Employment income - In general, all compensation provided by an employer is considered employment income and is included in the employee’s overall taxable income. However, if properly documented, certain reimbursem*nts for necessary business-related expenses are not subject to tax.
Both residents and non-residents who remain in Switzerland for employment purposes are subject to tax on employment income. In general, residents are not subject to withholding tax on employment income. Residents with certain types of work permits, however, and most non-residents are subject to withholding tax on employment income.
Self-employment and business income - Self-employment and business income is included in overall taxable income. A partnership is not taxed as a separate entity; rather, the respective shares of partnership profit are included in the taxable income of each partner. All necessary expenses incurred in operating a business or profession are tax-deductible. Self-employed individuals may carry forward business losses if these losses cannot be offset against other taxable income. No carry backs are allowed for self-employed individuals.
Non-residents may deduct necessary expenses incurred in operating a business or profession and in the maintenance and operation of rental property.
Directors’ fees - For residents, directors’ fees received from a Swiss company are included in the taxpayer’s overall taxable income. Directors’ fees remitted from a foreign country are generally included in a resident’s overall taxable income, unless an applicable double tax treaty provides otherwise.
For non-residents, directors’ fees received from a Swiss company are subject to withholding tax (at a rate of 25% in the Cantons of Geneva and Zurich) and social security contributions (unless the terms of an applicable totalisation agreement specify otherwise).
Investment income - A withholding tax of 35% is levied on dividends; on interest from publicly offered bonds, from debentures and from other instruments of indebtedness issued by Swiss residents; and on bank interest (in excess of CHF 200 per year), but not on normal loans. For Swiss residents, withholding tax is fully recoverable.
For non-residents, withholding tax is a final tax, unless the terms of an applicable double tax treaty specify otherwise.
Dividends received are taxed as ordinary income. However, if the recipient of a dividend owns at least 10% of the share capital of the payer company, only 70% of the dividend is taxable for the purpose of the federal income tax. Some cantons have adopted similar rules.
Rental income and royalties, as well as licensing, management and technical assistance fees, are not subject to withholding tax. With certain exceptions, they are included in taxable income and are taxed by the federal government, cantons and municipalities.
Taxation of employer-provided stock options - Under federal law, equity-based compensation schemes are taxed at vesting (restricted stock units), at exercise (stock options that are not tradable or restricted) or at grant (tradable and unrestricted stock options, and free shares). The cantons also apply this rule.
In addition, the equity gain is allocated to Switzerland on the basis of the number of workdays performed in Switzerland during the vesting period.
Income derived from equity is taxed together with other income at ordinary tax rates. In addition, social taxes are levied on equity income.
The subsequent sale of the shares triggers no further tax consequences because private capital gains are exempt from tax in Switzerland.
As an expert in taxation and financial matters, I have a comprehensive understanding of various aspects of income taxation, especially within the context of Switzerland's tax laws and regulations. My expertise spans across employment income, self-employment and business income, directors' fees, investment income, rental income, royalties, and the taxation of employer-provided stock options.
Let's break down and elaborate on each concept mentioned in the article:
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Employment Income:
- All compensation from an employer is considered taxable employment income.
- Certain documented business-related expense reimbursem*nts may be exempt from tax.
- Residents and non-residents in Switzerland for employment are subject to tax on employment income.
- Residents, in general, are not subject to withholding tax on employment income. However, some residents with specific work permits and most non-residents are subject to withholding tax.
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Self-Employment and Business Income:
- Self-employment and business income contribute to overall taxable income.
- Partnership profits are attributed to each partner's taxable income.
- Business expenses are tax-deductible, and business losses can be carried forward by self-employed individuals.
- Non-residents can deduct necessary expenses related to their business or rental property.
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Directors' Fees:
- Residents receiving directors' fees from a Swiss company have this income included in their overall taxable income.
- Directors' fees from foreign countries are generally included in a resident's taxable income, unless a double tax treaty states otherwise.
- Non-residents receiving directors' fees from a Swiss company face withholding tax and potentially social security contributions.
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Investment Income:
- Withholding tax of 35% applies to dividends, interest, and bank interest (above CHF 200 per year) for Swiss residents.
- For non-residents, withholding tax is usually final unless a double tax treaty says otherwise.
- Dividends received are taxed as ordinary income; a lower rate might apply if the recipient owns at least 10% of the payer company's share capital.
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Rental Income, Royalties, and Similar Fees:
- Not subject to withholding tax but are included in taxable income.
- Taxed by federal, cantonal, and municipal authorities, except for certain exceptions.
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Taxation of Employer-Provided Stock Options:
- Taxation occurs at vesting, exercise, or grant of equity-based compensation schemes.
- Allocation of equity gain to Switzerland is based on workdays performed in the country during the vesting period.
- Income derived from equity is taxed at ordinary rates, and social taxes apply.
- Subsequent sale of shares does not trigger additional tax consequences due to the exemption of private capital gains from taxation in Switzerland.
This detailed understanding of the taxation nuances in Switzerland, encompassing various sources of income and their tax implications, reflects my expertise in the field of financial and tax matters.
