For a Swiss company, accountancy becomes compulsory with its registration in the trade register. Registration in the trade register is required for trading, manufacturing or other commercial business activities. Certain industries are exempt from registration if gross turnover is less than CHF 100,000.
The Swiss general accounting rules are succinct and flexible. They only stipulate that those accounts need to be properly kept and depending on the type and size of the business, then ascertain the financial situation and the liabilities and receivables associated with the business for each accounting year. Laws require that profits and losses and balance sheets are reported annually in a complete, well-defined and well-structured manner in accordance with the generally accepted accounting principles. As a result, accounts can be kept in accordance with all established international accounting rules (e.g. US-GAAP, IFRS, Swiss GAAP FER).
For joint-stocks companies, more detailed minimum requirements for the structuring of the financial statements exist in order to help increase transparency. The annual financial statements must at least consist of the balance sheet, the profit and loss statement with comparative figures of the previous year and explanatory notes.
If two of the following parameters are met in two consecutive accounting years, the annual financial statements of companies of the same group need to be integrated into a consolidated annual financial statement:
Statutory auditors and consequently a regular annual statutory audit depends only from economic importance of a company. For publicly traded and economically important companies (i.e. with assets in excess of CHF 10 m., turnover of CHF 20 m. and average FTE’s in excess of 50 during an accounting year), a regular annual statutory audit is required, while small and medium-sized companies will only need a limited review. Furthermore, small and medium-sized companies have the option of opting-out, i.e. they can do without statutory auditors if they have less than 10 FTE’s.
Internationally operating major corporations quoted at the Swiss Stock Exchange SWX need to keep their books according to US-GAAP or IFRS. For the majority of Swiss companies, however, i.e. the medium-sized enterprises Swiss GAAP FER ("Fachkommission für Empfehlungen zur Rechnungslegung“) is required or recommended for use.
Swiss GAAP FER encompasses the generally accepted accounting rules in Switzerland. They help to increase transparency, create trust, reduce financing costs and help to form a reliable basis for entrepreneurial decisions.
The main addressees of the annual financial statements setup in accordance with Swiss GAAP FER are the management of the company, actual and potential investors (shareholders and creditors, especially banks), donators, insurers and other interested parties.
Tax calculations are, however, based on the financial statements prepared in accordance with tax rules. The financial statements in accordance with Swiss GAAP FER are based on the True & Fair View Principles and, thus, differ from the financial statements prepared in accordance with tax rules.
Smaller companies, in general, only prepare annual financial statements in accordance with tax rules. In these companies, accounting is more or less made for taxation purposes only.
Payroll accounting and accounting for social security
Companies required to keep accounts also need (in their function as employers) to prepare pay slips and wage statements for their employees and transfer all contributions to the social security institutions. The Swiss social security system insures members against loss or reduction in income and/or additional costs due to:
The employer has to make sure that the employee is registered, both with social security institutions, as well as with the pension fund and that all contributions are fully and correctly paid to them. Small and medium-sized companies normally outsource their payroll accounting and the accounting for social security due to the numerous legal regulations.
Payroll accounting for management
Payroll accounting for management is often outsourced to specialized trust companies for confidentiality reasons. In the financial accounting of the company management, salaries are not shown individually but only in total. Furthermore, payroll accounting for management requires a much higher level of knowledge of social security and accounting regulations due to the more complex and diverse compensation packages.
The Swiss fiscal system consists of three levels: federal, cantonal and communal taxes.
Besides natural persons residing in Switzerland, all businesses (legal entities) domiciled and pursuing business activities in Switzerland are subject to Swiss taxation.
A legal entity is a taxable subject itself, i.e. it must hand in its own tax declaration to the tax authorities. The tax declaration must be accompanied by the annual financial statements, i.e. the profit and loss statement and the balance sheet, signed by the management. Furthermore, evidence of the shareholders’ equity or the shareholders’ capital at the end of the tax period must be provided. The shareholders’ equity for tax purposes consists of the deposited share capital, the free reserves, the retained earnings, the legal reserves, the taxed undisclosed reserves and that part of any debts which is considered to have economically the purpose of equity by the tax authorities.
The tax period for legal entities is not necessarily the calendar year, but the business year. Profit taxes will, thus, be calculated from the profit resulting in the tax period and capital taxes are calculated on the taxable shareholders’ equity at the end of the business year.
Companies domiciled in Switzerland with no permanent establishment abroad are taxed in Switzerland on the basis of their worldwide profit (exception: real estate). Companies domiciled in Switzerland with permanent establishments abroad are taxed in Switzerland only proportionately to the profit realised in Switzerland compared to the worldwide profit.
Taxes can be deducted from profit as they are considered deductible costs. Furthermore, it is also allowed to deduct losses from previous years from the current year’s taxable profit (up to seven years can be carried forward, with no carrying back possible).
Due to the Swiss fiscal system with its three levels, only federal taxes are identical all over Switzerland, whereas cantons and communes have their own tax rates. As a result, tax charges differ significantly between the cantons and communes. A diligent and careful tax planning can, thus, render considerable tax savings.
Value added tax
Value added tax (VAT) is a general consumer tax. VAT has to be paid on the received gross pay. VAT paid on purchased materials and services can on the other hand be deducted from the gross pay (input tax deduction).
Entities liable to VAT-taxation are according to art. 58 (VAT law) obliged to keep their accounts in proper order and in such a way, that all facts relating to the VAT liability, the calculation of the VAT and the deduction of input taxes can easily and reliably be determined.
Swiss VAT authorities are entitled to issue additional, more detailed accounting regulations. These more specific rules can, however, only replace the general accounting rules if they are considered absolutely indispensable for proper VAT calculation.
VAT is a self-declaration tax, i.e. it has to be calculated and settled by the taxpayer on his own and he or she will not receive a VAT-bill. Normally, VAT has to be settled quarterly. If VAT has not been calculated or declared correctly, the taxpayer will have to pay monetary fines and interest on late payments in addition to the ordinary VAT amount
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