This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
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Chapter 36. Switzerland
Abstract
36.1. Overview
The confederation structure of Switzerland contains three administrative levels, Bund, Kanton and Gemeinde. Each level has the right to collect certain taxes and fees.
The taxes levied in Switzerland can be divided into direct taxes (e.g. income and wealth taxes for individuals and profit and capital taxes for legal entities) and indirect taxes (consumption taxes and excise taxes).
Over the past twenty years there have been two corporate tax reforms with a third agreed by the Swiss Parliament in September 2018. The first corporate tax reform came into force in 1998 and reduced the tax burden for holding companies. The introduction of the second corporate tax reform was staggered in 2009 and 2011 and led to venture capital tax relief (partial taxation of investment income). The objectives of the most recent reform package are to provide a competitive corporate tax burden, restore international acceptance (particularly by abolishing the preferential taxation of status companies), and safeguard the financial viability of profit taxes for the Confederation, the cantons and the communes. A referendum on the agreed legislation is more than likely to be held in May 2019.
Agriculture is specifically mentioned by the Swiss Federal Constitution (Art. 104) which provides for the support of farms that cultivate the land in order to fulfil their duties, i.e. the provision of foodstuffs for the population, the conservation of natural resources and the upkeep of the countryside, and the decentralised population settlement of the country. The agricultural sector is regulated by the Federal Act on Agriculture (RS 910.1) with each canton having its own legislation to regulate the agricultural sector.
According to the 2017 farm structure census there are 51 620 farms in Switzerland covering 1.05 million hectares with 153 900 people employed in the agricultural sector.
In tax matters, agriculture is, with a few exceptions, not treated differently from other economic sectors. Although tax treatment of farmers can vary between cantons.
36.2. Income taxation
Income tax is collected by the regions (cantons) but split between the regions and the federal state. There is no special treatment for agricultural income, which is calculated according to bookkeeping records. An exception concerns capital gains on the sale of agricultural land.
There are no provisions to smooth taxable income, except if giving up self-employment (e.g. due to retirement). In this case preferential taxation of liquidation gains applies for farmers and other self-employed individuals under certain conditions.
The taxation of assets and capital gains varies between cantons. The legal requirements for the transfer of agricultural land are included in the Loi fédérale sur le droit foncier rural du 4 octobre 1991 (LDFR, RS 211.412.11). This law determines who can buy agricultural land and what price can be charged for the land. For instance, if the farm is being sold to a family member (and this family member will continue farming) they are able to buy it at the capitalised earnings value (Ertragswert) which is significantly lower than the price that would be obtained through sale in real estate markets. In such cases the capital gains are often zero. On the other hand, if the farm is being sold to an outside person then the gain generated is subject of full taxation (i.e. income tax by the federal government and the cantons and real estate capital gains tax by the cantons). In this case the taxable capital gain is not zero but it is generally low, i.e. below CHF 10 per m2.
36.3. Property taxation
Annual property tax is levied by the regions. The valuation of agricultural land for property tax purposes is based not on market price but on a method of economic valuation (capitalised earnings value) (Ertragswert). This method gives values that are one-third to a quarter of the actual market value for land including buildings, in the case of land without buildings the value is only one tenth of the market value.
36.4. Tax on goods and services
Generally, farm inputs, agricultural or agro-food products are subject to a reduced VAT rate. These include (and are not restricted to farming):
The supply of certain goods (e.g. seeds, plant-protection materials, fertilisers, pesticides, animal feeding stuffs).
Veterinary services for cattle, poultry and fish.
The supply of food (including beverages) for human consumption.
Field work supplied to farmers that is directly linked to agricultural production and cultivation.
The following activities are exempt from VAT (without credit):
Supplies of agricultural, forestry and garden products cultivated by farmers in their own undertakings.
The sale of cattle by cattle dealers.
The sale of milk by milk collection centres to milk-processing plants.
It is possible to opt for VAT registration with the right to deduct input VAT. Small enterprises may apply for a flat rate scheme to fill in the VAT returns.
The mineral oil tax levied on fuel used for agricultural production is refunded on a lump-sum basis calculated based on fixed production indicators whereby the marginal costs of fuel consumption are not reduced.
Farm vehicles are exempt from Switzerland’s heavy goods vehicle tax.
36.5. Environmental taxation
There are no tax incentives to encourage the provision of environmental goods, but direct payments are paid for the provision of public goods, including environmental goods. A CO2 tax is imposed of all fossil heating and process fuels and the Greenhouse gas-intensive companies can be exempted from the CO2 levy if they commit to a reduction in their greenhouse gas emissions in return (emissions trading scheme or obligation to reduce greenhouse gas emissions). For more information on the CO2 tax, see https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/climate-policy/co2-levy.html.
36.6. Tax incentive for R&D and innovation
There are no tax incentives for R&D and innovation in Switzerland.
36.7. Other taxes
Unlike other self-employed persons, farmers do not have to pay child allowance contributions.