Tax calculation

The annual tax calculation seems to be an impossible task. Due to the various types of taxes and a lot of cantonal differences it can be challenging to determine the amount of taxes owed. Our simple tips and tricks will help you calculate your taxes easier and faster.

1. Calculate tax

In order to understand how the tax liability is calculated, one must understand the relationship between the the tax law and tax authorities on one side and the individual tax payer on the other side. Only those who know how the tax law works may understand how the taxes owed are calculated.

Basic principles

The tax liability of a Swiss citizen towards the government results from the tax law relationship. Said relationship consists of the five components of the tax obligation: the tax sovereignty, the tax subject, the tax object, the tax calculation basis and the tax rate.

The tax law relationship explained

Tax sovereignty is the power of a public entity, or more precisely the tax authority, to levy taxes within a certain territory. This power exists vis-à-vis the tax subject. The latter is an individual or a company that is liable to pay taxes in Switzerland. The tax is levied on the tax object, the object of the tax collection. The tax is calculated on the basis of the so-called tax calculation basis. Said basis records the value of the tax object. The actual amount of the tax depends on the tax rate. The tax rate determines the percentage tax amount which must be paid in relation to the tax calculation basis.

Example income tax:

• Tax sovereignty: The tax sovereignty for levying the income tax lies with the federal government, the cantons and in general the municipalities.
• Tax subject: Tax subjects are the individual people: the tax payers. They are the debtors of the income tax.
• Tax object: The tax object is the income of the taxpayer.
• Tax calculation basis: The amount of tax owed is calculated on the basis of the taxable income. That is, the remaining income of the taxpayer after deductions are made.
• Tax rate: The tax rate for the income tax is derived from a table that determines a percentage of the taxable income as the tax owed. This percentage is usually progressive and increases with the amount of taxable income.

2. Tax calculation made easy

Steuermass? Steuersatz? Steuertarif? Steuerfuss? - What is the difference? The terms used in connection with the calculation of the tax can cause a lot of confusion. Especially for people who are not native german speakers.

The "Steuermass" (tax measure) is measures the tax burden, it gives the actual amount of tax due. This measure can be designed as a uniform measure or as a value-dependent measure.

In the case of a uniform measure, the tax is levied once on each tax object, irrespective of the economic significance of the tax object. This is the case, for example, with the dog tax; the tax is to be paid on each dog kept.

In contrast, the value-based measure distinguishes between the economic significance of the tax object. The measure can either be proportional, as is the case with property transfer tax, or progressive, as is the case with the income tax.

Calculating income and wealth tax

In the case of the income and wealth tax as well as the profit and capital tax, the tax measure is made up of two rates: "Steuersatz" and "Steuerfuss"

The "Steuersatz" is a percentage set by law depending on the basis of calculation. The "Steuersatz" can be proportional or progressive and, when multiplied by the calculation basis, results in the so-called simple tax. A plurality of "Steuersätze" is called a "Steuertarif" (tax tariff).

The "Steuerfuss" is a periodically determined factor, i.e. a number used to convert the simple tax into the actual tax. The simple tax multiplied by the "Steuerfuss" thus results in the actual tax amount to be paid.

Calculation basis x Steuersatz = simple tax

Simple tax x Steuerfuss = actual tax

Example income tax canton St. Gallen

The tax tariff of the Canton of St. Gallen is as follows:

The simple tax on income is:

0 percent for the first 11,000

4 percent for the next 4,000

6 percent for the further 17,000

8 percent for the further 25,000

9.2 percent for the further 36,000

9.4 percent for the further 157,000

For taxable income above 250,000, the simple tax for the entire income is 8.5 percent.

3. Timing of taxes

A special feature of the Swiss tax system is that the tax period for the income and wealth tax or profit and capital tax does not coincide with the assessment period. The tax period is the period for which taxes are owed; in the case of the income tax for individuals, it is the calendar year, i.e. 2019, for example. However, these taxes are always levied, in the following year, in our example 2020.

Said fact does not prevent the state (at whatever level) from levying its claim at the beginning of the tax period. For this purpose, the tax amount for the coming tax period is estimated and collected on the basis of past periods. After the assessment, the difference between the result and the taxes already paid is calculated and either claimed or repaid, as the case may be.

Example

At the beginning of 2019, the state has already collected the taxes for the year 2019. Said year is the tax and calculation period. The income earned in 2019 will be taxed.

However, a tax return for it will not be filled out until 2020, the assessment period. Depending on whether the estimate at the beginning of 2019 was correct, additional taxes will have to be paid or you will receive money back from the government.

4. How does the tax calculation work?

The above example explains the basic idea behind tax calculation. However, the exact calculation methods vary depending on the type of tax. Moreover, there are major cantonal differences when it comes to establishing the amount of tax owed.

We will explain to you how to calculate the most common taxes.

Calculation of income and wealth tax

Taxation of income

All recurring and non-recurring income is subject to the income tax. Taxable income consists of earned income from self-employment or employment, investment income from movable or immovable assets, as well as income from pensions and a range of other sources of income.

• Self-employment: Income from self-employment is defined as all income earned by a person who participates in economic life at his own risk and with the intention of making a profit. It does not matter whether the activity in question is carried out on a full-time or part-time basis. A distinction must be made between a simple hobby and a self-employed sideline activity.
• Employment: All recurring and non-recurring income from a private or public employment relationship is recorded as part of employment income. It does not matter whether the payments are made in cash or in another form.
• Income from movable assets: In principle, all income from movable assets is taxable. This applies to interest as well as dividends, leasing fees or fees for licenses. The main exception to this rule are tax-free capital gains.
• Income from immovable property: Income from immovable property is understood to be effective income from the transfer for use of immovable property. This means rental income as well as owner-occupied rental value.

Profit costs may be deducted from taxable income. These are specific costs that were necessary to generate the income. They are to be distinguished from general costs or living expenses. The latter may only be deducted to an extent that is conclusively regulated in the StHG.

Deductible are, for example, interest on debts, contributions to pensions and insurance, the dual-earner deduction, maintenance contributions in the event of separation and divorce as well as illness, accident and disability costs. In addition, social deductions may be made.

Keep track of the permissible deductions with the "Tax return deductions" checklist from taxea!

Private capital gains are tax-free. Said term refers to private investments that result in a profit when sold. The most relevant example is probably the sale of shares.

However, caution is advised here: if share trading is carried out too professionally, it can be classified as self-employment and the profit is subject to the income tax.

We will show you exactly how income tax is calculated using a simple example.

Taxation of wealth

The wealth tax is another peculiarity of the Swiss tax system and probably especially surprising for expats, as hardly any other country levies this type of tax anymore. It is a tax on net wealth which consists of movable assets (e.g. bank accounts, cars, shares) and immovable assets (e.g. real estate). All assets are taxed at their value on December 31, this procedure is called the reference date principle.

The Confederation itself does not levy this tax, but the cantons and municipalities do. Unsurprisingly, the wealth tax can therefore turn out to be quite different depending on where you live. This is not only because each canton has its own tax measure, but also because of the different deductions, which the cantons set autonomously.

5. Calculation of withholding tax

The calculation of the withholding tax follows the described scheme in principle as well. However, the withholding tax is based on the amount of gross income (cash and non-cash benefits) of the person liable to the withholding tax per month. The reductions permitted for income and wealth tax are deducted as a lump sum

6. Calculation of profit and capital tax

Taxation of profit

The profit tax is raised on the net profit which is determined by the balance of the profit and loss account, taking into account the balance carried forward from the previous year. Expenditures for expenses not justified by the business must also be added to this balance. The tax calculation basis is thus increased by:

• Costs for the acquisition, production or increase in value of fixed assets;
• Depreciation and provisions not justified by business reasons;
• Contributions to reserves;
• Payments into equity capital from funds of the legal entity, insofar as they are not made from reserves taxed as profit;
• Open and hidden profit distributions and donations to third parties that are not justified in business terms.

Income not credited to the income statement, including capital gains, revaluation gains and liquidation gains, is also included in the calculation basis.

Art. 58 DBG or Art. 24 para. 1 StHG contains a list of expenses justified on business grounds. These include in particular federal, cantonal and communal taxes, but not tax penalties, as well as contributions to pension funds for the benefit of staff.

Voluntary contributions of up to 20 percent of net profits to charitable organizations in Switzerland, as well as rebates, discounts and costs for the professional training and continuing education of the company's own staff, also qualify as business-related expenses

Particular caution is required with regard to the tax correction of hidden reserves, the tax correction of depreciation, provisions and hidden equity.

Certain transactions do not affect the income statement, i.e. no taxable profit is generated. This is the case in particular with capital contributions by members of corporations and cooperatives as well as the transfer of the registered office, the administration, a business operation or a permanent establishment within Switzerland, provided that no disposals or accounting expenses are made.

Capital gains from inheritance, bequests or gifts are neutral in terms of the profit tax as well, although they may be subject to inheritance or gift tax depending on the canton.

Summary: While the income tax is based on the entire income minus deductions, the profit tax is based on what remains at the end. For this purpose, certain items are added back to the net profit.

Taxation of capital

The capital tax for legal entities is the equivalent of the wealth tax for individuals. It is levied only by the cantons and varies greatly in its form. The general principles of capital taxation, to which each canton must adhere, are laid down in the StHG. Equity capital is taxed according to the reporting date principle.

However, the equity capital of companies is much more difficult to determine than the net assets of individuals. This is because equity is made up of share capital, reserves and hidden equity. The determination of each of these factors can be difficult depending on the size and structure of a company.

Calculation of value added tax VAT

Who actually has to pay value added tax? The answer to this question is to be found in the Federal Law on Value Added Tax (MWSTG). The value added tax VAT is a net all-phase tax. It is levied on all stages of the movement of goods (all phases) after deduction of the input tax burden (net).

The VAT is divided into three sub-taxes. The domestic tax, which is levied on domestic services, the import tax on the import of services from abroad and the purchase tax on the purchase of certain services. The tax is levied by the Federal Tax Administration or the Federal Customs Administration (import tax).

The standard rate of VAT is 7.7 percent. A reduced tax rate of 2.5 percent applies to certain services. This covers basic items for everyday use, including piped water, foodstuffs, fodder, fertilisers and magazines. Accommodation services are subject to a special rate of 3.7 percent.

The input tax may be deducted when calculating VAT.

7. Calculation of anticipatory tax

The legal regulations on the anticipatory tax (Verrechnungssteuer) can be found in the Federal Anticipatory Tax Act (VStG) and the associated ordinances. The anticipatory tax is levied on income from movable assets, winnings from money games, lotteries and games of skill for sales promotion purposes, as well as on insurance benefits.

The anticipatory tax generally amounts to 35 percent of the taxable amount. It is paid to the Federal Tax Administration. Said tax functions as a security measure to ensure that these income components are declared in the tax return. People resident or domiciled in Switzerland can therefore reclaim the anticipatory tax if the corresponding income is declared in the tax return. The situation is different for individuals and companies domiciled abroad. For them, the anticipatory tax is usually a definitive payment.

8. Stamp taxes

Stamp duties, more precisely the issue tax, the turnover tax and the tax on insurance premiums, are regulated in the Federal Law on Stamp Taxes (StG)

• Issue tax: The issue duty is payable on the issue of domestic certificates. As a rule, it amounts to 1 per cent of the nominal value of the certificates. In the case of profit participation certificates, a levy of 3 francs per certificate is payable.
• Turnover tax: A turnover tax is payable on the turnover, i.e. the transfer of ownership against payment, of domestic and foreign deeds. The amounts to 1.5 per thousand of the consideration, for deeds issued by residents, and 3 per thousand for deeds issued by foreigners.
• Tax on insurance premiums: The tax on insurance premiums amounts to 5 per cent of the cash premium of the insurance. For life insurance, the levy is 2.5 per cent of the cash premium.

9. Real estate gains tax

The real estate gains tax is levied on the sale of immovable property, namely real estate, condominiums or building rights. The Confederation does not levy a real estate gains tax.

The exact structure of the tax therefore depends on the respective cantonal regulations. In addition, the amount of the tax depends to a large extent on how long someone has owned the property before selling it. These two factors can strongly influence the calculation of the real estate tax.

10. How can I calculate my taxes?

Due to the large number of different cantonal regulations, it is a good idea to use a tax calculator to determine the amount of tax to be paid. Most cantons offer such a tax calculator on their respective websites

Cantonal tax calculator

Use the cantonal tax calculator to determine your taxes.

• Aargau‍
• Appenzell Inner Rhodes‍
• Appenzell Outer Rhodes‍
• Berne‍
• Basel Countryside‍
• Basel City‍
• Fribourg
• Geneva‍
• Glarus‍
• Jura‍
• Lucerne‍
• Neuchâtel
• Nidwald‍
• Obwalden‍
• St.Gallen‍
• Schaffhausen‍
• Solothurn‍
• Schwyz (legal entities / natural persons)
• Thurgau‍
• Ticino‍
• Uri‍
• Vaud‍
• Valais‍
• Zug‍
• Zurich

11. Tax comparison

With the help of the tariff list, the income tax owed can be calculated at the federal level. The tariffs are based on the national consumer price index.

Furthermore, the Confederation produces annual statistics on the representative tax burden in the various cantonal capitals and municipalities, which can be used to compare the different tax burdens throughout Switzerland.

The federal government's calculations are structured according to the personal situation of the taxpayer

12. Conclusion

Calculating the amount of taxes owed is a complex task due to the large number of tax types and major cantonal differences. It is advisable to use a tax calculator to determine the amount of taxes owed. Many cantons offer such calculation aids on their respective websites.

However, these are only reliable if the actual relevant tax object is known.

Are you sure what counts as income? Have you made all permissible deductions? We are here for you!

The specialists at taxea are at your side with uncomplicated and competent advice and action. We are happy to help you complete your tax return quickly and minimise your tax burden.