Israel – Switzerland Tax Treaty

Prevention of Double Taxation Treaty between Israel and Switzerland

The tax treaty between Israel and Switzerland entered into force in 2002.

The treaty for the prevention of double taxation is a bilateral agreement and within its framework, Israel and Switzerland established the taxation rules that will apply to income and assets that have an affinity to both countries.

In addition, the treaty includes principles for the exchange of information on tax matters between the countries.

For the full Convention for the Prevention of Double Taxation on the website of the Ministry of Finance, Click here.

The treaty regarding social security between Israel and Switzerland

In 1985, a treaty regarding social insurance between Israel and Switzerland entered into force, a treaty whose purpose is to prevent a situation of duplication of social security between the two countries or a lack of insurance.

For the full Social Security Convention on the National Insurance Institute website, click here.

The applicability of the MLI and its effect on the bilateral treaty

Although Switzerland and Israel have signed and ratified the Multilateral Treaty (MLI), the multilateral treaty has no effect whatsoever on the bilateral treaty since, in the bilateral treaty signed between Israel and Switzerland, it is stipulated that the multilateral treaty will not apply and that only the bilateral treaty is valid.

Residency of an individual for tax purposes in Switzerland

An individual may be considered a resident for tax purposes if one of the following conditions are met:

1. He stayed in Switzerland for more than 30 days and derived some financial benefit from the stay, whether it was work or any other income.
2. He stayed in Switzerland for more than 90 days, regardless of the purpose of the stay.

Information regarding determining individual residency in Israel can be found here.

Corporate residency for tax purposes in Switzerland

A company will be considered a resident of Switzerland if it is incorporated and registered in Switzerland or if the effective management of the company takes place in Switzerland.

To review the conditions under which a company is considered a resident of Israel for tax purposes, read here.

Tax system in Switzerland

The Swiss tax authority is called the Federal Tax Administration (FTA).

Click here for the official website of the Swiss Tax Authority.

The tax system in Switzerland imposes an obligation to pay three types of taxes:

1. Federal tax
2. Canton tax (cantonal tax)
3. Municipal tax

Income Tax:

Federal: 11.5%

Cantonal and municipal: up to 36%

Corporate tax:

Federal: 8.5%

Cantonal and municipal: between 11.9% and 21.0%.

VAT: 7.7%

Capital gains tax: 11.9% to 21.6%

Withholding tax

Inheritance and estate tax

Switzerland does not impose an inheritance tax and a gift tax at the federal level, however, five cantons: Zurich, Geneva, Bern, Wu and Ticino require the payment of an inheritance tax.

In Israel there is no inheritance tax and no estate tax.

The currency in Switzerland

The currency of Switzerland is called the Swiss Franc (CHF).

The Israeli currency called New Israel Shekel (NIS) or Israeli Shekel (ILS).

Transfer pricing in Switzerland

Switzerland relies only on the OECD transfer pricing guidelines. In addition, Switzerland has a system of transfer pricing between the cantons, so it is very important to determine the place of office, place of activity of the company or business in Switzerland, etc.

For more information on transfer pricing in Switzerland, click here.

For information on transfer pricing in Israel, click here.

Relocation

Many see Switzerland as an attractive destination for relocation due to the spectacular landscapes, the high standard of living, the numerous employment opportunities and the well-developed health, education, and welfare services.

Individuals who are not citizens of EU countries must apply for a visa in order to enter, stay and work in Switzerland. You can apply for a work visa, a family visa, or a study visa.

Real estate in Switzerland

The local authorities determine the amount of the tax in their real estate taxation laws, the amount of the tax is up to 3%.

For more information on real estate rental taxation in Switzerland, click here.

Business activity between Israel and Switzerland

Our office manages business relationships with lawyers and accountants in Switzerland and assist our clients in Switzerland in everything that concerns setting up a business, opening bank accounts, etc.

Transfer of funds from Israel to Switzerland

According to Section 170(a) of the Income Tax Ordinance, most money transfers from Israel to Switzerland will require prior approval from the Tax Authority.

The office of Nimrod Yaron & Co makes it easy for our clients to get tax exemption from withholding tax and transferring funds to Switzerland.

Types Of Business Entities In Switzerland

• Sole proprietorship: the business is managed by one person who must be a resident of Switzerland. There is unlimited liability, and the owner is liable for tax on all professional and personal income and assets.
• General partnership: Unlike a sole proprietorship, a general partnership can have more than one owner. The partnership is not a separate legal entity, so all partners have unlimited liability. Each partner must contribute to the general partnership, which may consist of cash, securities or other assets, or labor. The partnership does not pay corporate tax, but each partner pays a single tax based on his share of the profit.
• Limited partnership: This partnership requires at least one natural person as a partner with unlimited liability (general partner) and at least one natural person, legal entity, or commercial company as a limited liability partner. Each partner is liable for tax on his share of income and assets in the company and on his personal income and assets.
• Limited company: Limited companies are the most common. The corporation is an independent legal entity and taxed separately, like any other person. Liability is limited to the value of the company’s assets. The company must have at least one shareholder who must be a resident of Switzerland. The minimum initial share capital is 20,000 CHF (cash or assets). As a legal entity, the limited liability company is taxed on profits, capital, wealth, and the income that is part of the distribution of profits.

Incentives to encourage investment in Switzerland

You can submit an application to the Swiss Patent Office for a reduction in the payment of corporate tax on income from patents, the maximum reduction granted is up to 90%.

The tax benefits are given to companies engaged in research and development and the cantons are willing to come towards companies that wish to operate in their territory and therefore, the cantons offer attractive corporate tax rates.

There is a demand in Switzerland for companies dealing in biotech, medical technology, and pharmaceuticals.

National insurance in Switzerland

National insurance rates vary by canton.

The employer and employee fees range from 0.5% to 5%.

Switzerland’s double tax treaties: