Incorporating in Switzerland

Taxation in Switzerland
General Overview

Swiss law is such that taxes are assessed and paid using a three-tiered system – federal, cantonal and municipal.

Holding companies benefit from 0% income tax. There is only 0.02% capital tax.

There has been a move recently toward tax reform among these tiers. Cantonal tax law is more uniform under the FTHL, although tax rates and payment dates are still determined by each canton and municipality.

Cantonal tax authorities are responsible for the assessment of federal, cantonal and municipal taxes for corporations and individuals.

The federal tax rate for corporate net income is 8.5 percent; with a long list of deductibles from taxable income, the average actual corporate income tax paid hovers at 7.83 percent.

Taxes are categorized by indirect – VAT, withholding taxes, stamp duties – and direct, which include corporate and individual income taxes paid to federal, cantonal and municipal tax authorities. Indirect taxes, as well as foreign taxes not already exempt per Double Taxation Treaties (DTT), are deductible.

European Union (EU) tax rates currently average 30-40 percent; in contrast, Swiss rates come in at 8-10 percent. Switzerland’s Value Added Tax (VAT) rates, one of the few that are assessed only on a federal level, are 2.4-7.6 percent – widely preferred to the EU average of 15-25 percent.

Individuals also are subject to the three-tiered tax system. Class B Permit holders’ employers handle their income tax withholding, as well as additional contributions on social security, unemployment and matched pension plans. Class C Permit holders file their own taxes.

Switzerland has long prided itself on attracting multinational enterprises by offering a favourable corporate tax structure on a cantonal basis. Whether your enterprise is incorporated as an AG or a GmbH, cantonal tax laws favour your bottom line.

There are a wide variety of cantonal tax privileges available to multinational companies, including tax holidays for up to 10 years, and an unrivalled international tax treaty network. In addition, the operational structure of your company can have a large impact on the level of tax relief you receive.

Follow the links below to learn more about how you can make your operating structure enhance your bottom line.

Service companies can benefit from low profit margins.

Holding companies and domicile companies are exempt from cantonal and municipal taxes.
Principal companies can deduct foreign trade transactions from their federal taxes.
Mixed companies receive a three-tiered flat rate on foreign source income.
Licensing companies receive domicile company tax benefits, as well as additional deductions.

Individuals also enjoy a full range of tax benefits for every situation, including lump-sum taxation for retirees, low to no inheritance tax, and deductible employment costs for expatriates.

While the three-tiered tax system might seem overwhelming, corporations and individuals alike find Swiss tax authorities to be flexible, solutions-minded, and logical.

Incorporate GmbH has unparalleled experience in the Swiss tax structure. Our access to Swiss tax authorities for your canton means your financial situation will be handled professionally, discreetly, and with only the most favourable outcome. Let Incorporate GmbH handle all of your tax concerns.

Operating Structures

Once your enterprise is incorporated as an AG or a GmbH, it can be necessary to further determine the operating structure of your company for tax purposes.

Holding Company

The companies, of which the principal statutory goal consists in managing participations durably and who do not have a commercial activity in Switzerland, profit from the cantonal holding statute when these participations or their output represent at least two thirds of the receipt or total assets. The benefits in capital coming from participations also form part of the income of the participations. To be able to profit from the holding statute, it is necessary that one at least of the two following conditions is filled:

The 2/3 of the credits of the company consists of participations.
The 2/3 of the receipts consists of outputs of participations.

Cantonal Tax on the Benefit:

The holding companies do not pay a cantonal and communal tax on the benefit.

Cantonal Capital Tax:

At the cantonal and communal levels, the companies who profit of the holding statute are subjected to a particular rate. The rate of the cantonal capital tax of the holding companies is 0.02% (0.01% for the part of the capital which exceeds CHF 500 million).

The communal tax varies between 30 and 100% of the cantonal tax according to communes.

Recall: There is no Federal Tax on the Capital.

Federal Tax on the Benefit:

The holding companies do not have a particular tax statute in consideration of the direct federal tax. However, the income tax is proportionally reduced with the existing relationship between the net output of the participations and the net total benefit (reduction for participations). If it is about a pure holding company (100% of outputs of participations), it will thus not pay a direct federal tax.

Domicile Company

Conditions to profit from the domicile company tax statute:
The tax statute of the domicile companies applies to companies whose incomes come exclusively or primarily from commercial activities carried on out of Switzerland or administrative activities carried on in Switzerland for the account of other companies of the group.

Cantonal and Communal Tax on the Benefit:

Companies whose commercial activity proceeds exclusively abroad:
The incomes of foreign source are taxed in a reduced way according to the importance of the administrative activity carried on in Switzerland. When the shareholder is foreign and that the strategic decisions are taken abroad, there are in theory only 5% to 10% of the benefit coming from foreign source which are taxed by the canton.

Companies Whose Commercial Activity Proceeds Primarily Abroad:

The companies whose commercial activity is primarily foreign-directed and who carry on in Switzerland only a subsidiary commercial activity (about 20 to 30% of the turnover) are taxed by the same manner that the companies whose activity proceeds exclusively abroad, except that the benefit coming from the commercial activity in Switzerland are subjected to the ordinary tax.

Federal tax on the benefit:At the federal level, the domicile companies do not profit, in theory, of a particular statute. Their benefit is thus imposed on the nominal rate of 8.5% (effective 7.8%).

In certain cases the domicile companies can also apply the reduction for participations in the determination of their taxable profit.

Cantonal Capital Tax:

The domicile companies are subjected to the same rate as the holding companies. The capital tax is perceived at the rate of 0.02%. For the part of capital which exceeds CHF 500 million, the rate is 0.01%. The rate of the communal tax varies, according to the commune, between 30 and 100% of the cantonal tax.

Recall: there is no federal tax on the capital.

Mixed company

Two kinds of operating structures qualify as a mixed company:
1. One with office space and employees within Swiss borders, but with 80 percent of company income earned, and 80 percent of expenses incurred, outside those borders;
2. One whose sole purpose is to provide services to businesses within the same industry.

While Swiss-source income is subject to normal tax levies, any mixed company income derived from foreign sources is assessed, at all three tiers, at a flat percentage rate based on number of full-time employees based in Switzerland. An additional 10 percent is levied if the company is of Swiss-controlled.

Licensing Company

A licensing company is one whose income simply is moved through Switzerland. Under the “50/50″ tax rule, licensing companies are subject to domicile company tax rules; in addition, 50% of their gross profits can be deducted, if itemized as fees or royalties paid to non-Swiss enterprises.

Service Company

Service companies are not eligible for outright tax exemptions, but can benefit from taxable profit rules applied to such companies.
Any company that provides assistance, including research, technical assistance, administrative assistance, or promotional services is considered a service company. Service companies must show at least a 5 percent profit margin; if they are unable to do so, a more agreeable tax regime can be initiated.

Principal Company

Principal companies can deduct any commission-based trade transactions with their foreign subsidiaries from their federal tax levy, as the business was conducted outside Swiss borders.

Incorporate GmbH is well versed in the intricacies of corporate tax law, and can help increase your bottom line through professional analysis and advice regarding your company’s operating structure.

Corporate Taxes

Swiss tax assessments for companies have a standard federal structure, and more flexibility at the cantonal level. There is no distinction between foreign-owned subsidiaries and Swiss-owned companies in the tax code. Tax rates also vary depending on the operations structure of an AG or a GmbH.

During the incorporation process, if the total amount of capital deposited is over CHF 250,000, a one-percent Federal Formation Tax, also known as a Stamp Duty, must be posted. This payment can come from capital monies.

The share capital, open reserves, and kept earnings then are subject to an annual Capital Tax Stamp Duty, usually ranging from .067-.74 percent, paid at the cantonal level.

The federal tax rate for corporate net income is 8.5 percent; with a long list of deductibles from taxable income, the average actual corporate income tax paid hovers at 7.83 percent.

The cantonal tax rate for corporate net income is 8.6 percent in Zug and 5,3% in Obwalden.

Money Laundering

The phrase “money laundering” has a long and varied history; its connotation conjures lurid images of illegal trafficking and organized crime.

However, there are many legitimate and legal scenarios in which it is necessary to protect the source of funds. It is in this spirit that Switzerland provides a safe haven for those who prefer the utmost discretion in their financial transactions.

Measures have been implemented in the worldwide banking community to detect and expose the laundering of funds whose source derives from a specific category of illegal means. The Swiss authorities and banking community continue to be diligent in enforcing international standards while maintaining their steadfast dedication to banking privacy.

TaxMeasures
Money Laundering Act (MLA)

The MLA protects financial intermediaries who are members of the Money Laundering Control Authority. This authority employs a team of white-collar crime forensics professionals who help members determine if the funds they are retaining in the course of their business dealings violate the MLA.

Money Laundering Reporting Office of Switzerland (MROS)

This administrative division of the Swiss Federal Office of Police acts as a liaison between members of the Money Laundering Control Authority and those of law enforcement. Their actions involve the analysis of activity reports to determine if there is any illegal wrongdoing; this ensures the privacy of law-abiding financiers.

Financial Action Task Force on Money Laundering (FATF)

The FATF is a worldwide organization dedicated to developing standards for the detection of illegal money laundering. Switzerland has been an active member of the FATF since 1989. The scope of FATF’s involvement includes financial and non-financial institutions that frequently are targeted for illegal money laundering.

Much of law enforcement’s success in defeating illegal money laundering depends on the disclosure of even the most confidential information. Incorporate GmbH can show you how, by working well within Swiss and international statues and limitations via an AG incorporation, you can be assured that your financial details stay protected.

Tax Benefits

Switzerland is dedicated to providing its citizens, residents and businesses with the most beneficial standard of living possible. To this end, a broad network of over 60 international tax treaties is in place, which encompasses many aspects of corporate tax assessment.

The most frequently utilized treaties involve the avoidance of double taxation, including those normally levied on:

Branch office profit exemption
Royalties
Origin-source taxes
Withholding taxes

For the most part, profits from foreign real estate and other establishments are exempt from income tax levies in Switzerland as part of domestic rules. This is regardless of whether or not taxes have been levied on these items in the countries of origin. This allows for further avoidance of double taxation.