Switzerland is one of the most developed countries of Central Europe and is also one of the world leaders in terms of the per capita income level of the population.
Despite the lack of mineral resources Switzerland is successfully competing with other countries on the global markets and thus ensures a high level of economic stability and low levels of unemployment.
The Swiss economy is considered to be one of the most competitive in the world. The most developed industries are metal preparation, mechanical engineering, machine-tool construction, production of computer equipment, motor car construction, watches, as well as pharmaceutical, chemical and food industries, Switzerland is also one of key financial centers of the world.
The stability of the Swiss currency, the political and economic stability in the country, the beneficial geographic location and mild climate all make Switzerland an exclusively attractive place for both entrepreneurial activities and for residence.
One – further factor of no less importance for foreign investors is the taxation system of Switzerland. Taxes in Switzerland for both legal and physical entities are much lower than in many other European countries. As a rule, the total amount of tax for a legal entity does not exceed 25%.
Besides this, the traditional taxation system envisages certain privileges for some types of enterprises
The Swiss tax law has a three-tier system of taxation, represented by the federal, cantonal and local communal taxes. The federal tax is applicable on the entire territory of the country, while each canton defines its own tax legislation. The local (communal) taxes are also defined by the local governments independently on a community level. These characteristics of the Swiss tax system are explained by the confederation structure of the country.
Both individuals and the companies located in the country and involved in business activities are subject to taxation.
The level of taxation for the legal entities is based on the accumulated revenues from their activities in different countries. As a rule, the revenues from immovable property located abroad and from foreign branches are not taxed. However, these revenues are taken into account to calculate the tax rate.
The federal tax rate is 8.5% of the taxed income. As soon as this tax can be allocated to the economically justified expenses, then the actual tax rate is just 7.8% Capital tax is not charged on the federal level.
In addition to the income tax there is also a value added tax (8%) on the federal level, which is also applied on the entire territory of the country.
Cantonal and local taxes (including profit, capital and church taxes) vary depending on the canton and community between 6% and 26%. Due to this reason, companies usually select such cantons as Zug, Obwalden and Schwyz to establish a firm.
Cantonal capital taxes vary from 0.01 % to 0.6 %. Capital tax rate is applied for the share capital, free reserves, retained earnings, legal reserves as well as hidden reserves formed from the taxable profit. There is no VAT on the cantonal level. If a company runs its business on the territory of two or more cantons, the Swiss legislation envisages fiscal sharing in order to avoid inter-cantonal double taxation.
Some cantons, such as Jura, Neuchatel, Bern, Sankt Gallen, Solothurn offer additional opportunities to stimulate the new foreign investments. There is an opportunity to apply additional tax privileges for certain types of activities.
The main taxes subject to payment by physical entities (i.e. individuals and partnerships) are income and property taxes.
Switzerland has signed an agreement for the avoidance of double taxation with 69 countries, including Kazakhstan Russia and Ukraine. When this agreement is applied, the tax burden can be significantly mitigated or reduced, but one should not forget about the increased commitments to information exchange.
Tax advantages for some forms of enterprises
In the case of domiciled enterprises, they are conducting their business exclusively on the markets outside
Switzerland. This means that both suppliers and buyers shall be located outside Switzerland and the product shall not get into the territory of Switzerland.
The enterprises of such type should meet the following requirements:
- Domiciled enterprises do not have the right to have their own office in Switzerland and to conduct any activities on the territory of the country (with some exclusions). Their activities outside Switzerland are not limited.
- The company management should be located outside Switzerland.
- This type of company does not imply ownership of land on the Swiss territory.
If the company meets the above requirements, it is considered domiciled and is in most cases exempt from cantonal taxes (the federal tax is 8.5%). A preferential rate is applied for the cantonal capital tax.
This category includes the enterprises that provide services on the territory of Switzerland (such as advertising, marketing and administrative services, financial and technical support) only for the branches of their foreign companies and affiliated firms. Such types of enterprises can have their offices and staff in Switzerland. Taxation is exercised on the basis of the same principle as for the domiciled enterprises and mixed type enterprises. There is no capital tax.
Mixed type enterprises
Unlike the domiciled enterprises, the mixed type enterprises conduct their business not exclusively, but preferentially abroad.
These enterprises should meet the following requirements:
- The owner or the company-owner should be foreign entities.
- The main business activities of the company (at least 80% of the income should be earned abroad) are conducted outside Switzerland, as the case may be with a trade company that has its office in Switzerland to manage it international transactions, but does not run any commercial activity on the territory of Switzerland or has it at a minimum level (up to a maximum of 20%).
- The mixed type enterprises can have their office and staff both in Switzerland and beyond its borders.
The net profit from abroad is taxed only on the basis of business conducted in Switzerland, that is, depending on these amounts only 10% to 30% of profits earned abroad are subject to taxation. Profits from business activities in Switzerland are taxed according to the regular tax rates.
Holding companies are among the most attractive enterprise forms for foreign companies on the territory of Switzerland. A holding is a company which aims for in its activity a long-term participation in the businesses of other companies or in the management of assets that primarily consist of shares. This means that the profit from participation (dividends, profit on investments etc.) should amount to 2/3 of general revenues in the long run; or that value of participation in the long run should amount to 2/3 of the value of all assets.
There exist the following forms of such companies:
- A holding company in pure form
- An enterprise with the elements of holding activities or with a share holding in the activities of other companies.
It is the last form of an enterprise which has significant advantages of preferential taxation on the level of the state and canton. In the case of a pure holding company, the federal tax (as a rule) and the profit tax on the level of canton and community is not paid.
Interis AG offers the following services:
- Consulting on the selection of an optimal enterprise form on the territory of Switzerland in accordance with the client’s needs
- Development of all necessary documents including agreements, company charters, bylaws and certificates.
- Support to establish cooperation with the leading banking organizations, opening bank accounts and keeping further contacts with the banks.
- Registration of companies in Switzerland.
- Representation of the interests of Swiss and foreign clients in the company Board and appointment of the company directors, if needed.
- Carrying out the bookkeeping and annual reporting; salary reports.
- Organization of the shareholders’ meeting.
- Organization of tax reports in the case of establishment, reorganization, changes in the structure of share capital or liquidation of the company. We also prepare full tax declarations for all cantons (income tax, property tax), advise on the tax issues, including VAT, as well as represent the interests of our clients before the tax authorities as need be.
- Auditing services.
- Support to ensure access to the economic development funds in all cantons of Switzerland.