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INCORPORATING IN SWITZERLAND

 

TAXATION IN SWITZERLAND
GENERAL OVERVIEW


TAXATION IN SWITZERLAND

GENERAL OVERVIEW ABOUT:

OPERATING STRUCTURES
CORPORATE TAXES
PERSONAL TAXES
MONEY LAUNDERING
TAX BENEFITS
0% INCOME TAX RATE

 

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, resulting in the Federal Tax Harmonization Law (FTHL) of 2000. 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.

Employees Rate
1 - 5 10%
6 - 10 15%
11 - 30 20%
30 + 25%

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.

Reduction for participations (particular rule concerning the income tax)

Reduction on the distributions of benefit:
The joint stock companies which have at least 20% share capitals or authorized capital of another company or a participation of a monetary value of CHF 2 million at least profit from a tax cut because of detention of these participations.

Reduction on the benefit in capital:
When the participation accounts for at least 20% share capitals of another company, the reduction for participations also applies for the benefits in capital (appreciations) to participations.

Amount of the reduction:
At the federal, cantonal and communal level, the income tax is proportionally reduced with the existing relationship between the net output of the participations (benefit of the participations and benefit in capital less expenses of management and financing) and the net total benefit.

One such deductible is depreciation. The standards for depreciable inventory are decided on the federal level, and include on an annual basis:

Small equipment, tools - 45 percent
Cars, data-processing equipment, patents - 40 percent
Other vehicles, machinery - 30 percent
Equipment and furniture for office use - 25 percent
Buildings for industrial use - 8 percent
Buildings for commercial use - 4 percent
Other deductions include all three tiers of taxes paid on income and capital; business expenses; and various tax relief strategies.

A 35 percent withholding tax is paid to federal tax authorities and is levied on:
Dividend payments
Bonds
Deposits
Other income distributions
Mortgage interest paid on Swiss real estate
Insurance benefits (at a reduced rate)

The following are exempt from withholding tax:
Rent
Loans
Royalties
Cross-border dividend payments (subject to certain criteria)
Most other types of interest
There exists the possibility of a full or partial refund of this withholding tax, or of a pre-emptive reporting, pursuant to Double Taxation Treaties (DTT) in place between Switzerland and most of the industrialized world.

There is a sliding scale applied to federal Value-Added Tax (VAT) for products and services in, and imported into, Switzerland, as follows:
Standard rate - 7.6 percent
Food, beverages, pharmacy products, newspapers - 2.4 percent
Services associated with the hotel industry - 3.6 percent
Any Swiss entities whose taxable business transactions total more than CHF 75,000 per year are required to register for VAT status. Exports are zero-rated exempt from VAT levies.

In regards to the Transfer Stamp Tax levied on securities, Switzerland recognizes a wide variety of entities in the category of securities dealers:
Banks
Financial enterprises that conduct bank business
Investment fund enterprises
Any enterprise, including branches of foreign-owned companies, which are involved in dealing taxable securities
Companies worth over CHF 10 million that own taxable securities

The rates applied to issued securities are as follows:
By Swiss-owned companies - .15 percent
By non-Swiss companies - .3 percent
Swiss securities issuers also pay .12 percent tax on bonds, and 1 percent on shares. Exemptions from the Transfer Stamp Tax include mergers, location transfers to Switzerland, and corporate asset spin-offs.
Insurance premiums, including those on contracts intended for savings only, are subject to federal Stamp Taxes.

Social security contribution is mandatory for companies, self-owned businesses and employees in Switzerland.
Social security - 10.1 percent of employee salary (5.05 percent employer, 5.05 percent employee)
Self-owned businesses - 9.5 percent of income
Unemployment - 2 percent of employee salary (1 percent employer, 1 percent employee)
Pension plan - variable, but with employer matching employee contributions by 50 percent

The total average contributions made by companies are as follows:

Old age and surviving dependents insurance law (AHVG)

4.20%

Invalidity insurance (IV)

0.70%

Defense duty compensation (EO)

0.15%

Unemployment insurance (AVIG)

1.00%

Family allowances

1.60%

Accident insurance (average rate)

2.00%

Staff welfare fund (BVG)(average rate)

6.00%

Total

15.65%

While personal capital gains are exempt from taxation, capital gains associated with a business are taxable.

PERSONAL TAXES
Personal taxation, like all other tax assessments, is processed on the Swiss three-tiered system: federal, cantonal and municipal. Even in the highest tax brackets, Swiss personal taxes are considered attractive worldwide.

Federal taxable income over CHF 843,600 is levied at a maximum rate of 11.5 percent, and includes:

• Employment compensation, gross
• Domestic capital, net debt, including real estate, possessions and life insurance policies
• Foreign capital, net withholding deductions
• Capital gains on real estate transfers and securities sales
• Lottery winnings

Capital gains of personal wealth are exempt from taxation; capital gains pertaining to business transactions are not.

For Class B permit holders, one's employer withholds and remits cantonal income tax. On the municipal level, the total cantonal tax paid is used as a base for a formulaic flat-rate tax. Class C permit holders are required to file their own tax returns.

In any case, social security, unemployment and a matching pension are withheld on the part of both the employer and the employee.

Expatriates are eligible for special employment deductions.

Inheritances and gifts are not taxed at the federal level. There is either no tax, or a tax rate under 10 percent, for inheritances and gifts among immediate family. Switzerland's dedication to privacy allows non-Swiss residents of Switzerland to claim the inheritance either in Switzerland, or in their native country.

New Swiss residents are subject to personal tax assessment after 30 days of employment, or after 90 days if unemployed. If an individual has not been a resident of Switzerland for at least 10 years, and has no desire to seek employment (i.e., retired or independently wealthy), that person is eligible for something called Lump Sum Taxation. In French, it is called forfait fiscal; in German, Pauschalbesteuerung.

Lump Sum Taxation is a tax regime based on one's expenses rather than on taxable income. If you have not lived in Switzerland for over 10 years, and if you have no desire to seek employment within Swiss borders, you are eligible for the Lump Sum Taxation regime.

There are a number of requirements for non-EU foreigners who apply for the resident permit required to benefit from Lump Sum Taxation:

You must submit proof of means (typically CHF 250,000) and health insurance.
You must be over 55 years old.
Younger applicants should contact Swiss authorities for additional requirements.

Special consideration is given to under-55 individuals who add to Switzerland's value by taking up residency; i.e., celebrities.
You must prove a family or other connection to Switzerland.
You must agree to not seem employment in Switzerland.

Once approved for a Lump Sum Taxation regime, any costs associated with one's standard of living can be included as expenses. However, this special tax system applies only if the tax paid on one's expenses is greater than would be paid on income from Swiss sources plus any other foreign taxes, net foreign deductions pursuant to international tax treaties.

The rate is generally based on the yearly rent paid, or rental value of your property, at a rate of five times that total amount. Income or other accumulated wealth from foreign sources are do not require reporting to cantonal tax authorities.

Successful financial planning is the key to reaping the benefits of residency in Switzerland. Incorporate GmbH provides expert personal tax solutions, ensuring that you can continue to enjoy all that Switzerland has to offer.

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.

These measures include:

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.

For foreign recipients of Swiss-source dividends and interest, the Double Taxation Treaty (DTT) provides withholding tax rates as follows:

Interest: 0
Royalties: 0

Country

Dividends

 

Country

Dividends

 

Country

Dividends

Albania

5/15

Iran

5/15

Pakistan

15/35

Argentina

10/15

Ireland

10/15

Philippines

10/15

Australia

15

Israel

5/10/15

Poland

5/15

Austria

0/15

Italy

15

Portugal

10/15

Belgium

10/15

Ivory Coast

10/15

Russia

5/15

Bulgaria

5/15

Jamaica

10/15

Serbia

5/15

Canada

5/15

Kazakhstan

5/15

Singapore

10/15

China

10

Kyrgyz Rep.

5/15

Slovakia

5/15

Czech Rep.

5/15

Kuwait

15

South Africa

7.5

Denmark

0

Latvia

5/15

Spain

10/15

Ecuador

15

Lithuania

5/15

Sri Lanka

10/15

Egypt

5/15

Luxembourg

0/5/15

Sweden

0/15

Estonia

5/15

Macedonia

5/15

Thailand

10/15

Finland

5/15

Malaysia

5/15

Trinidad

10/20

France

0/15

Mongolia

5/15

Tunisia

10

Germany

0/5/15/30

Moldova

5/15

Ukraine

5/15

Greece

5/15

Morocco

7/15

UK

5/15

Hungary

10

Netherlands

0/15

USA

5/15

Iceland

5/15

New Zealand

15

Uzbekistan

5/15

India

10

Norway

0/15

Venezuela

0/10

Switzerland welcomes new businesses, which add new jobs and economically valuable activities to the country's profile. The Bonny Decree enables Swiss cantons to offer companies recently incorporated in Switzerland a conditional 10-year tax holiday.

The criteria for eligibility under the Bonny Decree include:
Innovation, technologically or strategically
International appeal and market reach
Substantial job creation
Economic investment in Swiss entities

Near tax-exemption is applied to all three taxation tiers for qualifying Swiss corporations that receive inter-company dividends and certain types of capital gains, as follows:
If the company holds at least 20% of another company, and the source of the capital gains is from a participation transfer.
If the company holds at least 20% of another company, and its participation is totals more than CHF 2 million; in this case, participation revenues are exempt or near-exempt.

In addition to official treaties and rulings, the operating structure of your company can translate into annual tax benefits that make incorporation in Switzerland an attractive choice for your enterprise.

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.

With such a wide variety of tax benefits, there is no reason not to enjoy a richly rewarding business life in Switzerland. Let the corporate tax experts at Incorporate GmbH work on your behalf with Swiss tax authorities to create a personalized plan that ensures the income you earn is the income you keep.

0% INCOME TAX RATE
Law in Switzerland is such that taxes are assessed and paid using a three-tiered system - federal, cantonal and municipal. The total effective tax rate for income is 16.44% in Zug and 13.1% in Obwalden. Both of them include 7.83 percent Federal tax.

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 benefit in capital coming from participations also forms 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.

Example of tax calculation:

Total company capital: 100'000 (AG)
Total yearly income: 1'000'000 CHF
Total tax by the end of a year (0% from income and only 0,02% from capital): 2'000 CHF

Once the company has been taxed as a holding, there are no additional taxes in Switzerland, as well as in the original country.

Note:
The Swiss withholding tax on dividends is 35%. Using Double Taxation Treaties (DDT) it can be reduced to 0%. The rate depends on the particular situation of the company and DDT agreement between Switzerland and your country. To determine this rate it is necessary to consult the local tax authorities and a tax service company.

Incorporate GmbH has active relations with major accountants and auditors to help you in establishing a contact.

 

OFFSHORE INCORPORATION SERVICES
COMPANY FORMATION & MANAGEMENT SERVICES
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TRUSTS
PRIVATE & FAMILY FOUNDATIONS
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