The Swiss tax system is distinguished by its three-tier structure — federal, cantonal and municipal — which creates a multiplicity of regimes and obligations for taxpayers. PBM Avocats assists individuals, self-employed professionals and businesses with all their tax matters, from tax return preparation to estate planning, through voluntary disclosure procedures and criminal tax defence. Our firm, present in Geneva and Lausanne, has in-depth knowledge of cantonal tax practices in both Vaud and Geneva.
The Swiss Tax System: Three Levels of Taxation
The Federal Constitution (art. 128) empowers the Confederation to levy a federal direct tax (FDT), governed by the Federal Act on Direct Federal Tax (FDTL). This tax applies to the income of natural persons and the net profit of legal entities. The maximum rate of FDT on the income of natural persons is 11.5% for the highest incomes.
In parallel, each canton and each municipality levies its own taxes. The Federal Act on the Harmonisation of Direct Cantonal and Municipal Taxes (THLA) imposes a common minimum framework — particularly on taxpayer status, the object of tax and procedure — while leaving cantons free to set their own rates, scales and deductions. Municipal tax is generally calculated as a multiple of the basic cantonal tax. This federal architecture creates significant disparities in tax burden between cantons, which legitimate tax planning may take into account.
In indirect taxation, the Confederation levies value added tax (VAT, governed by the VAT Act), withholding tax (governed by the Federal Act on Withholding Tax) and stamp duties. Withholding tax, levied at source at a rate of 35% on returns from Swiss movable capital (dividends, bond interest), is refundable to taxpayers who have correctly declared their income, making it a powerful tool against tax evasion.
Income Tax for Natural Persons (FDTL)
Natural persons domiciled or residing in Switzerland are subject to direct federal tax on their worldwide income (art. 3 FDTL). Taxable income includes employment income, income from movable and immovable assets, pensions and annuities, and income from self-employment. Statutory deductions reduce this income: professional expenses, health insurance premiums, passive interest, contributions to occupational pension institutions (2nd pillar) and to the tied individual pension plan (pillar 3a).
Pillar 3a (tied individual pension) offers an annual tax deduction capped by law. Voluntary buy-ins into the occupational pension fund (2nd pillar) are also deductible and constitute a particularly effective tax planning tool. PBM Avocats advises you on coordinating these mechanisms with your overall estate situation.
Capital gains on private movable assets (shares, bonds) are in principle exempt from FDT for natural persons, as opposed to gains realised in the context of self-employment or professional securities trading, which are fully taxable. The distinction between a private investor and a professional securities dealer is regularly the subject of disputes with the tax authorities.
Wealth Tax
Wealth tax is an exclusively cantonal competence: the Confederation does not levy wealth tax on natural persons. Each canton freely defines its base, deductions and rates, within the framework set by the THLA. Taxable assets include movable assets (bank deposits, securities, shareholdings, vehicles) and immovable assets, valued under cantonal rules — often below actual market value, which represents an indirect benefit for property owners.
Proven debts are deductible from gross assets. Cantons generally grant social deductions (lump sums per taxpayer and per dependent child). In Geneva, the wealth tax rate is progressive and applies to net assets exceeding an exemption threshold. In the canton of Vaud, the system is comparable, with its own scales and deductions.
Corporate Taxation: Profit and Capital Tax
Legal entities (SA, Sàrl, cooperatives) are subject to federal tax on net profit (art. 57 et seq. FDTL) and cantonal tax on profit and, depending on the canton, on capital. Since the Corporate Tax Reform Act (CTRA, 2020) came into force, the former privileged tax statuses (holding, domicile, mixed) have been abolished and replaced by new instruments in line with OECD international standards: patent box, deduction for research and development (R&D), deduction for equity capital.
The effective corporate profit tax rate varies by canton and municipality, but generally falls between 12% and 22% in total (FDT + cantonal and municipal tax). Geneva and Vaud have both adapted their cantonal legislation following the CTRA, with globally competitive rates at the European level. Transfer pricing issues between companies within the same group, economic substance requirements and international tax avoidance rules (BEPS) also fall within our area of intervention.
Tax Planning and Legal Optimisation
Tax planning consists of organising one's affairs so as to legally reduce one's tax burden, within the limits set by law and case law. It is distinct from tax avoidance (abusive use of legal forms) and tax evasion (art. 175 et seq. FDTL), which are subject to penalties. The legal instruments available are numerous: buy-ins into the pension fund, contributions to pillar 3a, deductions for training costs (art. 33 para. 1 let. j FDTL), deductions for renovation costs of real property, and optimising the timing of extraordinary income or property gains.
PBM Avocats assists you with reviewing your tax return, conducting objection and appeal proceedings before cantonal tax authorities and, if necessary, before the Federal Supreme Court. We also represent our clients in tax audits, reassessment procedures and, where sanctions are contemplated, in criminal tax law matters.
Frequently Asked Questions about Tax Law
What is the difference between the FDTL and the THLA in Switzerland?
The Federal Act on Direct Federal Tax (FDTL / LIFD) governs the tax levied by the Confederation on the income of natural persons and the profit of legal entities. The Federal Act on the Harmonisation of Direct Cantonal and Municipal Taxes (THLA / LHID) sets the minimum framework that cantons must comply with for their own taxes, while leaving them discretion on rates and certain deductions. In practice, every Swiss taxpayer is simultaneously subject to both regimes.
How does voluntary disclosure (dénonciation spontanée) work in Switzerland?
Voluntary disclosure (art. 175 para. 3 FDTL for natural persons; art. 181a FDTL for legal entities) allows a taxpayer who has concealed assets or income to regularise their situation without facing criminal tax penalties, provided the approach is truly spontaneous, no tax authority is yet aware of the offence, and the taxpayer cooperates fully by paying the unpaid taxes, default interest and, where applicable, reduced fines. Each taxpayer may benefit from this procedure only once in their lifetime.
What is lump-sum taxation (imposition d'après la dépense) in Switzerland?
Expenditure-based taxation (art. 14 FDTL; art. 6 THLA) is a regime reserved for foreign nationals who settle in Switzerland without carrying on a gainful activity there. Tax is calculated not on actual income, but on the taxpayer's annual expenditure, subject to a statutory minimum. Since the 2016 reform, the minimum basis is seven times the annual rent or rental value, with a statutory floor. Both Geneva and Vaud offer this regime, subject to specific cantonal conditions.
Can my canton tax me differently from the Confederation?
Yes. The Swiss federal structure means that each canton sets its own tax rates and permitted deductions, within the limits set by the THLA. As a result, the overall tax rate on income or profit varies considerably from canton to canton. Geneva and Vaud are known for their competitive overall rates for certain categories of taxpayer, as well as for specific features such as cantonal tax rulings. There is also a municipal tax, calculated as a percentage of the cantonal tax, which adds to the overall tax burden.
What is a tax ruling and is it legally binding in Switzerland?
A tax ruling is a prior agreement concluded between a taxpayer (or their representative) and the cantonal tax authority concerning the tax treatment of a planned transaction. Under Swiss law, the ruling is not regulated by specific legislation but rests on the principle of good faith (art. 9 of the Federal Constitution). When granted by the competent authority and the taxpayer has acted in accordance with the information obtained, the tax administration is in principle bound by its position, subject to legislative changes or incorrect facts provided by the taxpayer.