Swiss Holding Company
A holding company is generally defined as a company that holds substantial in- vestments in the capital of other corporations, and whose income essentially comprises investment income. The tax laws of all Swiss cantons have a special privileged tax regime for holding companies.
To qualify as a holding company for can- tonal income tax purposes, three conditions must be fulfilled:
The bylaws of the corporation must state that the main activity of the company is the long-term management of equity investments.
The corporation generally must not have any operating business activity in Switzerland (certain activities, however, such as managing the company itself and its investments, providing services on behalf of the consolidated group, debt financing of subsidiaries, or holding and exploiting of IP may be permissible).
In the long term, either the company’s participations must represent two-thirds of the assets in its balance sheet (based on market values), or the income derived from such participations (e.g., dividends/ capital gains) must represent at least two-thirds of its total income. Shares of corporations, limited- liability companies, cooperatives, and certificates of participation are considered as participations.
Registration in Switzerland
Company law regarding holding companies
Swiss company law does not contain special provisions for holding companies. The Swiss Code of Obligations details all the various forms of business enterprises in Switzerland, and a holding company may be organized in several different forms. The company law makes a fundamental distinction be- tween those enterprises that are run by individuals or groups of individuals, and those set up in the form of a corporate entity with a separate legal body.
Taxation in Switzerland
In Switzerland, corporations are taxed on both their income and their equity. The Swiss Confederation, as well as the relevant canton and community (and sometimes church parish), each have a taxation right. The maximum effective corporate income tax rate currently ranges from 11.4% to 24.4% depending on the canton of residence. If a company qualifies for a special tax regime, the corporate income tax rate can be reduced significantly to as low as 5%. Non-resident corporations with a permanent establishment in Switzer- land are subject to tax on permanent establishment income and equity in the same way as resident corporations.
Switzerland has a classical corporate tax system, which results in economic double taxation, i.e., profits are subject to corporate income tax and dividends distributed are subject to income tax again at the shareholder level. To avoid multiple taxation, the Swiss tax law grants a participation deduction on dividend income and capital gains on qualifying participations. In addition, the Swiss tax system grants holding companies privileged tax status at the cantonal level, under which such companies are exempt from cantonal tax and therefore only subject to federal tax.
A Swiss company can be constituted either as:
GmbH (Private limited company) – “gesellschaft mit beschränkter haftung”; or
AG (Public limited company) – “aktiengesellschaft”
The minimum share capital for incorporation of a Swiss company is CHF20.000 for a private limited company and CHF100.000 for a public limited company.
At the time of the first shareholders’ meeting at least 20% of the share capital with a minimum value of CHF50.000 (the higher of the two) must be paid up.
Bearer shares are allowed but capital must be fully paid up.
Corporate income tax is charged on the commercial financial statements subject to adjustments. Income from foreign permanent establishments is not subject to tax in Switzerland.
Under the participation exemption rules, dividends received give right to a federal tax reduction by a portion of dividend income to total net income if the recipient owns at least 20% of the shares of the distributing company for a minimum period of 1 year or if shares held have a market value of at least CHF2 million.
The exemption also applies at a cantonal level. In practice, dividends and other income received by qualifying holding companies are exempt from cantonal taxes.
Losses incurred on sale of qualifying participations remain tax deductible.
Capital Gains Exemption
Holding companies are exempt from tax on income from capital gains.
Any form of interest income received by a Swiss holding company is not subject to tax.
Swiss Holding Company
Besides the common advantages of a holding company, the Swiss Holding Company may also enjoy from the following:
Exemption from Withholding Tax on Payment of Interest
Commercial interest, including loans from foreign shareholders paid by a Swiss company are not subject to withholding tax.
Exemption from Withholding Tax on Payment of Royalties
No withholding tax is levied on payments of royalties made by a Swiss company.
For an update overview of Swiss Tax Treaties click here