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1) Sources of Tax Law
Federal tax law is standard throughout Switzerland. In addition, each of the 26 cantons has its own separate tax law. Communal taxes also vary, but they are levied as a percentage of cantonal taxes. Because tax laws and tax rates vary widely among cantons and communes, the choice of domicile can be an important element in Swiss tax planning.

2) Tax Administration
The two principal levels of tax authorities are the federal authorities and the Geneva cantonal/communal authorities. Federal authorities administer withholding tax on dividends, interest and other payments, stamp tax and value added tax (VAT). The Geneva cantonal authorities assess and collect cantonal and communal income and equity taxes as well as the federal income taxes.
The Geneva and federal tax laws are fairly general and non-specific. Therefore, difficult tax problems are often submitted to the tax authorities for interpretation and rulings. Such rulings may be obtained rather easily. Because these rulings are binding only on the authorities issuing them, however, it is sometimes necessary to obtain several rulings to cover federal, cantonal and other tax issues.

3) Filing
For corporations, federal and Geneva cantonal/communal income taxes are assessed on the income of the current tax year. Corporations are required to file annual returns.

A non-resident company is subject to tax in Switzerland only if any of the following apply:
a. It carries on trade in Switzerland through a branch or an agency ;
b. It is a partner of a Swiss partnership ;
c. It owns Swiss real estate or similar property rights ; or
It acts as a broker for Swiss real estate.
Non-resident companies are subject to tax on the income derived from their activity in Switzerland and on their assets located in Switzerland.

Corporate federal and cantonal/communal income tax is imposed on resident corporations. A separate equity tax is levied on share capital plus retained earnings at the cantonal/communal level.
A resident corporation is one that is incorporated in Switzerland. However, a corporation incorporated in a foreign country is also considered a resident if it is managed and controlled in Switzerland.

1) Territoriality and Income Subject to Tax
Corporate income tax is based on worldwide income. However, income derived from foreign real estate or from a foreign permanent establishment is generally exempt. Income shown in commercial financial statements generally serves as the basis for taxation, but the tax authorities may require adjustments to correct for items such as excessive depreciation and any other book/tax differences.

a) Gross Income
Gross income includes all types of income, including sales income, dividends, interest, royalties, rents, and domestic and foreign capital gains.

b) Dividend Income
Dividends received are taxable as ordinary income. However, under the participation exemption, if the recipient of the dividends owns at least 20% of the stock of the payer corporation, or holds shares with a market value of at least CHF 2 million, the federal and Geneva cantonal/communal tax liability is reduced by the proportion of the net dividend income to total net taxable income. Consequently, qualified dividend income is essentially tax-free.

c) Capital Gains
For federal and Geneva cantonal tax purposes, a gain or loss from the sale or exchange of assets is treated as ordinary income or expense. The basis for determining the gain or loss is the tax value, which is generally the book value. However, there are some exceptions:
a. For federal tax purposes, capital gains realized on investments may benefit from the same reduction as dividend income, provided the disposed investment amounts to at least 20% of the issued capital and the investment has been held for at least one year. Investments that were held on January 1, 1997 will only benefit from the reduction if they are sold after December 31, 2006, provided the other conditions are fulfilled. In case the investment has been depreciated, only the difference between the sales price and the original purchase cost will benefit from the tax reduction. In certain cases, capital gains on investments transferred to foreign group companies may also benefit form the tax reduction provided the group still owns the investment as at January 1, 2007.
b. Proceeds from the disposal of assets may be exempt from tax if they are used to replace the assets during the year, or if they are transferred to a temporary replacement reserve.
c. If a company benefits from a cantonal tax ruling in Geneva, capital gains from the sale of participations may be exempted from cantonal/communal corporate income tax.

d) Foreign-Source Income
Under internal Swiss law and treaty regulations, income derived from a permanent establishment located in a foreign country (as defined in a treaty, or in the absence of a treaty, by internal Swiss law) or derived from real estate located in another country, is generally not subject to Swiss tax. Profits are allocated between a company's headquarters and a foreign permanent establishment according to the inter-cantonal allocation rules, unless a double tax treaty provides otherwise. Geneva cantonal rules may influence the international profit allocation, but treaty law always overrules internal Swiss law.
In general, all other foreign-source income is taxable in Switzerland. In the absence of a treaty, foreign-source income is taxed net of any foreign income taxes or withholding taxes imposed on such income by the source country.
Losses from a foreign permanent establishment are deductible subject to recapture during a 7-year period under certain circumstances.

a) Business Expenses
Generally, all expenses incurred in the normal course of business are deductible from taxable income. Income taxes on current year income is also considered a deductible expense in computing taxable income.

b) Depreciation and Amortization
For both federal and cantonal tax purposes, deductions are allowed for the depreciation of property, plant and equipment (excluding land) and for the amortization of certain intangible assets, such as purchased goodwill related to the purchase of net assets, but not for the purchase of shares. Depreciation rates are not regulated statutorily at the federal or cantonal level. However, the federal authorities have issued suggested depreciation rates for major categories of moveable assets. A company may use a higher rate than the standard rate, if it establishes that the useful life of an asset will be less than the life implicit in the suggested rates.
With regard to depreciation, the straight-line or declining-balance method may be used. Special accelerated depreciation might be negotiated with the tax authorities for major new manufacturing investments, particularly when such investments will create jobs or maintain current employment.

c) Reserves
A general reserve of up to one-third of the purchase or production cost of inventory (or market value, if lower) is allowed for tax purposes, if it is reflected accordingly in the accounting records. This reserve is allowed even if there is no economic justification for it.
Deductions are allowed for doubtful accounts receivable. A full deduction is allowed on specific and identified accounts; the remaining accounts receivable may be depreciated by a certain percentage. In practice, an allowance of 5% on domestic accounts receivable and 10% on foreign accounts receivable is generally acceptable, provided the allowance is entered in the accounting records.

d) Tax Loss Carry Forward
Under both federal and Geneva tax laws, losses can be carried forward for up to 7 years. Losses may not be carried back under either federal or cantonal law.

Switzerland generally applies the exemption method, rather than the tax credit method, for qualified foreign-source income. A tax credit, limited to the actual Swiss tax due on the related income, is granted for the remaining net foreign withholding taxes on dividends, interest and royalties according to treaties negotiated with certain countries.

For accounting purposes, groups of companies meeting certain criteria must consolidate their financial statements and subject them to audit. However, the concept of a consolidated or group return is not accepted under Swiss tax law. Each company is treated as a separate taxpayer and files a separate return.

Corporate transactions such as mergers, reorganizations, acquisitions and spin-offs may be accomplished tax-free, if the assets are transferred at book value and if certain other conditions are met. Because significant tax consequences may result, professional advice should be sought prior to undertaking such transactions.

When a corporation is liquidated, the liquidation profit/loss is treated the same way as current results for income tax purposes. In addition, the amount distributed to shareholders in excess of the nominal share capital is regarded as a dividend, which is subject to the 35% withholding tax (except where reduced by treaty).

In general, no difference exists between the taxation of Swiss companies and that of Swiss branches of foreign companies. However, remittances of branch profits to the head office are not subject to withholding tax, while corporate shareholder dividends are subject to a 35% withholding tax.
IV. Rates

1) Federal Taxes
The statutory federal income tax rate is 8.5%. Due to the deductibility of federal and cantonal/communal income taxes, the effective federal rate is 6.44%. The federal equity tax was eliminated as of January 1, 1998.

Geneva cantonal and communal income taxes are imposed on resident corporations at a flat rate. The ordinary combined effective cantonal and communal income tax rate (after deduction of taxes at both levels) is 17.73%. Corporate equity is taxed at a rate of 0.4%, except in those years in which there is no taxable income, in which case the rate is 0.45%. Taxable equity includes capital stock, reserves (including the legal reserve, general reserves and retained earnings) and any expenses not allowed as a tax deduction by the authorities.
For certain activities, the Geneva tax administration may grant tax rulings that offer more favourable income and equity tax rates.
If a company operates in more than one canton (for example, its head office is in Geneva, and it has permanent establishments in other cantons), its taxable profits are allocated among the cantons. The allocation method is determined on a case-by-case basis according to guidelines established in decisions of the federal Supreme Court. The Swiss constitution prohibits inter-cantonal double taxation.

The Geneva tax authorities grant tax rulings to certain types of companies. These tax rulings either entitle the beneficiaries to lower rates of cantonal tax on part or all of their income, or exempt their income from cantonal tax altogether. Lower rates of equity tax may also apply. These rulings are granted for a period of five years and can be renewed upon request provided that the conditions are still fulfilled.

1) Principal / Commissionaire Company Ruling
The principal / commissionaire company ruling, which applies for both federal and cantonal taxes, is granted to companies that assume certain regional functions on behalf of a multinational group. Typical functions of these "principal" companies comprise organisation of research and development, purchasing, production and distribution, management of stocks, planning logistics, development of a marketing strategy, organisation of the sales efforts, and responsibility of the treasury, finance and administration functions.
The merchandise is sold by foreign distribution affiliates acting as commissionaires to the principal company. Accordingly, these affiliates sell in their name but on behalf of the principal company. They can thus be deemed to constitute a permanent establishment of the principal company to which a portion of the sales profit recorded by the principal company should be attributed.
Generally all of the profits of the principal company are deemed to be sales profits, unless the principal company assumes responsibility for the manufacturing function. If this is the case, 30% of its profits are deemed attributable to the manufacturing function and the remaining 70% is deemed attributable to the sales function. Under the federal principal ruling 50% of the profit of the principal company attributed to the sales activity is attributable to these foreign permanent establishments and thus exempt from taxation in Switzerland. Any profit deemed attributable to the manufacturing function would be fully taxable in Switzerland.
At the time of this printing, the Geneva cantonal tax authorities contemplate granting an exemption of 70% at the cantonal level rather than the federal exemption of 50% mentioned above. This percentage is considered to be the minimum and might be increased to 80% should circumstances warrant. The cantonal authorities might also agree to a lower percentage attributable to the manufacturing activities than the federal 30% rate.
The effect of this ruling is to provide a maximum overall effective taxation rate in Switzerland of 10%. In the case of an entity with a manufacturing function, the maximum rate is still very reasonable at 17%.

Auxiliary status applies to Geneva-based companies which perform their commercial activity outside Switzerland. Foreign-source commercial income is taxed at one-fifth of the ordinary tax rate. This results in an effective tax rate of 4.13%, including both cantonal and communal income taxes. Foreign-source commercial income includes the following:
Income derived from trading activities performed abroad ;
Royalties charged for the use of intellectual property rights abroad ;
Fees charged for services performed abroad.
Foreign-source interest income from third parties is taxed at 15% of the ordinary tax rate. This results in an effective tax rate of 3.13%, including both cantonal and communal income taxes.
Foreign-source interest income from affiliates is taxed at 2.5% of the ordinary tax rate. This results in an effective tax rate of 0.54%, including both cantonal and communal income taxes.
Dividend income and capital gains on durably held participations are exempted from cantonal and communal income tax.
Equity is taxed at ordinary cantonal and communal rates. However, if 20% or more of the auxiliary company's assets consist of participations, a privileged rate of 0.07% will apply to the part of the equity proportionate to the ratio between these participations and the total assets of the company.

Holding status applies to companies which perform no commercial activity in Switzerland, and whose corporate aim and effective activity is to durably hold financial participations in affiliated companies. Both concepts are very widely defined. Financial participations include all types of shares, voting and non-voting, as well as long-term loans to affiliated companies. Affiliated companies are companies which either are at least 20% owned by the holding company, or themselves hold 20% or more of the holding company's stock.
To benefit from this tax ruling, a holding company must fulfil one of the following two conditions:
a. At least two thirds of its assets consist of financial participations in affiliated companies, as defined above or,
b. At least two thirds of its income is derived from these financial participations.
Holding companies are exempted from cantonal and communal tax on their entire income, except income related to real estate located in the canton. In addition to the income tax exemption, these holding companies pay a cantonal and communal equity tax at a privileged rate of 0.07%.

Service companies are defined as companies which provide affiliated companies with assistance in administrative, technical and scientific matters.
For tax purposes, a minimum remuneration for these services is required, in order to achieve a taxable income equal to 5% of expenses. This mark-up is then taxed at ordinary rates for federal tax purposes.
At the cantonal level, this income is taxed at ordinary rates for the portion attributable to Swiss sources. However, for the portion attributable to foreign sources, the income is taxed at only one-fifth of the ordinary rates.
The service income is characterized as foreign source if the related expenses are incurred outside Switzerland : 50% foreign if incurred outside Switzerland by employees resident in Switzerland and 100% if resident outside Switzerland.
Optional Service Company Ruling
An optional service company tax ruling may be granted in certain circumstances which typically would represent a more favorable method of determining the portion of income attributable to foreign sources.
This ruling may be obtained only if the services are provided mainly for the benefit of foreign entities. This ruling provides for an arbitrary allocation of 50% of income as Swiss source and 50% as foreign source. This arbitrary allocation is normally more favourable than under the direct allocation method required under a normal service company ruling. Each source of income is then taxed under the rules applicable to a normal service company.

The Geneva Finance Branch is a tax vehicle recognized at both the Geneva and federal tax levels. The structure usually consists of a European holding company with a Geneva registered branch. The branch uses funds obtained from the home office to finance affiliates within the Group.
There is a minimum funding requirement of CHF 100 million. Financing activities include lending, cash management, foreign exchange hedging, netting and re-invoicing. However, netting and re-invoicing activities are permitted only when used exclusively to limit and centralize foreign exchange risk.
Income Tax Advantages
The branch is typically funded by a non-interest bearing current account with the home office. However, for income tax purposes, there is a presumption that the branch operations are funded as a subsidiary with a debt to equity ratio of 10:1. The debt in this ratio is presumed to be interest bearing, which is tax deductible by the branch but not taxable to the home office.
In addition to this favourable method of determining taxable income for federal and cantonal purposes, Geneva also grants finance branches the privileges of the auxiliary company tax ruling.
The overall effect of these tax advantages can result in a combined Swiss tax rate of less than 2%.
Withholding Tax advantages
The utilization of a European holding company means that their treaty network is applied to the branch's transactions with the affiliates in other countries rather than that of Switzerland. This situation is advantageous when the treaty network of the holding company's country is more extensive than Switzerland's.

The Geneva government is authorized to grant tax privileges to firms which have been newly founded or are undergoing a restructuring. Industrial, commercial and service firms may apply for such tax privileges. However, commercial and service firms must meet at least one of the following criteria, apart from being newly founded or undergoing restructuring :
Complementarities with the industrial sector ;
a. Close cooperation with regional industry ;
b. Complementarities with the existing economic fabric.
The tax holiday privileges are granted for a maximum duration of ten years. Within this limit, different types of agreements may be obtained. What is often granted in practice is a full initial year exemption from cantonal and communal taxes, which then annually decreases by 10% over the ten-year period. Another possibility is a full exemption from cantonal and communal taxes for the first five years, which then annually decreases by 20% up to the tenth year. However, as no specific rule exists, any type of tax relief can be requested within these limits depending on the company's tax planning.

Other advantages worthy of mention are the following :
a. The sliding scale of tax relief is only used in those years in which the company has a taxable profit ;
b. Full offset of losses against profits is possible during the entire period of tax relief ;
c. A tax-free reserve for future investments can still be constituted ;
d. In certain limited cases, a tax ruling can still be negotiated from the beginning which can be applied to the taxable income not exempted by the holiday ;
e. The Geneva Professional tax may be covered by the terms of the tax holiday.
VI. Taxation of Associations and Foundations
As associations and foundations are commonly used for charitable or other "not-for profit" activities, they are generally tax exempt. This tax-exempt status should be negotiated in advance with the tax authorities.
In those cases where a tax exemption is not accorded due to the "for-profit" nature of the activities of the foundation or association, tax relief may be obtained in the form of favourable rules related to the treatment of certain receipts and expenditures. Member contributions for associations and contributions to foundations by its founders are not treated as taxable income. Associations are allowed to deduct from their taxable receipts all expenditures related to the acquisition of such receipts. Other expenditures are deductible to the extent that they exceed the amount of member contributions.
Additionally, an advantage in terms of tax rates is accorded to associations and foundations. At the federal level these entities benefit from a reduced rate of 4.25%, as compared to the normal rate of 8.5%. The benefit is not taxed if it doesn't exceed CHF 5,000.- at a federal level. Up to a maximum taxable income of CHF 400,000.-, foundations and associations also benefit from reduced rates of tax at the cantonal and communal level. Following is a table reflecting the total federal, cantonal/communal effective tax rates applicable for each level of taxable income.

Switzerland does not currently have any Controlled Foreign Corporation (CFC) legislation. Thus, profits from foreign subsidiaries are not taxed in Switzerland prior to actual distribution. In cases where the Swiss entity is a subsidiary of a foreign corporation, any CFC legislation of the foreign country should be reviewed in order to determine which measures might be taken to diminish the negative impact of such rules.
For example, the Subpart F rules of the CFC legislation in the US do not apply in cases where the foreign subsidiary does not buy or sell its products from an affiliated entity. However, even if it sells to affiliates, the rules would not apply if it manufactures the products itself. Additionally, the rules would not apply in cases where it buys from affiliates but sells to customers for consumption in Switzerland. Using a Geneva entity in these instances would result in the added benefit of low foreign taxation during the deferral period. In situations where deferral is not possible under the Subpart F rules, the utilization of a Geneva entity qualifying for a privileged tax ruling would have the advantage of lowering the overall tax rate for foreign tax credit purposes.

A circular letter of the Federal tax administration issued in June 1997, gives guidelines on minimum equity. The Federal tax administration requires that the following portions of assets evaluated at market value be covered by equity :
20-30 per cent of immovable property ;
50 per cent of other fixed assets (machinery, equipment, etc.) ;

a. 15 per cent of inventory and other current assets ;
b. 10 per cent of bonds in Swiss currency ;
c. 20 per cent of bonds in foreign currencies ;
d. 40 per cent of shares quoted on the stock exchange ;
e. 50 per cent of other shares and investments in companies.
The taxpayer may apply different rates as long as he can prove that the financing is at arm's length.
In so far as a corporation's debts are re-characterised as "hidden equity" for capital tax purposes, interest paid thereon is not deductible as a business expense for income tax purposes. If such interest is paid to a related party, it is subject to the withholding tax.
I. Income Subject to Tax
A 35% withholding tax is levied on dividends from Swiss corporations, on bank interest and on interest from publicly offered bonds, debentures and other instruments of indebtedness that are issued by a Swiss resident borrower. No withholding tax is imposed on ordinary loans, however, including loans from foreign parents to Swiss subsidiaries. For Swiss tax residents, withholding tax is fully recoverable. For non-residents, it is a final tax, unless the recipient is a resident of a country with which a tax treaty has been concluded and is entitled to the benefits of the treaty. Entities making interest, dividend or other payments subject to the tax must deduct the 35% withholding tax from the payment and remit the tax to the appropriate federal tax authorities.
Profit remittances by a Swiss branch to its foreign home office are not subject to withholding tax.
Rents, royalties and license, management and technical assistance fees are not subject to withholding tax.
Constructive distributions of profits are subject to withholding tax. Such distributions may result from excessive interest rates, excessive purchase prices for assets and any other transfer prices, fees or other compensation paid under non-arm's-length conditions to shareholders or other related parties.

Since 1995, Switzerland has a value added tax (VAT) system similar to that of most European countries. Although the Swiss VAT rate has increased since 1995 (in 2001, a new VAT law entered into force), it remains by far lower than those of other European countries.

VAT is a consumption tax borne by the ultimate consumer for which businesses serve as tax collectors. Companies are charged VAT on their purchases (input tax); in turn they charge VAT on their sales (output tax). The input tax is offset against the output tax, and the company pays any excess output tax to the federal VAT administration. A business with an excess of its input tax over its output tax is entitled to a refund.

1) Taxpayers
Entities are required to register as VAT taxpayers if their total annual taxable turnover subject to VAT exceeds CHF 75,000.-. However entities whose total annual taxable turnover does not exceed CHF 250,000.- and whose annual amount payable to the administration does not exceed CHF 4,000.-, are not required to register. In addition the entities which forecast to have an annual turnover that exceed CHF 250,000.within 5 years, could apply to be considered as a VAT subject.

2) Transactions Subject to VAT
In general, all sales and deliveries of goods and services, including the importation of goods and services, are subject to VAT. The consumption of taxable goods (but not services) by the supplier itself is also subject to VAT.
Exports of goods and services are taxed at a zero rate. The exporter, however, is still considered to be subject to VAT and is, thus, entitled to a refund of the input tax.
Tax exemption is provided for certain goods and services. Major areas of exemption are health care, education, culture, real estate (including leases) and financial services. An entity that supplies exempt goods and services is not a taxable subject and therefore may not recover the VAT imposed on its purchases.

3) Rates
The standard rate of VAT is 7.6%. Certain goods, such as food, drinks, farming supplies, agricultural products, pharmaceuticals and newspapers, are taxed at 2.4 %. Hotel services are taxed at a rate of 3.6 % until December 31, 2003.

1) Issuance Stamp Tax
A 1% issuance stamp tax is charged on the issuance of all share capital of a company in excess of the first CHF 250,000.-. All forms of contributions to the equity of a Swiss-domiciled corporation, including deemed contributions, are subject to the stamp tax. However, newly issued shares in the course of reorganizations, mergers, spin-offs and similar transactions are exempt from the tax.

2) Transaction Stamp Tax
The federal government imposes a transaction stamp tax on the sale or exchange of securities through entities considered to be securities dealers, such as the following:
a. Banks and other financial institutions subject to federal banking legislation, including the Swiss National Bank ;
b. Business entities (including permanent establishments of foreign entities) as well as individuals whose principal activity is the purchase and sale of securities for their own account or for third parties (traders) or portfolio management ;
c. Managers of investment funds ; and
Corporations, limited partnerships or co-operatives which own taxable securities with a book value of more than CHF 10 million.
Taxable securities include shares, bonds, debentures, promissory notes, bills of exchange and long-term certificates of deposit.
The tax rate is 0.15% of the sales price for securities issued by a resident of Switzerland and 0.3% for securities issued by a resident of a foreign country. The tax burden is usually divided equally between the buyer and the seller.
Estate and Gift Taxes
Geneva levies separate inheritance and gift taxes. No inheritance or gift taxes are imposed at the federal level.
In Geneva, domiciled foreigners are subject to inheritance tax and gift tax on worldwide assets, except for real estate located abroad. Non-domiciled foreigners are subject to inheritance tax and gift only on real estate in Switzerland.
To prevent double taxation, Switzerland has concluded inheritance tax treaties with the following countries : Austria, Denmark, Finland, France, Germany, Northern Ireland, the Netherlands, Norway, Sweden, the United Kingdom and the United States.
Professional Tax
The Professional tax is assessed on entities' annual gross revenues, rents, and number
of employees.
The rates of tax for these three components are as follows:
Gross revenue - the rate is 0.01% to 0.6% depending upon the type of revenue
Rent - the rate is 0.5% ;
Employees - the rate is CHF 10 per employee.
A tax declaration is filed once every two years and serves as a basis for the current
and following year taxes. There is a two-year lag between the tax period and the base period. Special arrangements may be accorded, if the company has a privileged cantonal tax ruling.

Switzerland has concluded numerous income tax treaties to avoid double taxation. These treaties usually provide for reduced withholding rates on dividends, interest and royalties.
To benefit from a reduced treaty-withholding rate, the foreign recipient must generally apply to the Swiss tax authorities for a refund. However, a special agreement with the United States provides a direct reduction at source to the treaty rate of 5% under certain conditions.
Following is a list of the countries with which Switzerland has concluded income tax treaties:
Countries with which Switzerland has Income Tax Treaties
Albania Argentina** Australia Austria Belarus Belgium Bulgaria Canada China Croatia Czech Republic Denmark Ecuador Egypt Finland France Germany Greece Hungary Iceland India Indonesia Ireland Italy Ivory Coast Jamaica Japan Kazakhstan Kirghizistan Korea Kuwait Liechtenstein *** Luxembourg Macedonia Malaysia Mexico Moldova Mongolia* Morocco The Netherlands New Zealand Norway Pakistan Philippines* Poland Portugal Romania Russia Singapore Slovak Republic Slovenia South Africa Spain Sri Lanka Sweden Thailand Trinidad and Tobago Tunisia Ukraine The United Kingdom The United States Venezuela Vietnam
* Treaty not yet entered into force ** Applicable temporarily *** Limited to certain tax issues

In order to prevent non-residents of Switzerland from benefiting from double taxation treaties entered into by the Confederation, Switzerland has enacted certain unilateral measures against treaty abuse. Under these measures, the taxpayer must meet certain conditions to obtain tax relief from withholding taxes by virtue of a Swiss double taxation treaty.
I. Types of Business Entities
Under the Swiss Code of Obligations, a business entity can be established using any one of the following forms:
a. Corporation
b. Limited Liability Company
c. Partnership

1) Corporation
The corporation, which is the most popular form of legal entity in Switzerland, is formed under a company name that is followed by the words "Société Anonyme" or the abbreviation SA. It requires a minimum of CHF 100,000.- of capital stock which is divided into shares.
Transferability of shares depends on the type of shares issued by the corporation. Bearer shares may be transferred by conveyance of the share certificates. Shares registered in the owner's name must additionally either be endorsed or assigned, depending on the provisions of the corporate bylaws. These provisions may set forth material restrictions on the transfer of registered shares, such as limits on total holdings or on foreign ownership, within limits set by law. The range of possible transfer restrictions is wider for non-quoted shares than for quoted shares.
Shareholders are not personally liable for the corporation's debts. The corporation may claim payments from shareholders only if, and to the extent that, their shares are not fully paid in.

2) Limited Liability Company
The limited liability company (société à responsabilité limitée-Sàrl) shares some essential features of the corporation-the limited liability of the holders and the character of a company. However, it also has some characteristics of a partnership-direct management and control by the holders. It is an association of two or more persons or legal entities, with a minimum stated capital of CHF 20,000.-, up to CHF 2 million maximum. At least 50% of its capital, in cash or in kind, must be paid in and disclosed in the bylaws at the time the company is founded. Every member has one vote for each CHF 1,000.- of his or her contribution, unless the bylaws provide otherwise.
Members are personally, jointly and severally liable to third parties up to the aggregate amount of the stated capital not paid in. Shares may only be transferred before a notary public, and the transfer must be recorded in a public deed. Full or partial transfer of shares requires the approval of three-quarters of the total number of members representing three-quarters of the stated capital. The bylaws may further restrict or even prohibit transfers.
To the contrary of the Swiss corporation, auditors are not required.

a) Ordinary Partnership
The ordinary partnership is a very loose form of organization, usually established for temporary purposes (such as large construction projects). It bears no proper firm name, and its sole legal basis is a contract of association, which need not be in writing. An ordinary partnership is not a legal entity and cannot acquire rights or assume obligations.

b) General Partnership
A general partnership is an organization of two or more individuals (corporations cannot be partners) formed for the purpose of operating a trading, industrial, or other enterprise based on commercial principles. The partners are jointly and severally liable for the partnership's liabilities to the extent that these liabilities are not covered by the assets of the partnership.

The general partnership, which corresponds roughly to the US partnership, is formed by registration in the Commercial Register. Initially, the name of the partnership must include the name of one or more partners. No minimum amount of capital is required. A partnership may take legal action in the same way as a corporation; it may also be sued.

c) Limited Partnership
The limited partnership is similar to that of a general partnership. However, the liability of one or several partners is limited to a capital contribution whose amount must be entered in the Commercial Register. General partners must be natural persons; limited partners may be natural persons or legal entities. At least one partner must be fully liable for the obligations of the firm. This type of partnership corresponds approximately to the US limited partnership.

The association is designed for organizations that pursue non-profit objectives and engage in beneficial, scientific, cultural, political or social activities. However, many of the more important associations are formed to pursue economic goals, for instance, professional organizations and trade unions. Non-profit associations may, for the better attainment of their goals, carry on an industrial or commercial activity. Associations acquire the status of a separate legal entity as soon as the articles of association are drawn up.
A foundation is a fund endowed for a defined purpose. The assets set aside for that purpose become autonomous and acquire the status of a legal entity. The legal form of a foundation is frequently used for company pension plans. The foundation is not a corporate entity constituted by members, but a fund with a specific object. A foundation is established in a publicly authenticated deed or in the form of a will. After registration in the Register of Commerce, the foundation is established and has the status of a legal entity.

When the legal form of a foreign business entity roughly corresponds to a Swiss legal form as defined in the Code of Obligations (partnership, corporation, etc.), the foreign firm may establish branches in Switzerland. The branch must be registered in the Commercial Register if it fulfils certain conditions.
The registration documents submitted to the Commercial Register for the registration of a branch depend on the legal form of the foreign company. Most of the submitted documents must be certified by a notary of the foreign Commercial Register. Documents in a language other than that of the applicable Commercial Register must be translated by a certified translator. At least one branch manager with power to sign alone, or two branch managers who can sign jointly, must reside in Switzerland.

All legal forms of business entities defined by the Swiss Code of Obligations are available to domestic and foreign investors alike. No specific form is available to foreign investors only.
The corporation (SA) and the limited liability company (Sàrl) are the legal forms most commonly used by foreign investors. Most subsidiaries of foreign firms are established as corporations, although the number of limited liability companies is increasing considerably for international tax planning reasons, particularly US Subpart F planning. The establishment of a branch office is an alternative to the formation of a legally separate subsidiary. Tax implications, the registration procedure, and other considerations determine which form is best for a particular foreign investor.
Legal Form Characteristics

Corporation Min.100,000 No max. Limited to share capital
Limited liability Company Min. 20,000 Max. 2,000,000 Limited to share capital
Partnership No specific requirements General Partner = Unlimited Limited Partner = Limited to share capital


The following steps should be taken to form a corporation.

a) Bylaws
Each corporation should have a corporate goal, usually economic, which must be specified in the bylaws. The bylaws are the internal rules of the corporation which are elaborated by the founder. Some of these rules, such as the headquarters location, the corporate goal, the amount of the capital stock, the number, the value, and the type of shares, and the management, are mandatory and should figure in the bylaws. Others, which are facultative, should be included in the bylaws in order to be valid (for instance the length of the company's life or the ability of converting bearer shares into registered shares).

b) Organizational Meeting
An organizational meeting of the shareholders is held during which the founders adopt the bylaws, subscribe to all the initial shares, elect the members of the initial board of directors and the auditors, and have the minutes of the meeting notarised. The company must have at least three shareholders (who may act in a fiduciary capacity), but this requirement has no practical consequences after the formation of the corporation. A minimum of 20% of the nominal value of the share capital or CHF 50,000.- (whichever is higher) should be paid in cash or in kind. The share capital is transferred to a blocked account at a Swiss bank to be held in the name of the company until the company is registered.

c) Headquarters, Registration and Name of Company
The company must be registered in the Commercial Register at the site of its headquarters. The headquarters site should also be specified in the bylaws. A registration application must be prepared and signed by all board members and signatories and sent to the Commercial Register together with the notarised minutes of the founders' meeting and additional required information. This information includes the corporation's legal address, a statement of acceptance of office and duties by the board members and auditors, disclosure of the nature of the initial capital contribution of the founders (whether in cash or in kind), major assets to be acquired and a statement of non-violation of the Statute on Acquisition of Real Estate by Foreigners. The corporation becomes a legal entity when it is entered in the Commercial Register.
In most cases, the corporate name includes the element "Société anonyme" or the abbreviation "SA". If the name is to include a geographic term or a designation of a similar nature (for example, "European", "International", "Swiss", "Switzerland", preliminary approval by the Federal Commercial Register is required).

The minimum share capital of a stock company is CHF 100,000.-, of which at least 20% of each share and, altogether at least CHF 50,000.-, must be paid in. If the share capital is not wholly paid, the company retains a receivable due from each shareholder for the part that they have not paid.
Shares may be issued in the shareholder's name (registered shares) or to the bearer (bearer shares), which should be wholly paid. A corporation can issue both types. Par value of each share must be at least CHF 0.01.-. Although each share is allowed one vote, the bylaws can establish that the right is not accorded proportionally to the par value. The par value of other shares may not exceed ten times the par value of shares granting privileged voting rights.
Swiss corporate law also provides for other equity instruments, such as participation certificates, which are similar to shares but lack voting rights. Within the limits allowed by law, a company may restrict the transferability of its registered shares.

a) Shareholders' Meetings
A general meeting of shareholders must be held annually within six months after the close of the business year. The shareholders vote on the approval of the annual report and financial statements, pass resolutions on the agenda and elect the directors and auditors for their statutory term. Extraordinary shareholders' meetings can also be convened by the board of directors or the auditors. One or more shareholders who represent 10% of the capital can also convene an extraordinary shareholders' meeting.
Although the bylaws can increase the majority requirements, the decisions of the shareholders usually require a 50% majority. However, certain decisions, such as a modification of the corporate goal, require a two thirds majority.

b) Board of Directors
The board of directors may consist of one or more individuals elected by the shareholders. Each director must be a shareholder of the company (either directly or in a fiduciary capacity) or the representative of a corporate shareholder. The majority of the directors must be Swiss citizens, domiciled in Switzerland.
The directors and corporate managers are liable to the company for any damage caused by their intentional or negligent failure to perform their duties. The corporation, individual shareholders, and, in case of bankruptcy, the corporation's creditors may sue board members for these violations.
The board of directors is responsible for preparing the corporation's annual report to shareholders. It contains the annual financial statements (profit and loss statement, balance sheet and notes) and a report on the course of the business and the financial status of the corporation. Under the law, active disclosure (publication) is required only for companies with publicly quoted shares or bonds.
At its initial meeting, the board of directors determines the corporation's internal structure (election of chairman, officers, designation of the holders of signatory power, etc.).

c) Auditors
All corporations must be audited annually. Elected by the shareholders' meeting, the auditors can either be an independent person or a company and must be domiciled in Switzerland. The auditors, which should be independent of the company, examine the books and the annual financial statements in order to submit their report at the shareholders' meeting.




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