Wealth tax

Wealth tax in Switzerland is a tax levied on the total value of an individual’s assets. In Switzerland, wealth tax is a cantonal tax, meaning the rules and tax rates vary from one canton to another. However, all Swiss cantons apply a progressive tax rate, indicating that the higher an individual’s wealth, the higher the tax rate. The purpose of wealth tax is to ensure a fair distribution of wealth in Swiss society and may also encourage people to invest their money.

Subject to wealth tax

In Switzerland, whether an individual is subject to wealth tax depends on the value of their net wealth. Individuals with a net wealth exceeding a certain threshold are subject to wealth tax. This threshold varies from canton to canton and may also depend on the individual’s family situation. According to Art. 3 para. 1 LHID, individuals are subject to wealth tax if they are domiciled in the canton or have resided there for at least 30 days without interruption while engaging in a gainful activity, or for at least 90 days without engaging in a gainful activity, which is considered subject to personal attachment. The definition of domicile is given in para. 2 of the same article. An individual is domiciled in the canton, for example, if they live there with the intention of settling permanently. However, individuals who are neither domiciled nor staying in the canton are subject to wealth tax if they operate a business, a permanent establishment, own real estate, have the enjoyment of it, or engage in real estate trading in the canton. This is known as subject to economic attachment.

Calculating the Tax

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

Non-taxable wealth elements

First, it’s important to remember that wealth tax is a cantonal and communal tax in Switzerland, varying from one canton to another. Generally, the tax is calculated based on the net value of the taxpayer’s assets, deducting debts and deductible charges. However, certain assets are expressly excluded from the calculation of wealth tax, either because they are considered non-taxable under tax law or because they are exempt from tax under an international tax treaty; however, these elements will still be considered in calculating the applicable rate.
Among the non-taxable wealth elements in Switzerland, we can include:

Properties and movable assets located abroad
Household goods: such as furniture
Pension provisions
However, it should be noted that tax rules are complex, and each case must be examined individually. Therefore, it is strongly recommended to consult a Swiss tax lawyer for personalized advice on tax optimization and wealth management.

Possible deductions

In addition to non-taxable elements, certain amounts can be deducted from a taxpayer’s total wealth for calculating wealth tax. Among the possible deductions, debts are particularly noteworthy. Indeed, debts can be deducted from an individual’s net wealth value. Moreover, family burdens such as alimony, childcare expenses, and schooling costs can be deducted from an individual’s net wealth. Lastly, donations made to non-profit organizations can be deducted from an individual’s net wealth. However, rules regarding deductible donations vary from canton to canton.