Posts in "Corporate Law"

Corporate Law

Overview of Shareholders’ Rights and Obligations in Switzerland in 2022

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Overview of Shareholders’ Rights and Obligations in Switzerland in 2022

General Information

Equity investors gather and exercise their rights in the corporation’s general meetings; hence, ordinary or extraordinary general meetings are a key component of the CG in Switzerland. Attempts to rank the degrees of shareholder protection are usually somewhat arbitrary. Switzerland ranks approximately in the center in this respect compared to other countries. The Swiss norm for the CG, on the other hand, is interpreted differently outside of Switzerland.

For example, the Organization for Economic Cooperation and Development (OECD) classified Switzerland as very weak on CG matters in a 1998 research. The World Economic Forum (WEF) has placed Switzerland 41st out of 133 countries to protect minority shareholders’ rights in its Global Competitiveness Report 2009-2010126.

Fiduciary Duties of Controlling Shareholders

According to article 680 para 1 CO, shareholders have one and only one obligation under Swiss corporation law, namely to contribute the amount fixed at the time of issue for a share (Liberierungspflicht); SESTA introduced two additional obligations for equity investors in listed companies at the end of the 1990s (article 20 SESTA: disclosure obligation; article 32 SESTA: mandatory takeover offer to the other shareholders).

In Switzerland, fiduciary obligations of shareholders in general, and controlling shareholders in particular, are a rare matter of legal debate. Only a few writers believe that shareholders have any fiduciary obligations at all, with the vast majority of commentaries explicitly rejecting such an idea for (controlling and other) shareholders under Swiss law.

Nonetheless, the majority and other controlling owners must comply with the law. According to article 717 CO, the board must ensure that these investors follow the laws – even if the board members may be dismissed later by controlling shareholders’ votes in the general meeting (article 705 CO).

Tunneling by controlling shareholders, for example, is unlawful under Swiss law and has implications under both corporate laws and tax law. According to article 678 CO, shareholders who have received unjustifiably and in bad faith, for example, shares of profits and interests as well as other company performances, are required to return them to the corporation (para 1/para 2); the damaged corporation and any of its shareholders may file an action (para 3) for which the current statute of limitations is five years.

Shareholders’ Rights – in Particular, Information Rights

It is practically difficult to completely define the shareholders’ rights under Swiss law in the restricted space of this Country Report.

In general, an equity investor in a firm obtains two types of entitlements: financial rights (such as dividends and pre-emptive rights) and non-financial rights (e.g., rights to call a general meeting and to participate at a general meeting, rights to speak and to vote at a general meeting, rights to file different actions against the corporation or the board members, respectively, and finally, a variety of information rights).

The many information rights (articles 696 et seq. CO) are critical for protecting (minority) shareholders in Switzerland. Under Swiss law, four information rights are paramount: article 696 CO, article 697 CO, articles 697a et seq., and article 697h CO:

– Article 696 CO: no later than 20 days before the ordinary general meeting of shareholders, the business report and, if any, the auditors’ report shall be made available for inspection at the corporation’s domicile (article 696 para 1 CO); a shareholder may request these documents in copy after approval by the general meeting (article 696 para 3 CO). In truth, most Swiss companies are significantly more forthcoming in their dealings with their investors.

– Article 697 CO: At the general meeting, each shareholder has the right to obtain information from the board on the “affairs of the business” (article 697 para 1 CO). Furthermore, if the general meeting or the board of directors has provided the necessary authorization, every shareholder has the right to see the company’s records and files (article 697 para 3 CO).

– Article 697a et seq. CO: In the early 1990s, the Swiss Parliament enacted the special audit (articles 697a et seq. CO: Sonderprüfung), which foreign models influenced (e.g., Germany). The special audit attempts to improve shareholders’ knowledge level to launch, for example, a liability action against board members.

Only facts, and therefore not legal issues, may be subject to a special audit, on which the general meeting must vote in any event; the facts must be required for exercising shareholders’ rights (article 697a para 1 CO). If the general meeting does not approve the special audit, only shareholders who fulfill specified share capital criteria may go to court at all (article 697b para 1 CO).

Following then, there is a very convoluted back-and-forth between one shareholder and the company (articles 697c et seq. CO).

Finally, at the next general meeting, the special auditor’s report will be delivered to the judge (article 697e CO) and, finally, to all shareholders (article 697f CO).

Switzerland does not have a group corporate law. Nonetheless, certain norms and precedents are vital for organizations. For example, the parent company’s shareholders have the right to see the books and files of other group companies under certain situations, and the special disclosure duty under article 697h CO also applies to the consolidated financial statements.

Corporate Law

Limitation of Liability in Commercial Contracts – A Swiss Law Perspective

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Limitation of Liability in Commercial Contracts – A Swiss Law Perspective

This kind of selection of law occurs relatively often in international business transactions for a variety of reasons. Commercial contracts require contractual limitations on damages because they help parties better assess and control the business risks associated with a commercial transaction.

We will clarify how Swiss law addresses contractual limitations on damages, focusing on which liabilities cannot be excluded or limited. Each business transaction has risks for which the parties may be held accountable, such as project delays or product non-conformity.

Without an effective limitation of liability provision, there is no financial ceiling on the damages that may be collected – with the exception of statutory restrictions. It is vital, then, to ensure that business contracts include some type of restriction and that these restrictions are effective. Clauses limiting liability may take a variety of forms.

Certain provisions aim to completely exclude responsibility. For example, some restrict culpability by capping the number of damages that may be awarded, excluding certain types of losses, limiting warranties and certain remedies, or imposing short statutes of limitations on claims.

Which liability restrictions are recognized by Swiss law?

Swiss contract law is heavily predicated on the notion of contract freedom, and there is wide room for contractual responsibility restriction (including exclusion).

However, liability limits are not permissible indefinitely. Using the limitation of responsibility in terms of maximum sums (financial caps) as an example, the following statutory limits apply under Swiss law:

Any arrangement entered into in advance that purports to restrict responsibility for an illegal purpose or gross negligence is invalid (although such an agreement might be entered into retrospectively). If the restriction of responsibility occurs in connection with state-licensed commercial activity (e.g. banks), the preceding limitation of liability for mild negligence may also be invalid, at the court’s discretion.

Limitation of responsibility is not recognized in principle for death or personal harm. Additionally, limitation of responsibility is prohibited by some parts of the Swiss Code of Obligations (e.g., in connection with purchase contracts, employment contracts, and service contracts) and by certain specific legislation, such as the Swiss Product Liability Act. Contracts with consumers and general terms and conditions are subject to stricter restrictions.

What are the implications of statutory liability restrictions being exceeded?

Contractual caps on damages in excess of the statutory limits are ineffective. Unless they affect a non-essential aspect of the contract, provisions that go beyond the statutory limitations may be removed to the extent authorized by Swiss law (so-called partial ineffectiveness of severability).

To avoid providing incentives for parties to incorporate excessive restriction provisions, however, there are an increasing number of voices advocating for complete ineffectiveness, particularly with regards to consumers and general terms and conditions.

What else must be considered while designing liability limitations?

Liability limitations are never universal. Each agreement is extremely reliant on the facts relating to the parties’ connection (the parties’ roles, industry, the value of the deal, the deal’s significance, etc. ), the risks involved with the transaction (scope, probability, expenses, etc. ), and the agreement’s other provisions. As a result, it is impossible to understand or negotiate limitations of liability in isolation from other crucial agreements (such warranties, indemnity, and so on).

A party wanting to incorporate a limitation provision in a contract should thus carefully analyze the transaction at hand, read the whole contract, and examine the relevant law’s statutory limitations and the destiny of clauses that exceed those limitations.

If you would like to discuss more on this topic, please reach out!

Corporate Law

A Summary of Swiss Corporate Law Changes

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A Summary of Swiss Corporate Law Changes

General corporate law reform was adopted in June 2020. The deadline elapsed unused on 8 October 2020, however, this reform should not come into force before 1 January 2023, although some limited amendments have already come into effect, as of 1 January 2021.

We have summarized the new corporate law changes expected, to help businesses understand the new flexibilities and protection these reforms bring them.

Simplification of the incorporation rules

The complicated rules on newly incorporated companies taking over material assets of related parties have been abolished.

Share Capital and Equity Distributions

Foreign Currency- To correct some inconsistencies arising between accounting rules and Swiss corporate law, share capital may now be denominated in an approved foreign currency such as EUR, USD, GBP or JPY.

Repealed Minimum Nominal Value- To allow for enhanced flexibility in CHF share splitting, there is no longer a minimum nominal value of CHF 0.01. Shares may now be split limitlessly, as their nominal value may be anything higher than CHF 0.

“Capital Band” Introduction- Corporations now have greater flexibility for equity capital structure. Previously, a combination of a capital increase and capital reduction was not permitted. With these changes, it is now possible for a Board of Directors to increase a company’s share capital to up to 150% of their registered share capital. They may also reduce it to 50% over a period of 5 years.

Legal Reserves- For clarity, legal reserve rules have been aligned with accounting rules. The rules surrounding the formation and termination of reserves have been clarified. This includes clarifying that the distribution of capital reserves to shareholders is permitted as long as certain limits are observed.

Dividend Payments- Previously, there was some disagreement as to the payment of dividends. It has now been explicitly permitted for dividends from the profits for the current financial year to be paid.

Shareholders’ Rights

The flexibility of Meetings- Under certain conditions, electronic shareholders’ meetings (virtual such as Zoom or Skype) are now permitted.

Meetings can also now be held outside Switzerland, or at different locations at the same time. The Articles of Association must permit this, and the shareholders’ rights must be upheld and an independent voting proxy must be appointed.

Shareholders’ meetings may also be held in paper form through circular resolution.

Extraordinary Meetings- For listed companies, the threshold to convene an extraordinary meeting of shareholders is lowered from 10% to 5% of the voting rights or share capital.

Private companies retain a threshold of 10% of the voting rights, but now the threshold is also extended to 10% of the share capital, similar to listed companies.

Agenda and Motions- For listed companies, the threshold to place items on an agenda or submit motions has been lowered to 0.5%, whereas it’s been lowered to 5% for private companies.

Out-Of-Meeting Questions- Previously, questions may only be posed to the Board of Directors at shareholders’ meetings. Shareholders of private companies who hold at least 10% of shares or voting rights now have the right to ask questions of the Board outside meetings. The Board must answer these within 4 months.

Inspection of Books- To properly exercise shareholders’ rights, shareholders with at least 5% share capital or voting rights may inspect the company’s books. This is subject to the company’s confidentiality interests.

Lawsuits Regarding Repayment- The laws now simplify the process for bringing a lawsuit against shareholders, directors, and managers with regards to repayment of unduly received benefits. The outcome is now entirely separate from the financial situation of the company. Claims can now also be brought against people related to directors, shareholders, or managers.

Companies in financial distress

Debt-Restructuring Triggers- The risk of being unable to pay debts is now expressly an event requiring the Board of Directors to take action. This triggers restructuring actions they must take or propose to shareholders to ensure the company’s ability to pay their debt. They may also apply for a debt restructuring moratorium.

Notification of Insolvency- In the case of companies with concerns of insolvency, companies can put off notification of insolvency courts if enough creditors agree to the subordination of their claims. The new legislation states that there must be a reasonable prospect of restructuring within 90 days for a company to request that their creditors subordinate their claims. The latter is in line with current laws. This is assuming the deferrals do not endanger the creditors’ claims.

Elimination of Bankruptcy Deferral- The restructuring moratorium is now the only court-sanctioned restructuring procedure, as the deferral of bankruptcy is no longer allowed.

Rules About Listed Companies Only

Statutory Law- Rules on listed companies have moved from the Ordinance against Excessive Compensation to statutory law on corporations. Any changes to these have been minor, as well as the addition of standard practices as explicit law.

Gender Representation- Board of Directors and Executive Committees now have target quotas for the representation of both genders of 30% and 20% respectively. This is subject to audit.

Boards are given a transition period of 5 years, whereas Committees are given 10 years. If the targets are not met, an explanation must be given in the compensation report for the underrepresentation. Measures taken to promote gender representation and diversity in their corporate bodies must be included with this explanation.

Increased Flexibility and Protection

Once the new law enters into force, companies have two years to adapt their articles of association and regulations. This means now is the best time to act, preparing to take full advantage of the greater flexibility and protection the reform offers businesses.

Corporate Law

Switzerland’s Corporate Taxation System in 2022

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Switzerland’s Corporate Taxation System in 2022

Corporate tax in Switzerland applies to anyone running a Swiss company, whether they’re setting up businesses as limited companies, sole traders, or work as part of a partnership.
All businesses registered in Switzerland pay Swiss corporate tax, while limited tax liability is applied to businesses with a permanent presence.
What you’ll pay depends on your business structure, so it’s essential to make sure you know the rules.

Here is an overview of the Swiss corporate tax system

Swiss Taxation Levels

Resident companies are subject to cantonal/communal corporate income taxes, federal corporate income taxes, and cantonal/communal capital taxes.

Company Residence / Non-Residence

If either a company’s seat or its place of effective management is located in Switzerland, then it is considered a resident taxpayer under Swiss domestic tax laws. In general, resident companies are subject to worldwide taxation, excluding income from permanent foreign establishments or income from foreign real estate.

Swiss corporate tax may apply to non-residents if they:

• hold partnership interests in a Swiss partnership; or

• hold real estate in Switzerland; or

• have mortgage claims secured by Swiss real estate; or

• deal with Swiss real estate or act as its broker.

Taxes are imposed on non-resident companies only based on their income and assets in Switzerland. In the case of a Swiss permanent establishment of a foreign corporation, profits are calculated using the direct method, that is, from the books of the permanent establishment.

Taxes on corporate income

The federal and cantonal/community governments both collect corporate income tax. Federal corporate income tax amounts to 8.5%. However, since taxes are deductible from a company’s taxable income, the effective rate of federal corporate income taxes amounts to 7.83%. Tax rates in cantons are quite different; they average around 13%.

Taxes on capital

Capital taxes are levied on a company’s fully paid-in share capital and its reserves (net equity) at the end of each fiscal year. It varies from canton to canton; on average, it is around 0.4%. Tax privileged companies pay reduced taxes.

Participation Exempt

Dividends received by Swiss corporations and Swiss branches are deductible both at the federal and cantonal/communal levels. In that case, the corporate income tax is reduced in proportion to the net dividend income from these participations. Therefore, such dividend income is virtually tax-free.

Gains on capital

Qualified participation disposed of after one year also qualifies for the dividend received deduction on a federal, cantonal, or local level.

Privilege of holding

Moreover, all cantons grant holding companies’ privileges, which entails exemption from federal and state income tax on income from participation other than dividends. The holding company privilege generally requires:

• a statement in the company’s articles of incorporation stating that participations are the company’s sole or primary purpose; and

• at least 2/3 of assets are qualified investments; or

• Two-thirds of the income derives from eligible participation.

Due to this, pure holding companies pay federal corporate tax on only the income that is not eligible for the federal dividend received deduction.

Domestic Companies

Domiciliary companies are afforded tax privileges in all cantons. Domiciliary companies predominantly perform their activities abroad, while their administrative activities are exclusively performed in Switzerland. Tax privileges for domestic companies are available only at the cantonal/communal level, however, not the federal level.

Participation-related income is tax-free. Taxable income from foreign sources is only a small portion, depending on the importance of the administrative activities in Switzerland. The tax base determined in this manner is subject to ordinary corporate income tax rates in the canton/community. Meanwhile, Swiss source income is fully taxable. Expenditures incurred by a business are deductible from the income in which they are incurred.

Mixed/auxiliary companies

Swiss auxiliary companies may perform limited business activities. The foreign income of a business should comprise at least 80% of its total income. Thus, Swiss revenue should not exceed 20% of total revenue. In addition, 80% of the expenses must be related to overseas business activities. Tax treatment of auxiliary companies is similar to that of domestically incorporated companies, with the exception that foreign source income is included in the tax base according to the importance of the business activities conducted in Switzerland.

Losses from taxes

Losses can be carried forward for seven years for federal and cantonal/communal tax purposes but cannot be carried back.

Rules of thin capitalization

An asset base test determines whether a company is sufficiently financed under federal thin capitalization guidelines. There is a limit to the amount of debt from related parties that may be used to finance each type of asset. Federal corporate taxes do not deduct interest on related-party debt over the maximum equity-to-debt ratio.

Few cantons expressly provide for minimum equity requirements. Most cantons follow the federal guidelines for thin capitalization. Other cantons use a debt-to-equity ratio of 6:1.

Transfer Pricing

There are no transfer pricing laws in Switzerland. OECD transfer pricing methods are accepted and applied by Swiss tax authorities. A company must maintain arm’s length relationships when transacting with affiliated companies.

Stamp tax issuance

An issuance stamp tax of 1% is imposed at the federal level on both the issuance and the increase of participation rights, whether free of charge or for consideration. Amounts exceeding CHF 1,000,000.00 remain exempt from taxation. Swiss branches, however, are exempt from the issuance stamp tax.

Tax on transfer stamps

 A transfer stamp tax is imposed on the transfer of title to taxable securities for consideration when at least one of the parties to the transaction or an intermediary involved qualifies as a domestic securities dealer.

The Federal withholding tax

Federal withholding tax is imposed at the rate of 35% on profits and liquidation proceeds distributed by Swiss joint-stock companies. Company distributions are payments made to shareholders other than the repayment of capital. The Swiss branch of a foreign company does not have to withhold tax on earnings distributed to its foreign headquarters.

In Switzerland, the Savings Tax Agreement entered into force on July 1st, 2005, replacing the Parent-Subsidiary Directive and the Interest & Royalty Directive and abolishing withholding taxes on cross-border dividends and interest and royalty payments.

Value Added Tax

Vat at 7.7% is the standard rate. In general, the tax base is the consideration received by the contracting party.

Annum taxable

The federal, cantonal, and communal taxes must all be reported under one tax return for each fiscal period.

Corporate Law

Establishing an SA in Switzerland in 2022: Corporate Law Requirements

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Establishing an SA in Switzerland in 2022: Corporate Law Requirements

Limited companies may be formed by one or more natural or legal persons (Articles 620-763 of the Swiss Code of Obligations). The shareholders contribute a certain amount of capital divided into fractional shares. 

The SA (Société Anonyme), also known as an “AG” or “PLC”, is one of the most common legal forms in Switzerland as they offer many benefits to small businesses in terms of liability, capital regulation, etc. A limited company is liable only for its assets; therefore, the shareholders do not lose their capital in the event of bankruptcy.

Shareholders’ agreements clarify the situation when there are multiple stakeholders in a company. The minimum number of shareholders is one when establishing an SA. The company may be a natural person or a legal entity. 

A limited company is formed by registering the company in the trade register, having the establishment notarized, approving the articles of association, appointing the board of directors, and getting a verification certificate from the supervisory body.

As long as the company name is not already in use by another company, it may be chosen freely however, the suffix “SA” must be included.

A double taxation system 

When it comes to SAs, the tax authorities differentiate between commercial and private taxpayers. As with any other person, the SA is a legal entity and is taxed separately. If a company makes a profit, it must pay corporate income tax. Once it pays its shareholders dividends from these earnings, the shareholders must declare these dividends as income. Double taxation occurs in this situation.

Similarly, the company’s share capital is taxed twice: the company pays tax on it, and the shareholder declares it as personal property.

Due to the second corporate tax reform, double taxation has been reduced to a lesser extent.

Capitalization of shares

(Art. 621-622, Swiss Code of Obligations) The minimum capital requirement for the company is CHF 100,000. At least 20% must be paid up (discharged), but at a minimum of CHF 50,000 (Article 632 Swiss Code of Obligations). Share capital does not necessarily have to be paid in cash. Benefits in kind can be provided in the form of real estate, machines, etc.

A bank account must be opened by the founders of the limited company when the company is formed. The capital of the company being formed should be deposited into this account while the company is being registered with the trade register. The money is paid into a deposit account, where it remains frozen until the trade register reflects that the company was created. An applicant who wants to open a deposit account with a bank must submit a certified copy of his or her identification or a certified signature.

Following the company’s creation, the funds are transferred to the company’s current account, and the deposit account is closed. 

The company’s share capital can be invested freely by multiple shareholders. It can be in the form of bearer or registered shares, which must have a nominal value of at least one cent.

Since 1 July 2015, holders of bearer shares (or participation certificates) are required to register within one month. Furthermore, if the amount of their investment amounts to more than one quarter of the company’s shares or votes, they must state who the beneficial owner of the investment is. 

Organizations’ administrative and management bodies must keep an up-to-date list of bearer shareholders and beneficial owners.

Owners of registered shares are named on the share itself. Also, the person must be on the share register of the company. Shares registered with a company become the property of the buyer upon endorsement by the seller and registration in the share register.

By issuing shares with extended voting rights, the founders also have the power to influence the SA. A founder’s share is a share with a lower nominal value but full voting rights. As a result, a shareholder holding 1,000 shares with a nominal value of CHF 10 may have more voting rights than 100 shareholders holding shares worth CHF 100 each, even though both of them have received the same amount.  

Members of the Board of Directors

As a representative of the company, the Board of Directors acts on behalf of the company. Each member of the Board of Directors represents the company unless otherwise specified in the articles of association or the regulations.

However, one or more of the Board’s members (officers) or third parties (directors) may be assigned representation powers. 

The SA is primarily managed and governed by the Board of Directors. Under the Swiss Code of Obligations, the Board of Directors manages the company itself or delegates its management to a third party (as is typically the case). Nevertheless, the Swiss Code of Obligations establishes seven primary obligations that the Board of Directors may not subcontract or transfer (Article 716a).

In the trade register, you can find the names of the members of the Board of Directors. In the case of damages caused by negligence or intentional dereliction of duty, they are personally liable.

In recent years, corporate governance has become increasingly important, even for SMEs. In this case, it refers to how a company is managed – or should be managed.

Report of management and statutory auditor

The statutory auditor of a limited company must be appointed when it is incorporated. A report on the management of the company must be submitted every year to the Board of Directors.

Public limited companies are required to submit an annual management report, which includes the annual report and financial statements. Each annual financial statement comprises an income statement, a balance sheet, and accounting notes that have been prepared according to the Swiss legislation. These documents must reflect the company’s assets and earnings, valued as accurately as possible.

Meeting of the General Assembly

An SA’s primary body is the Annual General Meeting of Shareholders. In addition to determining the articles of association, the General Meeting elects the Board of Directors and the statutory auditor, approves or rejects the annual report, and determines how the company earnings are used. The Board of Directors must convene the General Meeting immediately in the event of a loss on the balance sheet. In case of insolvency, the Board of Directors – or the statutory auditor – must notify the court.

Corporate Law

Establishing a SARL in Switzerland in 2022: Corporate Law Requirements

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Establishing a SARL in Switzerland in 2022: Corporate Law Requirements

One of the most chosen Swiss business structures are Gesellschaft mit beschränkter Haftung (GmbH) or Societé à Responibilité Limité (SARL), a combination of a public limited company and a partnership. The law imposes specific requirements to successfully create such an entity (art. 772-827 CO).

Businesses are governed under federal law in Switzerland, as articulated in the “Code of Obligations.” A company can acquire the status of a Swiss SARL under certain conditions that vary from one Swiss canton to another.

Requirements, procedures, and the tax regime may also differ according to specific factors: the legal form of the business and the canton where the company has been registered. 

A SARL is a commercial company with its own legal personality and low start-up capital. It is an excellent choice for small and medium-sized businesses because it is relatively easy to incorporate, manage and operate. There are over 207.000 SARL entities registered in Switzerland. 

General information

To be duly incorporated, a SARL has to be registered in the Commercial Register at the site where it has its seat (art. 778 CO). The authentication of its establishment has to be notarized. The founders need to declare the establishment through an official deed, lay down the articles of association, convene the shareholders’ meeting, and appoint the management bodies and an auditor (art. 777 I CO).

There must be at least one shareholder, there is no maximum number, and each shareholder needs to hold a minimum of one share. Shares can generally be transferred freely; a written agreement between the parties concerned is enough to make the transfer.

The nominal capital must amount to at least CHF 20,000 (Art. 773 CO), and it needs to be contributed in the form of either cash contributions or contributions in kind. Opposed to the provisions of the prior law governing SARLs, there is no upper limit for the share capital. The lowest contribution per shareholder, whether it is in cash or in-kind, amounts to CHF 100 (Art. 774 CO)

Liability rules

In the case of a SARL, the company is fully liable for its debts. Shareholders are generally not responsible for any debt or liability of the corporation except for the payment of the share price, and in case there is an obligation to make an additional payment or provide an ancillary service written into the articles of association.

This obligation is meant to cover balance sheet losses to enable the company to continue its business. The total amount of supplemental payments must not surpass twice the nominal value of the share owned by an individual shareholder (Art. 795 CO).

Accounting system 

One of the significant benefits of setting up a SARL in Switzerland is the attractive tax system that it will be subject to. Switzerland is currently offering one of the lowest tax rates in Europe.

Swiss businesses are subject to Swiss corporate income tax on their taxable profits generated in Switzerland. Companies are taxed at three levels – federal, cantonal, and communal. 

In Switzerland, the direct federal corporate income tax rate is set at a flat rate of 8,5%, however as deductible tax payments are allowed, the federal income tax rate can be lowered to 7,8%. For the issue of shares with a value greater than 250’000 CHF, there will be levied a capital duty of 1%. 

In addition, if the holding company holds 20% of the share capital of another company, it can also take advantage of a reduced corporate tax rate at the federal level.

In addition to the direct federal corporate income tax, each canton has its own tax law and levies cantonal and communal corporate income and capital taxes at different rates. As a general rule, the combined effective income tax rate typically is between12% and 24% for companies subject to ordinary taxation, depending on the company’s corporate residence in Switzerland.

SARLs that surpass two of the below-mentioned thresholds during two consecutive fiscal years will be subject to an ordinary audit (Art. 727 CO):

  • A balance sheet of over CHF 20 million
  • Turnover over CHF 40 million
  • Number of employees: 250

Public companies and businesses that are obliged to prepare consolidated accounts must also carry out an ordinary audit.

According to Swiss law, a SARL must call upon the services of a state-approved auditor for a limited audit (art. 727a I CO). However, entities having up to ten full-time employees on an annual average may be dispensed from carrying out external yearly audits. (art. 727a II CO). 

The shareholders’ meeting

The shareholders’ meeting represents the core of the SARL. The purview of shareholders meetings can:

  • Adopt and amend the articles of association;
  • appoint or discharge managers;
  • approve the annual profit and loss account and the balance sheet and distribution of dividends;
  • decides how to use profits
  • vote the directors’ liability discharge;
  • review the management.

Withdrawal, transmission 

The assignment of a capital contribution in a SARL has to be confirmed in writing (Art. 785 CO). Furthermore, it needs to be accompanied by the approval of the shareholders’ meeting. To finalize the assignment, at least two-thirds of the shareholders need to consent (Art. 786 and 808b I. no. 4 CO).  

The assignment of the assets or business of a SARL is overseen by the provisions of the mergers law (Art. 181 IV CO). In the case of a transfer of employment relationships art. 333 CO is the applicable one.

The selected business name can be kept for an unlimited period. In the case of partnerships, changing shareholders will not impact the business name (Art. 954 CO).

In Conclusion

A Switzerland Limited Liability Company (SARL) / (LLC) comes with numerous advantages such as the tax regime, business-friendly environment, and location. These key benefits have made the Swiss SARL a popular corporate vehicle for local and foreign business owners alike.