MINISTRY OF EDUCATION & TRAINING

National Economics University

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Taxation

Topic: Please choose a country from the OECD and provide an

overview of the tax system and analyze recent trends/ changes in tax
policies/laws

Students : Nguyễn Tiến Đạt - 11221254

Lư Thị An Na - 11224420
Đỗ Thị Hải Yến - 11227053
Chu Hải Lam - 11223201
Phạm Thanh Lan - 11223276
Đỗ Thu Ngân - 11224544

Class : Kiểm toán 64B CLC

Instructo : ThS. Hà Kiều Oanh
r

Hanoi, 3/2024
 Table of contents

Table of contents........................................................................................................1
1. Introduction..........................................................................................................2
2. Overview of tax revenue and types of taxes.......................................................2
2.1. Overview of tax revenue....................................................................................2
2.2. Types of taxes....................................................................................................3
2.2.1. Taxable persons...........................................................................................4
2.2.2. Individual tax...............................................................................................4
2.2.3. Corporate profits tax....................................................................................5
3. Changes in taxation..............................................................................................5
3.1. Horizontal analysis............................................................................................5
3.1.1. 2010 – 2021.................................................................................................6
3.1.2. 2021 - 2022..................................................................................................7
3.2. Vertical analysis................................................................................................8
3.2.1. Individual tax.............................................................................................10
3.2.2. Corporate profits tax..................................................................................11
3.2.3. Property Tax..............................................................................................12
3.2.4. Tax on goods and services.........................................................................13
4. Recommendation and conclusion.....................................................................13
References.................................................................................................................15

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 1. Introduction

Imagine a country consistently ranking high in income, education, and well-

being, yet boasting a relatively low tax burden compared to its peers. This is
Switzerland, a landlocked European nation renowned for its breathtaking scenery and
unique approach to taxation. Formally established in 1960, Switzerland is a founding
member of the Organization for Economic Co-operation and Development (OECD)
along with 19 other countries. While the country outperforms the OECD average in
various quality-of-life metrics, it stands out for its position on the tax-to-GDP ratio.
Based on the data of OECD, in 2022, the Tax-to-GDP ratio of Switzerland ranked
32nd out of 38 OECD countries, with 27.23% or 220 million USD, collecting a
smaller portion of its economic output in taxes compared to most developed nations.

This essay delves into the intricacies of the Swiss tax system, exploring its
revenue streams, the different types of taxes levied, and recent trends in taxation
within the country.

2. Overview of tax revenue and types of taxes

2.1. Overview of tax revenue

Tax revenue is defined as the revenues collected from taxes on income and
profits, social security contributions, taxes levied on goods and services, payroll
taxes, taxes on the ownership and transfer of property, and other taxes. Total tax
revenue as a percentage of GDP indicates the share of a country's output that is
collected by the government through taxes. It can be regarded as one measure of the
degree to which the government controls the economy's resources.

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 Switzerland collets revenue (tax revenue) through various taxes including:
individual income tax, corporate income tax, tax on goods and services and property
tax. From 2010 to 2022, the tax revenue contributed to GDP in Switzerland was
lesser than the OECD average at around 5%. Keep in mind that there's more to
economic growth than just the tax-to-GDP ratio (Arjun Dahal, 2021), in fact
Switzerland has an advanced and developed economy, ranking among the most
advanced in the world. This low Tax-to-GDP ratio could come from the fact that the
government might prioritize competitiveness in many aspects. The country could
keep taxes low to attract more tourists, or even business and investment, which could
increase the GDP in general even with low tax rates.
2.2. Types of taxes

In Switzerland, taxes are levied by the federal government, the cantons and the
communes. This is because the Swiss tax system mirrors Switzerland’s federal
structure. Based on the constitution, all cantons have full right of taxation except for
those taxes that are exclusively reserved for the federal government. Switzerland's 26
cantons set their own tax rates, leading to significant variations in income, wealth,
inheritance, and other taxes across the country. To sum up, Switzerland has two
levels of taxation: the federal and the cantonal/communal level (Federal Department
of Finance (FDF), 2024).

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2.2.1. Taxable persons

For federal taxes, those required to pay are Swiss resident legal entities, i.e.
Swiss stock corporations, limited liability companies, and partnerships limited by
shares, cooperatives, clubs and foundations, and collective investment schemes with
direct ownership; and companies which have their registered office or place of
effective management in Switzerland are generally considered resident for tax
purposes.

For cantonal and municipal taxes, most cantons offer partial or full tax breaks
for cantonal/communal tax purposes for up to 10 years on a case-by-case basis. In
particular, incentives may be obtained for creating a new presence or for an
expansion project with particular economic relevance for the canton. Practice differs
in the individual cantons. Most importantly, however, business incentives are
generally granted in connection with the creation of new jobs locally, i.e. requirement
of at least 10 to 20 new jobs in most cantons. (Overview of the Swiss tax system,
2020)
2.2.2. Individual tax

In Switzerland, tax residents pay tax on their worldwide income. However,

income from foreign real estate and foreign businesses is exempt from tax. Though
exempt, this income is considered when determining the tax rates that apply to the
rest of the taxpayer’s income. On the other hand, non-residents are only subject to tax
on income from Swiss sources.

Switzerland has a multi-layered income tax system. Taxes are collected by the
federal government, individual cantons (states), and municipalities. The tax rates
increase as you earn more (progressive system). The federal government's tax rate is
relatively low, ranging from 0% to 11.5%. However, cantonal tax rates can differ
significantly. While the maximum marginal rates can be over 40%, the actual amount
you pay (effective rate) tends to be much lower. This can vary depending on where
you live. For instance, a single person making 150,000 CHF annually would pay an
effective tax rate of around 9% in Zug but 18% in Lausanne (Switzerland tax system,
n.d.)

Another thing to mention is the profit from the sale of movable property (such
as shares). This is exempt from tax if it is not a business income of the dealer. Profit
from the sale of real estate is taxed at the cantonal level, and dividend income is taxed
at ordinary rates.

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2.2.3. Corporate profits tax

Swiss companies pay corporate income tax levied at three levels: federal,
cantonal, and communal. They pay tax on income generated in Switzerland, while
income attributable to overseas permanent establishments and income from overseas
real estate is not taxed but is taken into account in determining the progressive tax
rates applicable to other kinds of income.

The federal tax rate is a flat rate of 8.5% on a company's profit after tax, which
is deductible from a company's taxable income, resulting in a slightly lower effective
federal tax rate of approximately 7.83%. Cantons and communes also levy corporate
income tax, mainly at a flat rate, but there are some cantons that have implemented
progressive tax scales. Another thing is that these rates can vary significantly
depending on the location of the company. In general, the total effective corporate
income tax rate for Swiss companies ranges from around 11.9% to 21.6%, some
examples include Zug at 11.95%, Zurich at 21.15%, Lucerne at 12.32%, and Geneva
at 14%.

It is stated that you won't pay taxes on dividends received if you own at least
10% of the distributing company, or if the market value of your shares is at least CHF
1,000,000. Profit from the sale of shares is tax-free if at least 10% of the company's
capital has been held for at least one year. When selling the remaining shareholding,
if it falls below 10% of the company’s capital (due to the previous sale), an
exemption is provided if the market value of the remaining shares is at least CHF
1,000,000 (Switzerland tax system, n.d.).

3. Changes in taxation
3.1. Horizontal analysis

Horizontal analysis is a technique used to assess trends and changes over time.
It involves comparing data points from different periods to identify patterns and
measure growth (or decline). With that, we can understand growth rates, identify
areas of improvement or decline, and forecast future trends (Wolfgang Alfredo
Lumbantobing, 2022). In here, we analyze the Tax-to-GDP ratio of Switzerland from
2010 to 2022 and compare it to the figure of OECD average.

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 Overall, the percentage of tax revenue in GDP stood at 25.82% in 2010 and
reached the highest point of 28.48% in 2021. Besides that, the proportion of tax
fluctuated around 26% during 6 years from 2010 to 2016.
3.1.1. 2010 – 2021

The tax policy changes in Switzerland have been relatively stable, although the
country faces pressure from international organizations to improve transparency and
fairness in its tax system, particularly in combating tax evasion and money
laundering. Reforming federal taxation may have been discussed and implemented to
enhance the tax system and increase transparency.

In particular, Switzerland requires foreigners to pay taxes up to five times the

amount of rent a year. Those who rent hotels pay twice as much tax as rent and
meals. As indicated in tuoitre.vn (2012), wealthy foreigners bring in about $730
million in these taxes each year to Switzerland.

There is an argument that it is unfair for rich Swiss to pay taxes based on their
wealth and income when the rich foreigners do not. Compared to rich Swiss, wealthy
foreigners can save up to 90% in taxes. However, supporters argue that tax incentives
will attract many rich people from other countries to live and spend money, helping
domestic consumption develop.

Under increasing pressure from neighboring countries and even its own
citizens, the Swiss government has not abolished this preferential policy but has
introduced a draft to force wealthy foreigners to pay more taxes. This increase is not
too high to avoid the case of rich foreigners... walk away. Specifically, they will have
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to pay seven times the rent a year (compared to five times before). For hotel tenants,
the payment is triple (instead of two).

From 2015 to 2021, there were not many adjustments to the policy, the ratio
does not have any significant change, increased to more than 28%.

3.1.2. 2021 - 2022

In 2021, Switzerland was ranked 31st out of the 38 OECD countries in terms of
the tax-to-GDP ratio (Switzerland, 2024). Switzerland has navigated the pandemic
well. COVID-19 has had major social and economic impacts, but an early, strong,
and sustained health and economic policy response helped contain the contraction of
activity. Also playing important roles were strong pre-pandemic fiscal, financial
sector, and household buffers, robust exports (pharmaceuticals, chemicals, gold), low
dependency on contact-facing sectors, a capable health system, and targeted
containment. Higher revenues from taxes on personal income, profits & gains; taxes
on corporate income & gains; and property taxes.

In 2021, Switzerland, along with nearly 140 countries, signed an agreement by

the Organization for Economic Co-operation and Development (OECD) to set a
minimum tax rate for large companies, a move aimed at curbing the practice of
shifting profits to low-tax countries. Even with the tax increase, Switzerland would
still have one of the lowest corporate tax rates in the world and the proposal,
estimated to bring in additional revenue of 2.5 billion Swiss francs ($2.8 billion) a
year, has been supported by business groups, most politicians and the general public
(Hoàng Lê, 2023).

At the February 2022 Government meeting, the Swiss Government decided to

abolish the import tax on industrial goods and will take effect on January 1, 2024.
With this measure, support and promote open trade in the context of an increasingly
protectionist global trading environment. Based on updated 2022 figures for Swiss
imports, direct tax savings for businesses could amount to around CHF 600 million
($680 million). According to preliminary studies, the lifting of import duties on
industrial goods is expected to increase economic output and thus indirectly increase
other revenues from taxes, offsetting about 30% of losses in customs duty collection
in the coming years. Looking at the Swiss economy, the positive effects will be
significantly greater than the expected loss of tax revenue (Thụy Sỹ chính thức bãi bỏ
thuế nhập khẩu hàng công nghiệp, 2024).

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3.2. Vertical analysis

As demonstrated by Wolfgang Alfredo Lumbantobing (2022), vertical analysis

is a technique that focuses on the percentage of every item of a base figure. The base
figure is shown as 100% and the other items are expressed as a fraction of it. Here,
we take the tax revenue of Switzerland as the base figure and 4 types of taxes that
need to be talked about: individual tax, corporate income tax, property tax and tax on
goods and services. The line chart given illustrates an overview of the contribution of
tax in Switzerland from 2010 to 2022 (in % of total tax revenue), and the table below
shows the exact data of percentage of 4 types of tax in the tax system of the country
in the period (Switzerland, 2024).

Contribution of tax in Switzerland (In % of total tax revenue)

Corporate Tax on goods

Year Individual tax Property Tax
profits tax and services

2010 31.75 10.08 7.68 22.55

2011 31.1 10.42 7.36 22.24

2012 31.43 10.32 6.88 22.47

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 2013 30.97 10.3 7 22.18

2014 30.87 10.33 7.2 21.99

2015 30.99 10.73 7.29 21.3

2016 30.96 11.33 7.41 21.12

2017 30.23 10.76 7.55 20.8

2018 30.7 11.36 7.51 20.48

2019 30.66 11.19 7.67 19.9

2020 32.09 11.01 8.09 20

2021 30.35 10.93 7.99 19.58

2022 31.16 11.61 8.21 19.93

Individual tax was the largest contributor to total tax revenue throughout the
period, fluctuating between 30% and 32% in the period. Corporate profits tax rose
from 10.08% to 11.61% throughout the years. The contribution of tax on goods and
services had a downward trend, reducing to around 3% of the total contribution,
while property tax overall increased the proportion in the total tax revenue, but still
the least in % of tax revenue among 4 types of taxes listed.

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3.2.1. Individual tax

The contribution of individual tax to total tax in Switzerland has remained

pretty constant between 2010 and 2022, hovering around 31%, higher than the
average of OECD countries. This is because of many reasons such as the maturity of
the tax system. Switzerland has a well-established tax system, so the individual tax
rate may have reached a point that it is seen as a fair balance. Economic stability
could be another reason as Switzerland has a fairly strong and stable economy as in
2019, it was the richest landlocked country in the world (Oishimaya Sen Nag, 2019),
so there is no need to adjust its tax system frequently.

The impact of this stability is likely to be mixed. On the one hand, it provides
stability for individuals to plan their finances based on the knowledge that their tax
burden is unlikely to change significantly. This can promote economic stability and
growth. On the other hand, while keeping the tax rate steady offers predictability, it
can also restrict the government's budget for public services. If the cost of running
these services goes up, the government might be forced to either cut back on them or
find new ways to raise money, like increasing other taxes. Overall, the stability of
Switzerland's individual income tax rate is likely to have both positive and negative
consequences for the country.

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3.2.2. Corporate profits tax

From 2010 to 2022, the trend of CIT contributed to total tax revenue is quite
similar between Switzerland and OECD but in Switzerland, the percentage is always
higher than OECD countries on average. Specially from 2019, COVID-19 made a
profound impact on the economy of all countries around the world, so some cantons
in Switzerland implemented temporary tax relief measures to support businesses
during the pandemic. The period from 2020 to 2021 only saw tax rate reduced in a
few individual cases (mostly due to tax multiplier adjustments). The most major
reductions were made in the cantons of Valais and Zurich, where tax rates were
reduced in connection with The Corporate Tax Reform. The OECD reports show that
corporate income in total tax revenue was lower in 2020 compared to 2019 but
rebounded in 2021 from 9,08% in 2020 to 10.23% in 2021, while the CIT tax in total
tax revenue in Switzerland still fell to 10.93% in 2021.

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3.2.3. Property Tax

The contribution of property tax to total tax revenue in Switzerland is higher

than the average of OECD countries overall. Although Switzerland went through the
COVID 19 period like other countries, the tax on property in total tax revenue
increased to 8.09% in 2020. The reason was that lockdown because of COVID 19 has
been difficult for many households living in confined spaces, and they would like to
ideally move into detached homes. The supply shortage in this segment has meant
that demand has focused on available and more affordable properties, such as storey
ownership. Therefore, the big winner in this market in 2020 was the multi-storey
ownership (PPE in Switzerland) segment in which prices have risen 4% (Séverine
Cauchie, 2021).

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3.2.4. Tax on goods and services

Overall, we can see that GST contributed to total tax revenue in Switzerland
was less than the average of OECD countries by approximately 10% throughout the
period. Talking about VAT, which most countries levy, Switzerland has one of the
lowest VAT tax rates in the world, at around 8%. This helps Switzerland to have an
attractive business environment as lower VAT reduces the cost of doing business,
potentially attracting foreign investment (MME Legal, 2021). Additionally, a lower
VAT rate translates to lower prices for consumers on everyday goods and services.
This can boost purchasing power and stimulate economic activity, contributing to the
GDP of the country. That lower price could lead to another benefit, attracting tourists
to the country due to the lower price to purchase, making it a more competitive tourist
destination compared to places with higher VAT. In a nutshell, while VAT or GST in
general may have lesser contribution to total tax revenue, Switzerland has more
benefits in the tourism sector due to lower price to purchase.

4. Recommendation and conclusion

Switzerland has an economic stability and a unique tax system with federal,
cantonal and communal authorities all levying taxes. While Vietnam and Switzerland
have some dissimilarities in the tax system and the economy, Vietnam can learn from
specific aspects of Switzerland's tax system, such as tax treaties, avoid double
taxation and fostering a strong, innovative economy to attract foreign investment and
achieve its development goals. Switzerland's network of DTAs (treaties to avoid
double taxation) is well-established (Federal Department of Finance (FDF), 2024)
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and suggests Vietnam can benefit from expanding its own DTA network. Moreover,
Switzerland’s economy is highly developed, with a strong focus on innovation,
technology, and finance. For Vietnam, to achieve its goal of becoming a developed
country by 2045, Vietnam should accelerate reforms, invest in key sectors, and
promote economic diversification. Finnaly, strengthening economic ties through trade
agreements and investment partnerships can foster growth and create mutual benefits,
which is good for Vietnam as well as developing countries.

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 References

Arjun Dahal. (2021). Tax-to-GDP Ratio and the Relation of Tax Revenue with GDP:
Nepalese Perspective.
https://www.researchgate.net/publication/348005023_Tax-to-
GDP_Ratio_and_the_Relation_of_Tax_Revenue_with_GDP_Nepalese_Perspe
ctive

Federal Department of Finance (FDF). (2024). Avoidance of international double

taxation. https://www.efd.admin.ch/efd/en/home/steuern/steuern-international/
avoidance-international-double-taxation.html

Federal Department of Finance (FDF). (2024). The Swiss tax system.

https://www.efd.admin.ch/efd/en/home/taxes/national-taxation/the-swiss-tax-
system.html

Hoàng Lê. (2023). Cử tri Thụy Sỹ bỏ phiếu ủng hộ mức thuế tối thiểu toàn cầu 15%.
Thời báo Tài chính Việt Nam. https://thoibaotaichinhvietnam.vn/cu-tri-thuy-
sy-bo-phieu-ung-ho-muc-thue-toi-thieu-toan-cau-15-130295.html

Séverine Cauchie. (2021). How has covid-19 impacted the real estate market in
Switzerland?. Lombard Odier.
https://www.lombardodier.com/contents/corporate-news/corporate/2021/
february/how-has-covid-19-impacted-the-re.html?fbclid=IwAR0JkUnN-
upUH4WIJ7UzYr9VPF-ZvCc9-
Bvm_6I75wUcksZyEnnDgANX0gE_aem_AS-
tIIhTKMNghmT4anpydiG8R4LSZY3WDBMtOcPC3XSPs4IIZkfO4pG4Jblp2
-h6f8YvZckCqwJFSCxNoygToDLd

Low Swiss vat rate results in attractive business location Switzerland!. (2021). MME
Legal. https://www.mme.ch/en/magazine/articles/low-swiss-vat-rate-results-
in-attractive-business-location-switzerland

Oishimaya Sen Nag. (2019). Richest landlocked countries in the world. WorldAtlas.
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world.html

Overview of the Swiss tax system. (2020).

https://www.s-ge.com/sites/default/files/publication/free/ihb-10-overview-of-
the-swiss-tax-system-s-ge-2020-08_0.pdf

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Switzerland. (2024). https://data.oecd.org/switzerland.htm

Switzerland tax system - taxation of Swiss companies and individuals: VAT, income
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Thụy Sỹ chính thức bãi bỏ thuế nhập khẩu hàng công nghiệp. (2024). Báo điện tử -
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