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SWITZERLAND – CANTON OF ZUG

 

COMPANY FORMATION


INCORPORATING IN SWITZERLAND
MAIN FEATURES

Major financial and business centre in Europe.
Politically stable.
Highly respectable jurisdiction, and home to many major international corporations.
Favourable corporate tax legislation.
Switzerland imposes a withholding tax. Where applicable, this can be reduced, or even eliminated, by making use of the many Double Taxation Agreements currently in place.
Minimum capital requirement for a company limited by shares (AG / SA) is CHF 100,000, of which a minimum of CHF 50,000 must be paid in, and CHF 20,000 for a limited liability company (GmbH / SARL), of which a minimum of CHF 10,000 must be paid in.
Various classes of shares can be issued. However, whilst companies limited by shares may issue bearer shares, limited liability companies may not.
For a company limited by shares, there is a minimum requirement of one director. For a limited liability company, there is a minimum requirement of one person to act as 'manager'.
Companies limited by shares and limited liability companies must prepare accounts annually. The accounts of a company limited by shares must be audited, whereas the accounts of a limited liability company do not need to be audited.

GENERAL ASPECTS OF
A COMPANY INCORPORATED IN SWITZERLAND

COMPANY NAME AND SUFFIXES
The name of a corporation incorporated in the French speaking Cantons usually end with SA, whilst in the German speaking Cantons the ending is usually AG. For limited liability companies, then ending is usually SARL for companies incorporated the French quarter and GmbH in the German quarter.

It is possible to establish either entity in any of the Swiss Cantons.

WHICH CANTON TO CHOSE?
Geneva and Zurich are obviously internationally recognised centres and can offer a highly credible image to companies established there.

CANTON OF “ZUG”
However, Canton Zug is also extremely popular and offers one of the lowest tax rates of all the Cantons in Switzerland. Zug is one of the world's leading commodities trading centres and is also home to many major international corporations. In discussing these three cantons, it is important to stress that we also incorporate in all of the other Cantons.

TYPES OF COMPANY
It is possible to establish various 'types' of companies, including general trading companies, holding companies, and service companies, each of which can have a different tax liability, depending upon the Canton of choice.

MINIMUM CAPITAL REQUIREMENTS AND
CLASS OF SHARES

The corporation is the more popular choice of company form. The minimum capital requirement is CHF 100,000, and there is no maximum. The capital is divided into shares with a minimum par value of CHF 10.

At least 20% of the stock capital, with a minimum of CHF 50,000, must be paid up initially. Capital contributions can either be in cash or in kind. If the corporation has no need for additional cash, the balance does not have to be paid up within any specific period of time and may just remain as a potential liability of the shareholders toward the corporation.

A corporation has a choice of the class of share to be issued, or can issue multiple classes. If the corporation issues bearer shares, however, then the capital must be fully paid in.

In the case of a limited liability company, the capital may not be less than CHF 20,000, nor more than CHF 2 million. The contribution of each partner must be in multiples of CHF 1,000. At least 50% of the capital contribution i.e. CHF 10,000 (where the minimum is issued), must be paid up at the time of incorporation. Limited liability companies cannot issue bearer shares.

COMPANY DIRECTORS
With respect to directors, a Swiss trading corporation must have at least one. There is also a requirement for a minimum of one Swiss citizen, resident in Switzerland, to sit on the board.

Therefore, where only one director is envisaged, he/she must be Swiss. Where foreign directors are to be appointed the Swiss directors must be in the majority. However, it is now possible for an EU or EEA citizen, resident in Switzerland, to act in this capacity, and sit on the Board.

LIMITED LIABILITY COMPANY – SARL or GmbH
For a limited liability company, the term used is manager rather than director. The criteria here are slightly less onerous in as much as there must be at least one manager who is resident in Switzerland and he/she can either be a Swiss citizen or a foreigner.

It is also possible to have two or more foreign managers who are not resident in Switzerland, with just one Swiss-based manager. The 'Swiss majority' rule does not apply to this type of company.

ANNUAL TAX RETURNS
Both types of entity must submit annual tax returns and accounts, however in the case of a corporation accounts need to be audited.

INCORPORATION PROCESS
The formation process is similar in both cases. Basically, the client chooses their preferred canton and choice of company name. A name availability check is carried out and if the choice is available it will be reserved.

The company memorandum and articles of association and other documentation are prepared and a Swiss bank account opened in the name of the proposed company. The shareholders then transfer the capital to the bank account. The bank will then 'freeze' this capital for a few days and issue a certificate to the Notary confirming that the capital has been deposited. The Notary then proceeds to register the company at the Commercial Register. The capital is then 'unfrozen' by the bank, and is immediately available for the company's use.

The Commercial Register issues the relevant documents of incorporation and the process is complete. This is only a very broad outline of the process, which can be completed reasonably quickly assuming timely transfer of the capital to the bank.

SERVICES PROVIDED BY Eurofinanzza
We are able to offer the following services:

Company incorporation
Provision of local directors/managers
Nominee shareholders
Registered office facilities
Virtual office facilities
Company management and administration
Bank introductions
Tax, accounting, and audit work
Legalisation of documents
Translations
Fiduciary services

INCORPORATION IN CANTON ZUG
SWITZERLAND

M E M O R A N D U M

SUITABILITY OF SWITZERLAND
AND THE CITY OF ZUG FOR THE PLANNED PURPOSE

The suitability of Switzerland for a subsidiary of a foreign-owned company is established. In many cases the following features were relevant:

Centrally located in Europe, stable political situation, liberal laws which are based on the free enterprise system, hard currency and the free transferability of funds supported by a well functioning organization of banks protected by legal Banking Secrecy Law. Important, of course, is the low taxation.

WHY CHOOSE ZUG AS DOMICILE OF A NEW COMPANY?
Why choose Zug, the capital of the Canton of Zug, with 23'000 inhabitants (the Canton of Zug 100'000), as domicile of a new company?

Some arguments include:

The favorable geographic location (15 miles from Zurich and Lucerne and about 20 miles from the Zurich International Airport with direct railway connection).

Low tax rates offered by the Canton of Zug for holding and service companies.

Friendly and co-operative Public Services, including Tax Administration.

THE COMPANY LIMITED BY SHARES vs.
LIMITED LIABILITY COMPANY
UNDER SWISS LAW

For the purposes envisaged, a company limited by shares (Aktiengesellschaft, AG, S.A., S.p.A., Inc.) or a company with limited liability (Gesellschaft mit beschränkter Haftung, GmbH, S.a.r.l, Ltd.Liab.) is suggested.

The limited or unlimited partnership (Kommanditgesellschaft, Kollektivgesellschaft) is recommendable in particular cases.

Please be aware, that pursuant to the US Tax Legislation a Ltd. Liab. is not considered as a legal entity, but merely as a partnership.

We take the liberty of summarizing the nature of a company limited by shares, which is subject to Swiss law; the company with limited liability has, to a wide extent, the same rules, if not specified otherwise hereinafter:

a) It is a company having its own company name and a predeter¬mined capital (capital stock) which is divided into parts (shares or stock). The liability of the company is limited to the company's assets. Shareholders have no duties other than those stated in the articles of Incorporation and are not personally liable for the debts of the company.

b) The Articles of Incorporation contain the fundamental rules. They are deter¬mined by the founders and may be changed by the general meeting of shareholders. They must contain; the name and legal domicile of the company; purpose of the company; par value of the individual shares; the type of shares; how the share capital has been paid in; the procedure for calling a general meeting of shareholders and the voting rights of the sharehol¬ders; the bodies which are to manage and to audit the company and the manner in which the company is to be represented; the manner in which the company publishes its official notices. The company with limited liability is managed by the stakeholder if not otherwise agreed, and does not require an audit.

c) The name of the company may be chosen freely, provided that the content of the name is true, is not misleading or contrary to any public interest. It must also be clearly distinguishable from any other company’s name already registered in Switzerland. Some special denominations such as “Swiss”, “interna¬tional", “intercontinental”, “European” etc could be refused by the Register of Commerce, if the content would be misleading or untrue.

d) The share capital of the company shall amount to a minimum of CHF 100,000 (Company with limited liability: CHF 20,000 up to a maximum of CHF 2 Million). If bearer shares are issued (not possible for the company with limited liability), full payment is required. If the shares are issued to a named individual or corporation etc, at least CHF 50,000 must be paid in on a capital of CHF 100,000, and a minimum of 20 % in case of a capital of CHF 250,000 or more. The minimal capital of CHF 100,000 is usually fully paid in. Bearer shares may be changed into registered shares or vice versa.

e) The bodies of the company are the General Meeting of Sharehol¬ders, the Board of Directors and the Auditor(s). The company with limited liability has as statutory body only the stakeholders meeting, an additional management and auditors are admitted if provided so in the Articles.

The General Meeting of Shareholders is the supreme authority of the company.

It has the inalienable power:

• to adopt and to amend the articles of Incorporation;

• to elect the Board of Directors and the auditors;

• to approve and accept the profit and loss statement, the balance sheet, and the business report; to determine the allocation of the net profit, and, in particular, to declare dividends as well as profit sharing by directors;

• to release the members of the Board of Directors from any liability with regard to the reports as mentioned in sub-paragraph 3 above;

• to decide upon all matters which by law or by the articles of incorporation are made subject to the decision of the General Meeting of Shareholders and not reserved for the Board of Directors.

The Board of Directors is entrusted with the management and with the supervision of the company. It consists of at least one member. The Swiss Code of Obligations requires that the majority of the Board of Directors are of Swiss Nationality and residing in Switzerland (1 Swiss; 1 foreign and 2 Swiss; 2 foreign and 3 Swiss etc.). The members of the Board have to be shareholders (even fiduciary title). In the company with limited liability the General Meeting of Stockholders matches the functions of the Board of Directors as well, therefore one stockholder must be residing in Switzerland (but doesn’t need to be a Swiss national).

The Auditor has to examine the balance sheet and the profit and loss statement annually, and has to report to the General Meeting.

f) If the articles so provide, the Board of Directors may dele¬gate the management to third persons (Managers), who need not be members of the Board of Directors or shareholders, according to a special Board Regulation, but they keep the ultimate financial responsibility. The Swiss Law does not exclude or restrict foreigners as managers. All of these managers may be citizens of other countries, and do not need to have residence in Switzerland.

g) Personal responsibility. The members of the Board of Directors or the Managers are personally liable to the company or to creditors for damages caused by an intentional or negligent behavior.

FORMALITIES FOR THE FORMATION OF A
COMPANY IN SWITZERLAND

They are rather straightforward:

a) At least three persons have to act as founders (Ltd.Liab.: two founders). It is not necessary that these persons are identical with the later shareholders of the company. Owners very often use trustees (fiduciaries), who have to know the identity of the beneficial owner. After the formation, the shares may then be transferred to the beneficial shareholders or nominee; Swiss law allows that after formation all shares are held by only one shareholder.

b) The founders have to adopt the Articles of Incorporation and to deposit the share capital in Swiss francs with a bank in Switzerland. Instead of a cash payment, the capital can be contributed in kind (this however requires a special audit and a special founder's report concerning the value of the contribution and the founders are liable that the estimated value is correct).

c) The act of formation and the respective decisions of the founders have to be certified in a notary deed by a public notary. The entire procedure may be handled in our lawyer’s office since they have the commission to act as notary public in the Canton of Zug.

d) As soon as the formation meeting has taken place, the Federal Formation Tax (Stamp Duty) in the amount of one percent of the paid in capital (but minimal the nominal amount of the total of share capital) has to be paid for the amount of said capital above CHF 250,000. Payment of such tax may be made out of the paid in capital and can be depreciated within five years.

e) The formation is completed by the registration of the new company in the Commercial Registry and its publication in the Swiss Commercial Gazette. Registration and publication indi¬cate name, domicile, purpose, total capital and value of the shares, members of the Board of Directors, the designation of the persons authorized to sign for the company, and the Audi¬tors. They do not show the names of the shareholders (in the case of the company with limited liability the names and the stakes of the shareholders are published).

f) The formation of a company can be effected in about 2 - 3 weeks as soon as the founders agree on the articles, transfer the necessary capital, and obtain permission from the Commercial Registry for the name of the company (if necessary).

ANNUAL REPORTS, BALANCE SHEETS, PUBLICATION AND OTHERS
The Swiss law protects the business secrecy to a large extent and knows only a restricted obligation to submit business documents to public authorities, creditors and to publish balance sheets etc:

a) Upon formation of the company, the Deed of Incorporation (with the names of the founders) and the articles are deposited with the Commercial Registry. The publication in the Swiss Commercial Gazette, as explained under 3.e. above, only gives restricted information.

b) The annual report of the Board of Directors, balance sheet and report of the auditors have only to be communicated to the shareholders. A duty for publication or for depositions of these documents does not exist with the exception as referred to below (c). If the company has only one shareholder, confidentiality is complete.

c) The balance sheet and the auditors report (with the exception for the company with limited liability) finally accepted by the shareholder's meeting has, upon their request, to be sent to creditors with a legitimate interest.

d) Full information relating to assets and liabilities and profits of the company has to be submitted to the Tax Autho¬rities. Annual report and balance sheet are to be submitted to them. Tax Authorities are subject to secrecy applicable to public officials. The Tax Registry is public, but only shows final figures (taxable capital and reserves and taxable profit).

e) Switzerland usually grants legal assistance in criminal cases including cases of tax fraud (deceiving with malicious intent, including forgery), and violations of high-tech export regulations to some countries, including the United States. In all other fiscal matters (customs, taxation, currency regu¬lations etc.) legal assistance will not be granted except for the United States in case of organized crime.

TAXATION OF A SWISS COMPANY
Switzerland has different State bodies (Federation, Canton, Communities) and all those bodies are entitled to collect taxes. Some taxes are federal (Income Tax, Withholding Tax, Stamp Duty), others are cantonal or communal, both pursuant to cantonal tax laws (Income Tax, Capital Tax).

The Taxation further differs whether the company is a normal company engaged in production and trade or is a holding or service company. The holding and service companies are privi¬leged. But even the taxation of an ordinary company is modest.

Besides the normal taxes, the following aspects must be considered:

a) Dividend Withholding Tax. On dividends or other distributions of profits (construed dividends) there is a federal anticipatory tax of 35 % (Withholding Tax) which will be refunded to foreign shareholders, if, and as far as, a double¬-taxation treaty between Switzerland and the shareholder's country so provides. Where a double taxation treaty permits this, and subject to a notification to the foreign tax authority, this tax may only be paid with the part remaining in Switzerland (provided that the holding company is a foreign legal entity).

b) A key question for the taxation is the possibility to deduct expenses from the
gross income. It is essential for the tax burden to establish to which extent and according to which principles companies and branch offices of foreign companies can deduct expenses for business done in connection with business between two foreign countries. Contrary to earlier regulations, a flat rate for covering the costs (the so called 50:50 regulation) can no longer be applied, rather the usual regulation for proving businesslike justification of booked expenses is administered. These regulations include:

aa) The expenses must be reasonably argued and supported by documents. This also holds for acquisition and exploitation of immaterial values such as patents, trademarks, rights and such things.

bb) The expenditure claimed in favour of shareholders/partners and third persons close to them must bear close examination in independent comparison, considering an appropriate range of fluctuation ("dealing at arm's length" - grounds according to the regulations of the OECD from 1995 concerning international pricing). "Third persons close to the shareholders/partners" are also persons to which an economical and personal connection exists; which, in view of the entire circumstances, gives the real reason for unusual payments to be classified as taxable. In particular, third persons are also regarded to be persons close to the shareholders/partners, when they use a Swiss company, with the consent of the partners, for their own businesses.

cc) The tax authorities have high demands where the proof of businesslike grounds is concerned, and all documents required for the proof must be entirely available in Switzerland. In particular, one of the key elements of proof is the naming of the true beneficiaries. Expenses in favour of companies residing in tax havens, and payments to bank accounts and other accounts of that kind without disclosing the real beneficiary of such payments, are not accepted as businesslike justification.

dd) Where business done in foreign countries is concerned, the tax authorities give legally binding information about the adequacy of compensation for services to be given or received. In order to assess the adequacy of compensation to be booked in the accounts such as salaries, fees, commission, licence fees, provisions etc., the tax authorities have to be provided with a balance sheet and profit and loss statement showing the figures anticipated for such business (business plan). The tax authorities will only grant deduction of such expenses as far as businesslike justification can be proven. The burden of proof lies with the taxpayer. If proof cannot be provided or only incomplete proof is given, the tax authorities will set the tax factor according to their own judgement.

c) The Managers residing in Switzerland are subject to the normal taxation for individuals. The Canton of Zug has on average one of the lowest tax rates for individuals residing in Switzerland.

d) Procedure. When preparing the formation of a company in the Canton of Zug, contact should be made with the President of the Tax Authorities, in order to receive confirmation of the tax status in writing, if any particulars are in question. This is not a tax agreement but simply confirmation from the Tax Authorities, that under the circumstances described, the tax laws are being applied accordingly. The Tax Authorities have always faithfully kept such confirmations.

CORPORATE TAX IN THE CANTON OF ZUG (2004)

The corporation tax rates in the Canton of Zug varies according to the tax status of the company: ordinary operating companies, holding companies, domicile companies (with only a nominal office and no activity in Switzerland) and the mixed company/administrative company (with mainly foreign activities).

First of all there is a federal corporate taxation for all types of companies of 8.5 % of the annual net profit after tax, i.e. on average 7.83 % net (exception: Holding company).

The cantonal taxes have to be added to that tax.

In the Canton of Zug (and City of Zug), the tax rates are actually (may slightly change annually):

1. Normal operating company:
net profit up to CHF 100,000 14.9 % after tax
net profit above CHF 100,000 19.7 % after tax
capital tax (equity) 0.8 %o

2. Holding company
A Holding Company has the objective of holding participations in other companies (the participation stake must exceed 20 % or CHF 1 Million) to the minimal extent of 2/3 of the holding companies assets or to provide 2/3 of the holding company’s income. Holding companies pay no federal, cantonal or communal taxes on a pure dividend income from such participations. On other profits from participations the federal tax will be 8,5 % after tax (net 7,83 %), the cantonal and communal tax will be similar to the taxes for Service and Domicile Companies:

capital tax (equity) 0.12 %o, min. CHF 240
profit tax as paragraph 1 for:
net profits resulting from real estates in Switzerland
income protected by Double Taxation Treaties, where it is a condition that
they are taxable in Switzerland

3. Domicile company
Companies which have only their domicile in Switzerland i.e. no employees in Switzerland, no offices in Switzerland, no commercial activity in Switzerland:

capital tax (shareholders equity) - 0.12 %o, min. CHF 240
profit tax as par. 1 for:
interest, dividends, capital gains from Switzerland
income from intangible rights in Switzerland
net profits resulting from real estates in Switzerland
income protected by Double Taxation Treaties, where it is a condition that
they are taxable in Switzerland

no taxes on profits from abroad and capital income provided that the conditions for the holding privilege are met.

4. Mixed company
Under “Mixed Company” different kinds of companies are privileged: (i) companies which provide only services to other related companies, and (ii) mixed companies, which may have employees and offices in Switzerland, but with at least 80 % of its turnover resulting from activity outside of Switzerland.

capital tax (equity) - 0.12 %o, min. CHF 240
profit tax as par 1 for:
investment income from domestic sources
income from intangible rights in Switzerland (up to 20 %)
trading income from Switzerland (up to 20 %)
net profits resulting from real estates in Switzerland
income protected by Double Taxation Treaties, where it is a condition that
they are taxable in Switzerland
income derived from outside of Switzerland on a scale calculated in accordance with the number
of full time employees of the company in Switzerland:
- up to 5 employees 20 % of the taxes as par. 1
- 6 to 10 employees 15 %
- 11 to 30 employees 20 %
- over 30 employees 25 %
no taxes on capital income provided that the conditions for the holding privilege are met.

This is obviously only a brief overview.

CONFIDENTIALITY
As it is possible to have bearer shares, it is also possible to act through an “agent” at the time of foundation of the company and at the shareholders meeting. The “agent” is also prepared to act as director. Therefore, the shareholders are not forced to be disclosed and there is no possibility for a private person to pierce the corporate veil.

There are the following exceptions:

• The beneficial owners have to be disclosed to the Swiss bank where corporate accounts are held. The bank will keep this information confidential, and they are not allowed to inform anyone about it.

• The beneficial owners and the books have to be disclosed, upon request, to a Regulatory Body for the control of any financial intermediaries with respect to money laundering. This Regulatory Board is bound to secrecy laws.

• The ownership of the shares has to be disclosed to the Authorities upon formal request in criminal cases, including tax fraud.

Please contact us if you have any further questions.

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