Posts by "lexpro"

Swiss Bookkeeping Regulations

It is mandatory for all legal entities-partnerships and corporations alike to keep books. Nevertheless, this principle is not without exceptions and special cases.

As of January 2015, every legal entity and sole proprietor in Switzerland is obliged to keep accounts, even the ones that are not registered. Sole proprietors who generate more than CHF 100,000 annual turnover are obliged to get registered in the commercial register. However, the ones that generate less than CHF 100,000 annual turnover are not released from the obligation to maintain records and accounts. 

Simplified bookkeeping 

Partnerships and sole proprietors who generate less than CHF 500,000 annual turnover are allowed to do simplified bookkeeping. This also includes those associations and foundations that are not required to register in the commercial register. Simplified bookkeeping means that the proprietor has to keep track of records of income and expenses in a way that makes it easy to read the net worth.

Types of companies who must do bookkeeping pursuant to the Swiss Code of Obligations 

These are the types of companies that are obliged to keep in compliance with the rules of the Swiss Code of Obligations: 

  • Legal entities (GmbH, limited partnerships, associations, AG, and foundations);
  • Partnerships and sole proprietors that generate more than CHF 500,000 annual turnover;
  • Partnerships and sole proprietors that generate less than CHF 500,000 annual turnover – as previously mentioned, these proprietors have to maintain a simplified bookkeeping system. 

In order to maintain accounts, it is necessary to prepare an inventory, a comprehensive balance sheet, and a profit and loss account with the necessary supporting documents.

It is mandatory for companies to keep bookkeeping records and reports for a minimum of ten years, and special provisions apply to documents stored electronically.

Closing the financial year 

A financial year in most laws, including in Swiss law, lasts from the 1st of January to the 31st of December. Sometimes, companies and proprietors are allowed to select different dates. 

Newfound companies are allowed two options on how to end the financial year. One is to go for a short year ending, which means if the company was established on the 01st of July, the annual accounting closes on the 31st of December the same year. Another option is the long year-end which means that the company can choose to close the financial year at the end of next year. This means that the first financial year can last up to 18 months. However, the rules may vary in different canton laws. 

Taking into account that the first financial year brings many expenses, most newfound companies and proprietors opt for the long year-end. This way, the high expenses that come with starting a company can be offset against the profits that will accumulate later on. 

Subletting Flats On Online Platforms Is Easier With the New Tenancy Regulations!

The landlord’s permission is required for a tenant to sublease his or her apartment. When it comes to internet booking sites like Airbnb, this criteria doesn’t work: To avoid losing potential visitors, the tenant must react to the booking request within a reasonable time, often within 24 hours. There is a risk that a prospective visitor would look elsewhere if the renter delays sending the booking confirmation. To investigate a tenant’s request for rent, a landlord may follow the normal timetable of two to four weeks. As a result, many tenants do not bother to get the landlord’s permission before subleasing their property.

The Federal Council intends to address this issue by introducing a new section to the Rental and Letting of Residential and Commercial Property Ordinance (VMWG). The renter may now seek the landlord for permission to lease a unit in line with Art. 262 of the Swiss Code of Obligations.

The landlord’s general approval of the sublet

Landlord’s general approval for subletting a flat means that the tenant’s former duty to acquire the landlord’s permission for each apartment leased is no longer necessary. In its substitute, the landlord’s general consent has been established.

The tenant requires an application for landlords to be informed of sublet requirements, including the maximum rent, the maximum number of inhabitants, and the maximum number of buildings impacted.

As long as the tenant complies with his or her obligation to notify the landlord, the landlord may only deny general consent to a sublease if the circumstances of the sublet are abusive or the landlord suffers substantial disadvantages due to the sublet. As a result, “multiple short-term sublets” are de facto a basic right of the tenant.

The Landlord’s Reasons for Refusal Haven’t Changed

Swiss Code of Obligations Article 262 Par. 2 is untouched under the new tenancy law regulations grounds for refusal remain unaffected. Any future sublettings will be illegal under the law if the landlord refuses or revokes his or her approval to sublet because of the tenant’s abusive sublet terms or because the landlord suffers severe disadvantages.

If the tenant demands a much higher subletting rate than the principal rental contract, which isn’t justified by the tenant’s expenses, these subletting circumstances are called abusive.

If there is a large churn of subtenants, the landlord faces a significant loss in value because of the increased wear and tear on the apartment. The Zürich Rental Court concluded in a recent case involving a renter who utilized a flat two or three days a week and rented it for up to six persons at a time for a longer amount of time.

A Subleasing Agreement Cancellation Without the Landlord’s Permission

When a tenant sublets their apartment without the landlord’s permission, the landlord has the right to terminate the rental agreement unusually. According to the Swiss Federal Supreme Court, if a tenant fails to get the landlord’s authorization to sublease before moving out, a legal termination is already warranted. By failing to comply with a landlord’s request in writing, tenants may be subject to an unusual termination of their renting agreement.


As a result of the Federal Council’s planned inclusion of Art. 8a (new), tenants will be able to obtain a landlord’s general authorization for subletting simpler.

A landlord’s permission is required for each sublet until the new VMWG section 8a (new) has taken effect in January 2019, unless the landlord has given his or her general agreement. The contract might be suddenly terminated when a tenant sublets their apartment without the landlord’s permission.

Landlords may still refuse to allow a sublease if the circumstances are harsh or if the landlord suffers substantial disadvantages, even if the tenancy law restrictions have been updated.

Swiss Tenancy Law: What You Should Know

Before entering into a rental agreement, there are a few things you should have in mind. Stay on this page to learn more.

What is the procedure for renting an apartment in Switzerland?

Basically, renting an apartment involves paperwork. First comes the filling of an application. You will be asked to provide your personal information such as your age, marital status, profession, employment info, salary, residency status, and so on.

You will also be asked to provide a document that proves your credit eligibility from the debt collection register officially known in Switzerland as the “Betreibungsregister”. You can apply for this document online or from the local credit agency.

If your landlord is satisfied with the provided information, next comes the signing of the rental agreement.

By putting your signature on paper, you agree to the terms and conditions pursuant to the agreement. So you want to make sure to read carefully and completely understand the entire agreement. 

Oftentimes, the landlord will hire an agency to prepare all the necessary paperwork.

Security deposit

Most landlords will ask you to put a certain amount of money in advance as a security deposit. According to Swiss Law, the deposit can be as high as a three months’ rent and has to be paid into a bank account in the tenant’s name, specifically arranged for the purpose. This deposit serves the purpose of security for the Landlord. Should the tenant fail to pay the rent on time or causes damage to the landlord’s property, the tenant can request compensation from the security deposit. Otherwise, once the tenant moves out, the security deposit is returned to the tenant.

Rent reduction

Article 270 of the Swiss Code of Obligations, indicates the right of the tenant to challenge the initial amount of rent before an arbitration authority, and request to be reduced. However, certain criteria will have to be met.

  • The rent from previous rental agreements for the property is significantly lower;
  • The tenant is compelled to enter into the rental agreement on account of personal hardships;
  • The challenge has to be initiated within 30 days from concluding the rental agreement or taking over the rental property;

Demand remedies  

According to Swiss Las, there are three levels of deficiency: mild, moderate, and severe. In cases of moderate and severe deficiencies, the tenants have the right to request from the landlord to remedy the defects. In the case where property defects cause damage or in some way impact the tenant, the tenant will also have the right to request compensation or to reduce the rent. If the defects are severe to a level that make the property unusable, due to no fault of the tenant, the tenant has the right to request termination of the rental agreement without notice.

For mild defects, the responsibility for remedies falls on the tenant. An example of a mild defect would be a broken lightbulb, a loose screw on a doorknob, etc.

Termination of rental agreements

Both parties to the rental agreement have the right to request termination. Request for termination has to be done in writing and delivered via registered mail. If the tenant is married and lives with the spouse, the letter of notice has to be signed by both spouses. Otherwise, the request for termination shall be considered invalid. If the tenant requests termination of the rental agreement prior to the date stated in the agreement, they can recommend another tenant to take over the property. In such a case, the landlord is obliged to vet recommended tenant within a month’s period and confirm or deny such a request. If the recommended tenant does not meet the required criteria, the current tenant will have to continue with the payments of rent until the termination date of the agreement.

The landlord also has the right to request termination of the agreement. Especially in cases where the tenant falls short with monthly rent payments or causes damage to the rented property. In any case, the notice has to be done in writing using an official termination form. If the tenant does not agree with the termination request, the landlord can file an appeal to an arbitration authority within a 30 days notice.

Liquidation of a Swiss Limited Liability Company or Corporation

Corporations and limited liability companies may be liquidated at the shareholders’ meeting or the general meeting of shareholders, respectively. In the event of a liquidation, the commercial register should be informed of the decision and the appointment of the liquidator. The suffix “in liquidation” will be added to the company name in the registry. After then, the official gazette shall issue three notices to creditors asking for notification of their claims against the corporation.

Liquidators must end the company’s continuing operations and liquidate its assets. After liquidation, the firm should pay its debts using its remaining assets and cash. A bankruptcy filing is necessary when a company’s debt exceeds its ability to refinance.

Final balance sheets should be prepared after the end of the liquidation process. A final shareholders’ meeting will determine the payment of a liquidation dividend if the financial statements are approved (if any).

Liquidation dividends may only be paid out if the final call to the creditors was published in the official gazette for at least one year. Even after three months, distribution may only begin if an auditor certifies that doing so would not prejudice the interests of third parties.

A corporation may be de-registered or deleted from the commercial register when its last liquidation dividends have been paid out to its creditors.

The tax consequences of a company’s liquidation

After the liquidation process has begun, a company is still liable for taxes (i.e., after the registration of the liquidation with the commercial register). A liquidation firm can make profits during this period, either via commercial activity or the discovery of hidden reserves.

After the shareholders’ meeting has approved the final liquidation balance sheet, a liquidation dividend may be paid. As with regular dividends, Swiss withholding tax applies to the distribution of liquidation dividends. Liquidation dividends may be paid through the notification method if the firm is allowed. Withholding tax does not apply to the return of capital and reserves from capital contributions, on the other hand.

The de-registration or deletion request in the business register will be sent to the appropriate cantonal tax authority and the Swiss federal tax authority. Afterward, the federal tax authorities in Switzerland provide the final tax declaration forms and questionnaires to the business (VAT). The firm’s liquidators must pay all overdue taxes since they may be personally accountable for the payment of these taxes. Unpaid social security payments are also a source of personal responsibility.

Until the company is ultimately de-registered from the VAT register, VAT declarations should be made to the tax authorities. After each financial quarter, a business will de-register from the VAT register.

Only once the federal and cantonal tax authorities have certified that there are no outstanding tax obligations can the company be de-registered from the commercial register.

Liquidation of sole proprietorships and business partnerships

If a sole proprietorship (“Einzelunternehmen”), a simple partnership (“Einfache Gesellschaften”), a general partnership (“Kollektivgesellschaften”), or a limited partnership (“Kommanditgesellschaften”) ceases to do business, it must be dissolved. If any are leftover, excess funds may be awarded to partners after all obligations and contributions have been repaid. The firm must be de-registered if the partnership is included in the commercial register.

Liquidation of sole proprietorships and business partnerships has tax ramifications.

Single proprietorships and company partnerships carry out these self-employed operations. Self-employment income is taxed at the individual level by the partners or owners of the business. Ordinary income tax and social security payments apply to any gain realized in connection with the cessation of self-employment, such as discovering concealed reserves.

Liquidation profits from a sole proprietorship may be taxed more favorably if the proprietor retires at age 55 or becomes physically incapable of working. These circumstances, however, also need the payment of social security payments.

Instead of going through with a liquidation, a self-employed individual considering selling their company could choose to explore incorporating their company. It is possible to carry out such a change without incurring taxes. As a rule, the profit from the sale of shares in such a legal organization is not taxed, meaning it is not taxable income. However, the conversion into a legal company must be completed at least five years before the sale of the shares, which is a significant criterion.

Swiss Inheritance and Estate Taxes and Laws

If you buy a Swiss property, estate tax and inheritance tax rules can apply to you. These can vary depending on which Swiss canton you live in. The inheritance rules in Swiss vary, so it may be beneficial to contract an expert to ensure you’re getting the best treatment possible.

Switzerland Inheritance Law and Succession Rules

As an expat living in Switzerland, you can choose whether to have Swiss inheritance tax law, or the laws of your home country applied to your estate. This is specified in your will. Swiss inheritance law applies by default without a will or the expression of their preference.

It’s important to note that Swiss inheritance law included forced heirship rules. This means certain relatives cannot be disinherited, even through a last will and testament. This leaves 50% of the estate to the spouse or registered partner. Of the remaining half, at least 75% goes to the children and grandchildren. 

Inheritance Law on Pensions in Switzerland

Spouses and children may be entitled to inherit some of their relative’s pensions. If the deceased paid AHV contributions for at least one year, a survivor’s or orphan’s pension might be available for a spouse, same-sex registered partner, or child of the deceased. If the benefits are already in place, then the survivor’s pension will increase by 20%

Switzerland Inheritance Tax

Heirs under Swiss tax law have some flexibility. They can accept the inheritance, reject it, or accept it subject to public inventory.

Accepting an inheritance subject to public inventory is an excellent option for an heir who is unsure of the deceased’s financial situation and is concerned debts will outweigh the assets inherited.

The heir has three months from the date of death to decide on a course of action before it’s assumed the inheritance will be accepted. 

For those choosing to accept an inheritance, a certificate of inheritance can be obtained from the Swiss authorities. This proves the right to inherit and is needed by financial institutions before money can be withdrawn from the deceased’s accounts. The cost of this certificate varies between cantons but can range up to a few thousand Swiss francs.

For an heir who chooses to reject their inheritance, the Swiss government website will provide more guidance on disclaiming an inheritance.

Estate Tax in Switzerland

The amount of tax due when inheriting a property can be affected by several factors:

● The property’s market value

● The degree of relationship to the deceased (ranging from 0-40%)

● The canton’s surcharge (100-300% applied to the basic rate)

Paying Inheritance Tax in Switzerland

Once the tax assessment is received, you generally have 20 days to pay Swiss inheritance taxes. Switzerland has double tax treaties that can benefit expats in Switzerland as well as Swiss residents abroad. Set up between more than 50 countries, these ensure you won’t get taxed by both countries. However, if your country isn’t one of these, you could be subject to paying Swiss inheritance tax and your home country’s tax. 

Inheritance Tax Rates

Each canton has a different rate of inheritance tax. Some share with municipalities while others levy on their own. The canton Schwyz has no inheritance tax. The taxable rate also depends on the overall value of the assets and your relationship to the deceased. The person who inherits the estate will also pay the charges. Tax doesn’t apply to personal and household goods.

Switzerland Tax and Inheritance Rules

Switzerland is known for progressive taxation, allowing its residents to benefit at home and abroad. Inheriting in Switzerland changes depending on the canton you’re in, so be sure to understand the rules for the specific place you find yourself in.

Tax Incentives and Reductions of Corporate Taxes in Switzerland

The following article discusses tax incentives for Swiss holding companies, Swiss management companies, and Swiss subsidiary companies.

  1. Holding companies in Switzerland

Corporate tax reliefs are offered to Swiss holding companies to avoid double taxation. The cantons have the responsibility to determine the criteria for obtaining the status of a Swiss holding company.

Here are some of the basic criteria that Swiss holding companies have to meet:

  • Companies must have holding activities, which means operating through affiliates. Such activity must be stated in the corporate mission statement and must be registered in the Swiss trade register.
  • In the long run, two-thirds of the assets on the balance sheet must be from affiliates, or two-thirds of the revenues must be generated from affiliates.
  • Trading and manufacturing activities cannot be part of the company’s operations in Switzerland.
  • For a company to own status as a “Holding” it has to own at least 20 percent of the affiliate’s capital or when the capital exceeds the value of at least 2 million CHF.

What are the tax incentives for holding companies in Switzerland?

Swiss holding companies are not obliged to pay income taxes to the Cantons and have reduced rates on the capital. Federal taxes are usually at a rate of 7.83 percent, however, the activities of holding companies are not subject to such taxation.

  • Management companies in Switzerland

 Here are some of the basic criteria that Swiss management companies have to meet:

  • Commercial activities are prohibited to Swiss management companies;
  • Management companies can only perform management activities.

In general, management activities involve management services such as financial or administration services, consulting, or technical assistance. Officially, management activities haven’t been defined on a federal level, and the task of defining them is left to the cantons.

What are the tax incentives for management companies in Switzerland?

Domestic income has a normal tax rate, but foreign income is taxed and evaluated based on the importance of the services performed in Switzerland. The level of importance is evaluated case by case by the canton’s administration. Foreign income is usually taxed from five to fifteen percent, and the rate of 7.83 percent of the total revenue is added to it.

  • Subsidiary companies in Switzerland

 Here are some of the basic criteria that Swiss subsidiary companies have to meet:

  • Swiss subsidiary companies only perform services abroad and rarely do any domestic activities. Up to a minimum of 80 percent of the business’ revenues and expenses must be carried out outside of Switzerland.
  •  Every canton has different conditions for obtaining status as a subsidiary company.
  • In general, it focuses on the “place of the market” (the country in which the merchandise or service is sold or purchased) rather than the “place of origin” (the country in which the infrastructure and employees are located). The definition of service differs in every canton.

What are the tax incentives for subsidiary companies in Switzerland?

Domestic income has a normal tax rate, but foreign income is taxed and evaluated based on the importance of the services performed in Switzerland. The level of importance is evaluated case by case by the canton’s administration. Foreign income is usually taxed from five to twelve percent, and the rate of 7.83 percent of the total revenue is added to it.

Overview of Swiss Corporate Taxation

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).

Flexible Regulations with the New Company Law after January 2023

On 2 February 2022, the Federal Council adopted changes to the Code of Obligations (OR) and its Commercial Register Ordinance (HRegV). From 1 January 2023, the upcoming legislation will apply and enable Swiss companies to be more flexible and adopt various innovations. The following are a few examples.

Foreign exchange capital

In the past, the share capital had to be in Swiss francs. As of now, foreign currencies can be used for business activities. Accepted currency types are Swiss francs CHF, British pounds GBP, Euros EUR, US-Dollars USD, and Japanese yen JPY.

It is relevant for all sides of corporate law, such as starting a company, increasing and decreasing its capital, allocating profits (dividends/reserves), assessing loss of capital/over-indebtedness, etc. Taxable profits must be converted into Swiss Francs.

In advance of the next fiscal year or retroactively, the General Assembly can decide on a change in currency.

Shares used to have a nominal value of at least one centime; now, all that is needed is that the value is greater than zero.

Introducing the Capital Band

Capital bands allow for more flexibility in calculating capital increases and decreases, and the General Assembly can add a corresponding article to the articles of association. Over half of the share capital registered in the Commercial Register can either exceed or fall below the capital band.

It replaces the current “approved capital increase” with a quasi-“approved capital decrease.”

Capital increases and decreases innovations

The amended law simplified the ordinary capital decreases. The Swiss Official Gazette of Commerce may now publish only one call to creditors instead of three previously. Furthermore, creditors have to request indemnification within 30 days (instead of 60 days previously).

Following the resolution of the General Assembly, the Board of Directors has six more months to implement it. The Commercial Register entry no longer determines compliance with this deadline.

Interim dividends

Dividends can now be directly decided by the General Assembly based on interim financial statements. Auditors generally audit annual financial statements. There are exceptions: when the Company waives the limited audit (opting-out) or, all shareholders agree to the payment of the interim dividend. No claims of creditors are affected by this payment.

Claim of arbitration

Swiss Arbitral tribunals can now judge disputes over corporate law if their basis is in the articles of association of a company. There has been controversy over whether a company can specify arbitration clauses for its Articles of Association and thus bind all shareholders.

Virtual General Assembly

Various modernizations are made to the General Assembly’s preparation and execution of the revised law. This will be the first time that the Swiss General Assembly can be held virtually, using electronic means. Swiss Code of Obligations now explicitly outlines this option. In addition to electronic voting, shareholders are also able to participate in circular voting even if they cannot attend.

Articles of incorporation

The acquisition of assets during the establishment or capital increase is no longer a qualified fact. As a result, it no longer has to be mentioned in the articles of association or accompanied by an audit report. In addition, it does not require publication in the Commercial Register.

Articles of association of Swiss companies will be able to be modernized under new legislation from 1 January 2023. The upcoming changes include establishing a capital band and holding a virtual General Assembly.

Dividends Distributed by Swiss Corporations

According to article 675 of the Swiss Code of Obligations, “dividends can only be paid out of the profit resulting from the balance sheet and the reserves created for the purpose.” However, in practice, the interpretation of this legal stipulation has evolved with time, and there can be more than one dividend payment per year. 

Below is a summary of current dividend distribution practices during the financial year. 

Extraordinary dividends This matter is not specially regulated under Swiss law. Nonetheless, a payment for such a dividend could be permitted when certain conditions under article 660 of the Swiss Code of Obligations are met. Those conditions are as follows: 

– The profit and the free available reserves are sufficient for such payments;

– The payment of extraordinary dividends doesn’t result in any liquidity issues for the companies;

– The company must draw up an interim balance sheet;

– The decision of the board of directors to approve payment of extraordinary dividend must comply with the law and, as such declared by an auditor;

– The payment of extraordinary dividends must be authorized by the general meeting of shareholders.

  • Advanced dividends 

Advanced dividends are usually offered to the shareholders out of the profit from the current year. In legal terms, this payment is treated as a loan, which should be compensated by the dividends once the general meeting of shareholders is held. In such a situation, the auditors should draft a report stating which payments have been made throughout the financial year. 

  • Interim dividends

The interim dividend usually comes out from the profit of the current financial year. Not long ago, such a dividend was considered an infringement of the Swiss Code of Obligations. 

However, according to modern legal theorists, payment of interim dividends is possible if specific criteria are met. The same conditions for extraordinary dividends apply to interim dividends also. With one difference, however, payment of interim dividends requires the drawing up of an interim balance sheet and approval of that balance sheet by an auditor when audits are obligatory for the specific company. 

  • Proposal for new law

A new addition to the Code of Obligation has been proposed by the Swiss Federal Council, according to which an interim dividend can be approved by the general meeting of shareholders when possible according to CO, and when an interim balance sheet is drawn up for the first half of the financial year. 

In cases where the company is subject to obligatory auditing, the balance sheet must be checked and approved. 

Such dividends must also be governed by the same rules that refer to the standard annual dividends. 

  • Sanctions 

By violating the dividend distribution rules, the decision of the general meeting of shareholders is nullified, while violation of formal dispositions (such as the drawing up of an audited interim balance sheet and the approval of the auditors) can be contested. 

In certain circumstances, the company may be able to reclaim dividends paid in an undue manner. In the event of a severe violation, the board of directors and/or auditors may also be held responsible civilly or criminally. 

  • Final words

Interim dividends were treated as illegal until recently. However, significant steps in eradicating such a view have been made with the emergence of new modern practices, legal theories, and the proposal for revision of the Swiss Law of limited companies.  

This change is to be welcomed since it reflects the needs of business practice and respects the principles of protection of corporate capital.

Business and Tax Incentives in Switzerland

Switzerland has a detailed system of financial incentives and tax relief. This outline is available for all legal business structures. While before 2020, each canton had its own strategy to compensate firms, now there are an equal number of incentives available throughout Switzerland. These incentives and reliefs can be applied by all businesses.

Procedures for submitting and assessing tax returns

In most cases, the tax year and the calendar year are the same; nevertheless, businesses are able to choose a different financial year. Within six to twelve months after the conclusion of a company’s financial year, tax returns must be submitted (depending on the canton).

In general, cantonal income taxes are paid in installments throughout the financial year (depending on the tax charge from the previous year) and at the end of the year based on a final assessment (upon reception and review of the respective tax return by the tax authorities). It is normally expected in the third or fourth quarter of the current fiscal year. On March 1, after the conclusion of the fiscal year, federal corporate income tax is due and must be paid within 30 days.

The tax return is examined by the tax authorities in the jurisdiction where it was filed. Within 30 days after receiving the final assessment, an appeal may be lodged if the assessment is not in conformity with the tax return that was submitted and the relevant legislation.

When it comes to tax audits, there are no set intervals, and not every firm is audited at all.

Considerations of Other Kinds

Indirect Taxes

Transfer pricing law is not in place in Switzerland, nor are there special paperwork requirements. Because of this, related-party transactions must be conducted at arm’s length and commercially justified under the general tax laws.

Rules for Controlled Foreign Corporations

Because of this, Switzerland does not have CFC regulations, unlike many other nations.

Money With Purpose

Since the Swiss Franc statutory accounts must be used to submit tax returns, alternative functional currencies may be utilized instead. According to a Federal Supreme Court ruling, a company must distinguish between “operative” currency gains and losses based on foreign currency transactions and “functional” currency gains and losses based on the conversion of financial statements from a functional currency into Swiss francs at year-end. Switzerland’s Supreme Court has determined to negate any impact on Swiss taxes caused by the simple transfer of funds from one currency (such as a functional currency other than CHF) to another currency (such as CHF).

New accounting rules came into effect on January 1, 2013 (effective January 1, 2015, and 2016, respectively, after the end of the relevant transfer period covered by the Swiss Code of Obligations (OR)). You may maintain the books and report in a currency other than CHF using these concepts.

Rules for Reorganization

Reorganization (i.e. merger, demerger, hive down, share-for-share transfer, asset transfer, conversion) may be tax-deductible in Switzerland if certain requirements are satisfied, including:

  • Continued tax obligation in Switzerland; transfer of company assets/investments at tax book values; disposal limitation term or other criteria may apply.
  • Direct and indirect taxes, capital gains taxes, and transfer taxes on real estate may all be neutralized.

The Tax Court Rulings

An agreement between the tax authorities and the taxpayer is known as a tax decision (e.g. reorganization of a group, functional currency matters, etc.). Swiss tax law and practice may be interpreted in an adverse light if a binding decision is requested in advance (the ruling process does normally last for two to four weeks).

Tax judgments are founded on mutual confidence, thus all necessary information must be provided to the tax authorities. In addition, there is no time limit. It is standard practice to give transition periods in the event of tax legislation changes.

Other Taxes are included in this category.

  • Income Taxes
  • Withholding taxes of 35 percent apply to dividends paid by a Swiss firm, interest payments on bonds, cash bonds, money market instruments, and any customer deposits in Swiss banks.

In addition, withholding tax applies to the revenue distributed from Swiss funds (including reinvestment in non-distributing funds) (based on the so-called “”Affidavit Procedure”” no withholding tax is however levied if more than 80 percent of the income generated by the fund is foreign-sourced and the unitholder is resident outside Switzerland which is evidenced).

In the case of loans secured by Swiss property, a specific tax must be taken from the interest payments (the tax rate applied depends on the canton where the real estate is located).

There is no withholding tax on earnings transferred from a Swiss branch to the overseas main office.

Furthermore, in Switzerland, if the arm’s length principle is followed, no withholding tax is applied to royalties, management and service fees, and interest on loans. The arm’s length principle may not be met in the instance of payments made to a connected person or entity, and as a result, withholding tax may be applied. According to the arm’s-length principle, the recipient would receive a net 65 percent dividend after deducting the withholding tax, and thus the withholding tax would be 53.8 percent. In this case, the recipient would receive a net 65 percent dividend after deducting the withholding tax, and thus the withholding tax would be 53.8 percent.

Share capital and share premiums that qualify for the so-called “”capital contribution principle”” are not subject to withholding taxes (former direct shareholder contributions qualifying as capital contribution reserves).

Refund procedures generally allow Swiss residents, both individuals and legal entities, to obtain a complete refund in the event of a Swiss withholding tax. Even for intra-group dividends paid inside Switzerland, the so-called “”notification method”” may allow for a complete reduction in withholding tax at the point of origin.

In light of Switzerland’s vast tax treaty network, a complete or partial refund of withholding tax payable on dividend payments from a Swiss firm to its foreign shareholder should be conceivable, provided the relevant requirements are satisfied. A complete or partial reimbursement of the withheld tax may be available under the EU-Swiss Savings Agreement (which is a bilateral agreement between Switzerland and the EU). Depending on the circumstances, a notification process may be required when the corporate shareholder is a resident of the EU or a country with which Switzerland has a double tax treaty.

As long as the necessary circumstances are satisfied, there should be no tax repercussions for reorganizations (please also refer to the above comments).

Imposition of Stamp Duty

A 1% stamp tax on the cash or fair market value of the assets donated by the direct shareholder is levied on Swiss firms when equity is issued or increased (first MCHF 1 million is however exempt). Bond and commercial paper issuances are exempt from the issuance stamp tax.

Stamp duty may be waived in certain types of reorganizations provided certain requirements are satisfied (please also refer to the comments above).

If specific conditions are satisfied, the shareholders of an over-indebted corporation may also be eligible for an exemption.

Transfer Tax on the Sale of Financial Instruments

When a Swiss bank or another Swiss securities dealer serves as a counterparty or an intermediary in the transfer of ownership of Swiss and foreign taxable securities, securities transfer tax may be applicable.

Swiss securities dealers include the following parties:

Securities with a book value greater than MCHF 10 that are held by Switzerland’s banks and bank-like financial institutions as well as the Swiss national bank; Swiss individuals, corporations, partnerships, and branches of foreign companies that engage exclusively or substantially in trading securities on third-party accounts or in brokering such securities

In the case of Swiss securities, the tax rate is 0.15 percent, whereas it is 0.33 percent for international securities (remuneration paid generally to be considered when determining respective tax liability).

Certain transactions, on the other hand, may be excluded from taxation (e.g. qualifying reorganizations, please also refer to the above comments). Additionally, certain counterparties may be free from taxation, which means that just one of the parties involved (or, if both are exempt, none of them) is responsible for paying the tax.

In Switzerland, Value Added Tax (VAT) is charged on the supply of products and services, on the import of commodities, and on services acquired from outside by enterprises that are registered for VAT purposes. VAT is not charged on a number of certain products and services (e.g. financial services, real estate transactions, the transfer of shares).

Swiss VAT does not apply to exports or turnover produced outside of Switzerland or Liechtenstein.

However, anyone or any legal entity (such as a subsidiary, branch, or trader) that engages in a commercial, professional, or non-profit activity that generates income must register for and charge VAT if the total annual supply of goods, services, and self-consumption within Switzerland exceeds CHF 100,000.

Individuals and legal organizations that acquire services from outside the country should be aware that VAT may be due.

In Switzerland, the current VAT rates are as follows:

  • The standard interest rate is 7.7%.
  • Food, medicine, newspapers, and books all have a reduced tax rate of 2.3%.
  • 3.5 percent discount for accommodation services

Input VAT may be eligible for a full or partial refund (reduction of the input tax only with regard to exempt turnover and certain so-called “”non-turnover””).

A group of Swiss companies may be formed for VAT reasons. In certain situations, it is feasible to achieve tax efficiency via voluntary VAT registration, which may be used to optimize VAT.