Saturday, November 29, 2008

The Flat Tax Spreads to the Canton of Uri in Switzerland

November 6, 2008

By Alvin Rabushka

Switzerland has a three-tiered income tax system in which income taxes are levied at the federal, cantonal, and municipal level. On average, about a third of all personal income taxes is collected at each level, although there is wide variation among the twenty-six cantons and some 2,900 municipalities. The federal income tax consists of nine brackets that range from 0% on the first Swiss francs (CHF) 25,000 ($1 = CHF 1.175) to a top rate of 13.2%, after which it falls to 11.5% on income exceeding CHF 716,500.

On September 28, 2008, the Canton of Uri adopted a flat-rate personal income tax to commence January 1, 2009. The new law imposes a flat-rate of 7.2% for the canton, and 7.2% for each municipality in the canton. An additional 1% for churches brings the total to 15.4%. The law includes a personal deduction of CHF 14,500 along with a married deduction of CHF 11,000 and child deductions ranging from CHF 8,000 to CHF 20,000.

A married taxpayer with two children with a gross income of CHF 100,000 would be allowed to deduct, in addition to CHF 41,000 for spouse and children, another CHF 11,850 for old age and survivors insurance, and another CHF 7,300 for job-related expenditures and insurances. This leaves a taxable base of CHF 37,350 subject to the two flat rates for cantonal and municipal taxes. Including federal tax of CHF 106, total tax of CHF 5,484 represents less than 6% of gross income.

The tax rate on profits on domestic Swiss enterprises is a flat 4.7% at both the canton and municipal levels. To this is added 1% for churches, resulting in a flat-rate of 10.4%. A holding company which has no active business in Uri is exempt from cantonal and municipal taxes. There is a small municipal wealth tax of 0.001% that does not take effect until wealth reaches CHF 2 million.

Uri thus joins the Canton of Obwalden with a flat tax, Other cantons are actively exploring the flat tax as part of their plan to attract investment and high-income individuals.

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