Switzerland's Tax Regime

Swiss tax rates for companies and individuals are among the lowest anywhere in Europe. Corporate taxes are approx. 16-25%, while individuals are taxed at rates between 5 % and 20%. A careful choice of corporate structure can even push the effective rate of taxation to below 10%. Stable political conditions, a liberal legal framework and the tax competition between the 26 cantons and the 3000 municipalities result in a constant low tax burden.

The Swiss tax system is shaped by the country's federal structure. Companies and individuals are taxed at three different levels: 

1)       National (federal taxes)
2)   Cantonal (state taxes)
3)   Communal (municipal taxes)

The largest portion of taxes is levied by the cantons and municipalities, resulting in intense tax competition at these two levels. Each canton has its own tax laws, which the population can vote on democratically and directly. However, all taxes are collected by a single instance.

 Low corporate taxes
Compared with other countries in Europe, corporate taxes are very low in Switzerland. Federal taxes are charged at a flat rate, while cantonal tax rates vary by location (lowest tax burden in the Canton of Zug) and sometimes by level of capital or profit. Taxes are currently levied in the following ranges:

§         Direct federal taxes on profits 7.83% (effective rate)

§         Cantonal tax on profits 4.4-19%

§         Communal tax on profits 4-16%

§         Cantonal taxes on capital 0.03-0.3%

§         Communal taxes on capital 0.04-0.25%

Total tax burden 16-25%

 

Taxation on after-tax profits (effective taxes)

Direct federal taxes are charged at a regular rate of 8.5%. Because taxes are levied on after-tax profits, this yields an effective tax rate of 7.83%.

Other reductions through company-specific tax models

Tax optimization makes it possible to lower tax rates considerably to below 10%. Companies may solicit a binding (advance) tax ruling for their effective tax burden from the tax authorities. Tax benefits are granted on a case by case basis, depending on the location and the type of business.

 

Avoiding double taxation

International double-taxation treaties (DTT) are in place to prevent double taxation. Switzerland has signed double taxation conventions with over 60 states, including nearly all Western industrial nations.

 

Lowest value added tax (sales tax) in Europe

Switzerland has by far the lowest value added tax (VAT) anywhere in Europe. Regular VAT is 7.6%. Hotels are taxed at 3.6 %, and necessities/convenience goods at just 2.4 %. Other goods and services, such as medical care and education, are completely exempt from VAT.

Tax Optimization for Swiss Companies

Switzerland offers attractive options for reducing the tax burden for Swiss Companies, in addition to the overall low tax rates.

 

Minimizing a company's tax burden depends on its type of business and especially on the share of foreign business done by the Swiss company. A professional evaluation of the corporate structures such as purchasing and selling agencies, Business Control Centers, Shared Services Centers, the administration of intellectual property rights, finance companies, holdings and principal companies is therefore required.

Advance Tax Ruling with the tax authorities
An advance "Tax Ruling" from the tax authorities provides a written and binding determination of taxation. Relevant factors for taxation are the type of business engaged in by the company and its location in Switzerland.

 

Management Company

The management company (either a mixed or domicile company) coordinates its activities from a base in Switzerland and does most or all of its business abroad.

 

The company in Switzerland furnishes services to other companies in the group, such as management support, accounting, marketing or HR administration where at least 80% of the earnings and 80% of the expenses are generated abroad.

 

All income from abroad is subject to a 7.83% tax at the federal level. At the cantonal level, a very low tax rate applies depending on location, e.g. 2%. All income from Swiss sources is subject to regular taxation.

 

Total effective tax burden varies form 9% to 12%.

 

Principal Company

Corporate risks, assets and decision-makers are in Switzerland.

 

The principal company takes on coordination and trading functions for an international group of companies in the sense of a principal structure, i.e. "contract manufacturing" and "stripped buy-sell."

 

Risks and responsibilities are shouldered for activities like procurement, production, sales, logistics, financing, R&D planning, and drawing up marketing strategies.

 

Special tax models are used at the federal and cantonal level.

 

An effective total tax burden various between 5% and 7%.

 

Holding Company

The primary purpose of a holding company is to hold and manage stakes in other companies.

At the same time, the holding company is authorized to handle financing activities, manage cash and assets and administer intellectual property rights.

 

Conditions for being taxed as a holding: At least 2/3 of the assets are financial holdings in affiliated companies, or at least 2/3 of the income derives from these holdings.

At the cantonal/communal level, the company is completely exempt from taxes on income from dividends, interest, capital gains and other income from capital holdings. At the federal tax level, tax benefits are granted on income from qualified holdings and capital gains.

 

The total tax burden is 0% on income from qualified holdings, and 7.83% on income from non-qualified holdings and capital tax of 0.03% - 0.05%.