Companies are subject to a variety of federal and cantonal taxes, such as the capital gains tax, income tax, withholding tax, issue stamp tax, securities transfer tax, and the value-added tax (VAT). Please see below for an in-depth breakdown of Switzerland’s corporate tax structure.
Territorial jurisdiction or competent authority
The federal tax law (FTL) and 26 cantonal tax laws govern Swiss income taxes in general. The tax rates are up to the individual cantons, although they must adhere to the broad principles laid forth in the Federal Tax Harmonization Law (THL). When it comes to tax laws, cantonal and community rules are almost the same or extremely comparable to those in place at the federal level.
Administratively, cantonal/communal authorities enforce federal, cantonal, and communal corporate income taxes from enterprises that are either residents of Switzerland or have a permanent presence in the country and conduct their business.
Residency for Tax Purposes
Limited liability companies (“GmBH”), partnerships with a limited number of shareholders (a “KolG”), co-operatives (“Genossenschaft”), foundations (“Stiftung”), associations (“Verein”), and investment trusts (“Anlagefonds mit direktem Grundbesitz”) all fall under the umbrella of Swiss tax-paying entities (exceptions may apply for certain organizations).
Legal entities that have their headquarters in Switzerland are considered to be residents of the country. As a result, if a company does not dwell in Switzerland but has a permanent establishment or property there, it is considered a Swiss resident for tax reasons.
There are no tax groups or tax consolidation options in Switzerland, which means that every firm is taxed as an independent organization.
Calculation of Taxable Earnings.
Unless revenue is linked to foreign permanent establishments or foreign immovable property, Swiss resident enterprises are taxed on their global profits.
Income from non-resident corporations’ Swiss permanent premises is taxed in accordance with Swiss law. For non-Swiss companies that own property in Switzerland, they are exclusively liable to Swiss income tax.
In order to calculate taxable income, a firm’s statutory accounts (for a Swiss company or a foreign business’s branch accounts) are used. According to the Swiss Code of Obligations, companies in Switzerland pay income tax on their net profit after tax (i.e., tax costs are deductible here), which is indicated in their statutory financial accounts (OR).
It is not necessary to prepare separate tax accounts because the tax treatment must generally adhere to the accounting treatment (“Massgeblichkeitsprinzip”), and there are generally only a few tax adjustments to be considered in the tax return (for example, use of existing tax losses carried forward, application of participation exemption, consideration of thin capitalization rules).
If a corporation has a minimum 10% participation quota or minimum MCHF 1 fair market value for dividends, and a minimum 10% participation quota and a minimum 12 month holding term for capital gains, then a tax relief for dividends and capital gains is available. Participation income is exempt up to 100% under the regime of participation exemption. For the purposes of calculating taxable income, there are no regulations or limits for passive income.
Taxes on capital gains derived from the sale of real estate might be either income taxes or capital gains taxes, depending on where the property is located in a canton or municipality. A real estate company’s majority share sale may trigger real estate capital gains tax, depending on the canton/community in which the real estate is situated.
Real estate transfer taxes may also need to be taken into account when selling or exchanging real estate assets, such as a home or a company’s majority stake. Real estate transfer taxes are also cantonal/community taxes, therefore the location of the property is once again important.
Costs are tax deductible to the degree they are justified by the business and adhere to the arm’s length principle. Safe haven rates are published by the Swiss tax authorities in regard to depreciation, interest expenditures, and bad debt and inventory reserves.
For loans between related parties, the Swiss thin capitalization requirements apply. Interest rates and maximum debt levels for each asset class are outlined in the rules. There are no restrictions on borrowing money from other parties to pay off debt. For tax reasons, the extra debt owed to related parties will be considered as taxable equity (“”hidden equity””). There is a withholding tax on interest payments made on the corresponding share of concealed equity (“”deemed dividend distribution””).
Tax losses may be carried forward for a maximum of seven years, but they cannot be reclaimed. It is also possible to compensate for the loss of foreign permanent establishments with Swiss revenue, provided that no foreign gains are made. Certain claw-back rules apply if earnings are achieved at the overseas permanent establishment during the next seven years. Finally, in the event of a change of ownership, there is no forfeiture of tax losses that have been carried forward.
Taxable Equity Determination
The statutory financial accounts produced in compliance with legislative regulations reveal that Swiss firms are subject to tax on net equity. Only at the cantonal/communal level is capital tax collected.
Net equity is often represented by the nominal share capital, the share premium account (extra paid-in capital), legal and other reserves, as well as the company’s accumulated profits.
The so-called “hidden equity” tax is also a kind of equity tax (pls. refer to our comments above regarding thin capitalization).
It is possible in certain jurisdictions to deduct the cantonal corporate income tax from capital tax.
Inflation Rates
Rates of Taxation in the Regular World
Companies’ normal effective tax rates on profit before tax range from 11.5% to 24.4%, depending on canton and community of residence (covering federal income tax as well as cantonal/communal tax deductions).
Capital gains tax ranges from 0.01% to 0.50%, depending on the canton/community of residence (no capital tax levied on federal level).
It is possible to minimize the effective income tax rate via base erosion planning (e.g. through depreciation of IP, foreign branch allocation, etc).
Status as a Non-Resident Alien
In addition, a particular tax status may be relevant based on the content and tasks performed. The following statuses are usually recognized in Switzerland. [1]
Since a holding corporation is free from federal income tax at the cantonal and community levels, the effective federal income tax rate is just 7.8 percent. The cantonal and local level capital tax is also cut. A number of requirements must be satisfied before a person is eligible for the holding privilege:
The corporation must have at least two thirds of its total assets in the form of qualifying shareholdings or, alternatively, at least two thirds of its gross revenue from dividends paid by qualifying companies in order to qualify as a long-term investor.
[2]Mixed Corporation: A mixed company’s operations must be primarily conducted outside of Switzerland, which means that at least 80% of its revenue and 80% of its costs must originate outside of Switzerland. Thus, only a limited amount of foreign income is liable to cantonal/communal taxation (leading to an overall effective income tax rate of 8.5-10.5 percent , depending on canton of domicile). A lower equity tax rate is also in effect.
if a legal entity performs at least seventy-five percent of its duties in the capacity of providing financial assistance to other closely held enterprises, the Finance Branch regime may apply . To achieve an effective tax rate of 1 percent to 2 percent, the Finance Branch uses a system based on a presumed interest deduction scheme (which exempts 91% of interest payments) and the application of the Mixed Company classification.
In order to qualify as a Principal Company, a company must be able to concentrate all of its operations and risks, as well as do business through contract manufacturing and limited risk distributors/commissionaires or agents. During the Principal Company regime, the LRD’s must generate at least 90% of their revenue from sales of Swiss Principal goods, and the LRD’s income margin must not exceed 3% of gross profit or total expenses. In addition, the Principal Company needs a sufficient number of employees to carry out its primary duties. The total effective income tax rate for the major headquarter fluctuates between 5% and 8% based on the services performed and the relevant foreign income allocation key used.
The tax statuses indicated above must be reviewed with and granted by the appropriate tax authorities before they can be used. A binding affirmation of the law’s application in particular situations is done by submitting ruling requests throughout the negotiating process (please also refer to our further comments below).
