Switzerland in the centre of Europe is an ideal location for establishing international business operations. The country is bordered by Germany to the north, France to the west, Austria to the east and Italy to the south.
It is a confederation, with its seat of government being in Bern. The federal government is responsible for the passing of federal laws and controlling federal taxes. Before most legislation is passed, the population will vote by way of referendum as to whether they wish the federal or cantonal government to pass a particular law. The confederation comprises 26 cantons, each of which has its own parliament and legislature. Each canton is responsible for its own administration, policing, taxation and legislation. The country is divided into three distinct regions - Swiss German (German speaking), Swiss Romande (French speaking) and Tessin (Italian speaking). The German speaking region makes up 75% of the population.
Switzerland is considered to have the finest and most efficient banking system in the world with offices of a multiplicity of international banks located in all the main business centres. Zurich in the heart of the German region, Geneva in the French region and Lugano in the Italian region. Switzerland is not a member of the European Union, but has close links with its EU neighbours.
The economy is very stable and there is almost full employment. This is substantiated by the flow of workers from the neighbouring countries into Switzerland, regulated on a flexible permit system.
Tax Planning Through Switzerland
Switzerland is not traditionally regarded as a jurisdiction with an attractive taxation structure and certainly not perceived as a tax haven. There is no uniform system of taxation. The confederation and the 26 cantons all have their own legislation for the raising of taxes, as well as local community, districts, sub-districts as well church parishes levying taxes.
The three main levels of taxation - federal, cantonal and communal, each having both direct and indirect elements as shown below:
Federal - Income of legal entities and individuals
Direct - Anticipatory withholding tax on income from moveable assets and insurance benefits
Indirect - Stamp duties, Value Added Tax, Distilled liquors, tobacco and beer
Cantonal - Income of legal entities and individuals
Communal - Net profits and capital of legal entities
Direct - taxes on immovable property and land including capital gains tax on land
Indirect - Death duties and gift tax (full or partial exemption in many cantons for family members), transfer tax on immovable property
Income of corporations is taxed by the Swiss Federation (“Bund”) at a flat rate of 8.5% and in addition by the canton of domicile at different rates varying between 6.0% in the canton of Obwalden and about 32% in the canton of Geneva. But taxes are deductible as business expenses, so the tax burden is less than the gross rates.
There are three types of privileged companies which pay only reduced tax rates:
Almost all of the cantons charge no tax on dividends and the Bund gives a substantial reduction on that income.
Domicile companies, which execute some management functions in Switzerland, will be taxed by the canton only on the percentage of the management work in relation to the global income.
On mixed companies cantonal tax will be only levied on income of Swiss origin while outbound revenues are tax-free. The Bund still charges 8.5% tax which is deductable from income so the effective rate is about 7.7%.
Tax is usually negotiable with cantonal tax authorities. As there is strong tax competition between the cantons an investor might negotiate most favourable conditions. At the present time, the small canton of Obwalden seems to be one of the most competitive. Foreign investors will normally pay a rate of about 10% in total including capital and local taxes.
Individuals have the possibility to conclude an agreement with the tax authority to be taxed on the basis of a fixed level of income for a period of up to 10 years. In this case the actual income of the individual is no longer relevant.
Generally the distribution of profits deriving from a Swiss company will suffer a withholding tax of 35% but tax treaties and other agreements can reduce the tax or eliminate it altogether.
Types of Companies
ISociété Anonyme (SA) / Aktiengesellschaft (AG) – this type of company must have a minimum authorised capital of CHF. 100,000 and a minimum paid in capital of CHF. 50,000
ISociété à Responsibilité Limitée (Sarl) / Gesellschaft mit beschranker Haftung (GmbH) – this type of company must have a minimum authorised capital of CHF. 20,000 which has to be payed in full
The characteristics of these companies are:
Shareholders - A minimum of one shareholder is required. These details form part of the public records of the company.
Directors - For both companies one local director is compulsory (which will be provided by us). There are no restrictions on the number of other directors
Annual Reporting - An annual tax return with accounts (audited only for larger corporations) must be submitted to the cantonal authority.
Timeframe - The incorporation process generally takes about two weeks. In some cantons, an express registration allows formation in 48 hours. All companies must be incorporated through a Notary and there must be a physical formation meeting which must be attended by the local directors or manager and all shareholders or their nominees. Sovereign can attend on behalf of all parties if suitably empowered. The capital must be paid into a blocked account in advance. Shelf companies are not available.
Restriction on Name - The name is important and must be related to the purpose of the company. Names should not conflict with existing names and must end with the appropriate initials.
Local Requirements - As a matter of local company law the company MUST maintain a registered office address within Switzerland at which registers of directors, other officers and shareholders must be retained. We would normally provide these services as well as a resident manager to attend to local administration.
Secrecy - Secrecy can be best achieved by establishing the company via our trust company, which will be registered in the public register and hold only a private trust agreement with the beneficial owners.
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Diclaimer: The above is intented to provide a brief guide only. It is essential that appropriate professional advice is obtained. XpertAdvice will be glad to assist you in this respect. Please do not hesitate to contact us.