family burdens such as alimony, childcare expenses, and school fees can also be deducted from the value of a taxpayer’s net wealth. Finally, donations made to non-profit organizations can be deducted from the value of a taxpayer’s net wealth. However, the rules regarding deductible donations vary from one canton to another. It is therefore important to consult the specific rules of one’s canton to know if donations are deductible and to what extent.
It is important to emphasize that the possible deductions in the calculation of wealth tax vary from one canton to another in Switzerland. It is therefore essential to understand the specific rules of one’s canton of residence to know what are the possible deductions in the calculation of wealth tax. Swiss tax lawyers can help taxpayers understand the specific rules of their canton and optimize their tax situation.

In conclusion, the wealth tax in Switzerland is a cantonal tax levied on the total value of an individual’s wealth. The rules and tax rates vary from one canton to another, but all Swiss cantons apply a progressive tax rate. Some wealth elements are non-taxable in Switzerland, while certain deductions are possible in the calculation of wealth tax. It is therefore important to understand the specific rules of one’s canton to optimize one’s tax situation. Swiss tax lawyers can help taxpayers understand the specific rules of their canton and optimize their tax situation.