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
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.