Posts in "Corporate Law"

Corporate Law

New Swiss Company Law: Capital Loss, Insolvency, and Over-Indebtedness

July 27, 2022 Comments Off lexpro read

The new Swiss Company Law is coming into force on January the 1^st 2023, and it will bring several novelties regarding capital loss, insolvency, and over-indebtedness.

Monitoring the solvency

Monitoring the solvency is mandatory. Companies need to monitor both, the liquidity, as well as the balance sheet regarding a possible loss of capital. The board of directors must act if their company is at risk of going bankrupt. Further measures must be taken if necessary to restructure the company, or such measures must be proposed to the general meeting of shareholders if they are within their jurisdiction.

Monitoring the liquidity continuously is important. The draft of the law, though, specifies that a liquidity plan is not required. Liquidity is not mandated to be monitored or analyzed beyond a specific timeframe in the law. There was a suggestion that a company should undergo an ordinary audit every six months or every twelve months in the case of companies that are required by law to do so. The suggested time interval should nevertheless serve as a guideline.

Audits on the preliminary financial statements

When a company has a capital deficit, a licensed auditor must conduct a limited audit of the last annual financial statements before the annual general meeting of shareholders approving them if there are no elected auditors in place. A board of directors needs to make sure the economic situation does not worsen than what has been presented to them. They must appoint a licensed auditor. The board of directors may waive this auditing requirement if it applies for a debt-restructuring moratorium.

The board of directors must as before, immediately prepare preliminary financial statements at going concern values and liquidation values if there is reasonable concern that the company’s liabilities are not covered by its assets, that is if the company is over-indebted. In practice, the interim financial statements at liquidation values can be waived as long as the ongoing concern assumption is made. In addition, the consolidated financial statements carrying concerned values do not show any overindebtedness.

A licensed auditor must be appointed by the board of directors to audit the interim financial statements unless the board elects auditors to do so.

Bankruptcy

The board of directors must inform the court, which will initiate bankruptcy proceedings if the company is over-indebted according to both interim financial statements.

There is no requirement for the court to be notified if creditors defer or subordinate their claims (including interest claims) to the extent of overindebtedness.

In connection with the bankruptcy process, it is now explicitly stated that the claims of creditors whose claims have been subordinated behind all other creditors are not to be included in the calculations of the company’s losses. By amending this provision, the Federal Supreme Court intends to correct its case law, which suggests that a bankrupt company’s board is responsible for subordinated claims.

The court notification may also be omitted in cases where there is a realistic prospect that the over-indebtedness can be repaid within a reasonable time, but no later than 90 days after the audited interim financial statements are available, and if there is no additional jeopardy to the claims of the creditors. In practice, the matter of notifying the court of bankruptcy is frequently raised, and this clarification is very welcome.

Corporate Law

Coming into Force on January 1st – What Will the New Swiss Company Law Bring?

July 25, 2022 Comments Off lexpro read

Basically, the company law must be adapted to the current economic climate. A number of provisions found to be impracticable under the current law will be amended or repealed, as well as shareholder and minority rights.

What will be the most important changes?

· Capital regulations will be more flexible

The share capital can be denominated in the following currencies: USD, EUR, GBP, or JPY if it is essential for the business activities of the company in that currency. It is acceptable for a share to have a nominal value less than 1 cent as long as it is greater than zero. In place of the authorized capital increase, the board of directors can increase or decrease the share capital within a range using a statutory instrument called the capital band, which is valid for a maximum of five years.

· Simplified general meeting process

The general meeting will be able to be held virtually or abroad. During the Corona pandemic, the COVID 19 Ordinance 2 introduced the possibility of holding virtual general meetings, while COVID 19 Ordinance 3 extended it until the new company law entered into force. Under the new company law, if a virtual general meeting is to remain possible, however, a statutory basis must be established and, in principle, an independent representative must be elected.

The Board of Directors may also vote electronically. Moreover, the list of resolutions that require a qualified majority by law for approval at a general meeting will be extended.

· New rules for treating insolvency and over-indebtedness

The law specifically requires the board of directors to monitor solvency and initiate restructuring measures in the event of imminent insolvency. If a company is over-indebted or has a corresponding concern, the board of directors must act. Now, it is clear under which circumstances the bankruptcy court notification can be omitted when the company is over-indebted.

Amending the Articles of Association

If the Federal Council has approved the proposed revision to the Commercial Register Ordinance, the articles of association can be amended in advance with the commercial register office. There must, however, be a clear statement in the articles of association that the new provisions will only apply when the new company law takes effect.

All other amendments required to comply with the revised constitution can also be passed this year, however, it can only be registered with the commercial register office once the revised constitution has taken effect. This amendment to the articles of association must be passed by the general meeting under the condition precedent that the new company law will enter into force. The amendment to articles of association can be registered with the commercial register office as soon as the new company law becomes effective.

Nevertheless, there is no requirement to amend the articles of association before the new company law enters into force. A period of two years will be given to companies to amend any provision of their articles of association that isn’t consistent with the new law.

Corporate Law

Swiss Bookkeeping Regulations

July 20, 2022 Comments Off lexpro read

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.

Corporate Law

Liquidation of a Swiss Limited Liability Company or Corporation

July 4, 2022 Comments Off lexpro read

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.

Corporate Law

Tax Incentives and Reductions of Corporate Taxes in Switzerland

June 24, 2022 Comments Off lexpro read

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

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.

Corporate Law

Overview of Swiss Corporate Taxation

June 22, 2022 Comments Off lexpro read

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).

Corporate Law

Flexible Regulations with the New Company Law after January 2023

June 21, 2022 Comments Off lexpro read

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.

Corporate Law

Dividends Distributed by Swiss Corporations

June 20, 2022 Comments Off lexpro read

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.

Corporate Law

Business and Tax Incentives in Switzerland

June 17, 2022 Comments Off lexpro read

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.

Corporate Law

Overview of the Swiss VAT

May 24, 2022 Comments Off lexpro read

VAT in Switzerland

In 1995, Switzerland implemented its present value Added Tax (VAT) system. Federal Tax Administration (FTA) is now in charge of overseeing Swiss VAT returns, compliance, and registration for non-resident traders. A non-resident trader registration is required for EU companies doing business in Switzerland, whether buying, selling, or importing products. All sales, including those of raw materials, are subject to VAT.

What is the Swiss VAT?

If you’re planning to establish a Swiss business, you need to keep in mind that you’ll also need to register for VAT after the company registration process.

Since 2011, Switzerland has had the lowest VAT rate in Europe, at 8 percent. Companies that sell food, medicine, newspapers, and books will also be eligible for lower VAT rates of 2.5 percent. There is a 3.8 percent VAT on accommodations, but there is no tax on public health, education, or social or financial services of any kind. A UID number, which local customs agencies already use for Swiss enterprises exporting products, will be required by the VAT Office for local businesses. Importers from outside Switzerland must utilize their EORI number to do business here.

Unlike other EU member states, Switzerland is free to determine its VAT rates and isn’t bound by EU regulations (a standard rate of 15 percent or above). A VAT filing is required for all service providers to collect the right VAT rate and the tax and pay it to Swiss tax authorities.

Switzerland’s current VAT rates are as follows:

-standard rates have been reduced from 8.7% to 7.77%;

– some tourist activities, such as hotel stays, are subject to a reduced tax rate of 3.7%;

– an additional reduced rate of 2.5% applies to a broad range of items sold in Switzerland such as food and beverages (except those sold in hotels); agricultural supplies; water; printed materials; medicines; cultural and sporting events.

– Exports of products and services for aviation operations are tax-free.

Businesses from other countries operating in Switzerland must adhere to local VAT regulations:

• They must utilize foreign currency rates that the relevant authorities have authorized.

• Make any required changes.

• Ensure that clients are invoiced by Swiss VAT legislation.

• The receiver’s signature, legitimacy, and consent must be included in the electronic invoices.

• A minimum of 10 years is required for keeping records.

In Switzerland, who must register for VAT?

According to Swiss law, both individuals and businesses are obliged to register for VAT if they sell or supply products or services subject to VAT.

When a firm first begins operating, registering for VAT is entirely optional. However, the national law stipulates that it might become necessary after generating a certain amount of revenue.

When establishing a business in Switzerland, foreign companies are also needed to register for VAT. A business in Switzerland may benefit from the country’s low VAT rate, which is one of Europe’s lowest standard VAT rates.

Swiss VAT registration in 2022

As a result of Switzerland’s adoption of the EU’s reverse charge laws in 2010, the number of businesses registering for VAT has decreased significantly.

Companies that are required to register for VAT are those that do the following:

• import items to Switzerland.

• Buying and selling items inside the nation.

• Create an online shopping experience for Swiss customers.

• Warehouse storage of items till resale

• Organize performances and live events that sell tickets.

• In Switzerland, services are delivered on the reverse charge rule (even if they are non-VAT traders)

Before applying for VAT in 2022, a firm must be registered with the Commercial Registry. It may then submit an application in person or online at a Local Federal Tax Administration office. The authorities issued a tax identification number (UID), and the process is complete (Unternehmens-Identifikationsnummer).

Switzerland’s voluntary VAT registration

While VAT registration is not required to start a company in Switzerland, getting a tax identification number is necessary.

However, a Swiss VAT number should be obtained as soon as possible, as it will save time later when the firm must wait for the number to be given, saving money. Businesses might seek voluntary registration when they expect their operations to bring in enough revenue to justify required registration.

Registration is required in Switzerland.

As soon as a company’s annual revenue surpasses 100,000 CHF, it becomes exempt from paying corporate taxes in Switzerland. If this is the case, you have 30 days from the day you meet the need to finalize your VAT registration.

Switzerland’s VAT compliance

In Switzerland, all individuals and businesses, foreign or domestic, must comply with the country’s VAT laws. Among the many:

– they must produce invoices that include the VAT amount and the rate at which it was imposed;

– the need to keep VAT records and accounting (which must be kept at the company’s headquarters for a minimum of 10 years);

– if necessary, they must also produce credit notes.

Taxpayers may send electronic invoices that need a signature and other verification components. As for overseas VAT payers, they must follow Swiss invoicing rules. Invoices may be issued using a variety of allowed currency rates.

The following requirements must be followed when it comes to reporting and paying VAT:

– Reporting may be done on a monthly or quarterly basis;

– After reporting, the VAT payment must be made within 30 days.

In certain circumstances, VAT exemptions apply. There are a few exceptions: healthcare, education, and culture. VAT exemptions also apply to the sale or leasing of real estate.

VAT refund in Switzerland

All earnings produced in Switzerland are subject to Swiss VAT. The Swiss government offers tax refunds to companies that pay VAT in Switzerland. Certain foreign corporations are eligible for VAT refunds just once a year; however, this does not apply to all of them. Application signed by the business owner must be submitted to the Federal Tax Administration of Switzerland by June 30 of that year to be eligible for a refund. In 2022, he must provide genuine invoices and confirmation of Swiss VAT registration. If the proof is approved, the company owner will get the return within six to nine months.

Deportation-related purchases are eligible for VAT refunds. A Switzerland VAT Refund Station must be visited to get the VAT refund, which requires receipts for the products bought and, if possible, evidence of departure. Airports, tourism offices, and international travel hubs are popular targets.

Intra-community VAT will be in place in Switzerland in 2022.

A common set of tax rules governs Switzerland’s trade dealings with the EU since the country is a member of the Economic Free Trade Association. Any business that sells products or services, regardless of whether it is based in the EU or Switzerland, must charge VAT to the customer’s nation. Electronics, telecommunications, television, catering, education, and culture are exceptions.

VAT registration in Switzerland in 2022 is simple.

Switzerland’s accounting services

Switzerland has a three-tiered corporation taxation structure that might be challenging for international investors to understand. Although Switzerland is not a member of the European Union (EU) and does not have to apply the normal VAT rate at a minimum of 15%, some elements must be addressed when dealing inside the European Union (EU).