The local constitution allows anyone, including non-residents, to establish small businesses, incorporate companies, or to have financial interest in such entities. A clear business idea is to be shaped prior to moving to the country and ultimately starting up an enterprise here.
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The reasons to incorporate a company in Switzerland are numerous, and some of them are listed below.
If you consider registering a company in Switzerland, you need to know that there are seven different legal forms of businesses to choose from:
Sole Proprietorship is the most common type of company after Stock Corporation. It is
the best option for individual business owners and other professionals working for
themselves, e.g. freelancers, small enterprises, and private entrepreneurs. Such
companies shall be run by a resident of Switzerland.
A sole proprietorship must have a name that contains the family name of its owner, and the latter is subject to unlimited liability for the company’s debts. Registration in the Swiss Commercial Registry is mandatory if the annual turnover exceeds CHF 100,000.
General Partnership is an association of persons carrying out commercial activities. This organisational and legal form is similar to Sole Proprietorship, but involves two or more individuals that jointly manage the Partnership. No minimum share capital requirements are imposed. All partners shall be residents of Switzerland, and such association must have a registered office address in the country. The enterprise’s name shall contain the family name of one of the partners. All participants bear unlimited liability, and registration in Commercial Registry is obligatory. General Partnership is not regarded as a legal person. However, it may prosecute and be prosecuted. Upon registration, a full record, including profit and loss reports, is to be kept.
This is a much less widespread type of Partnership. In such enterprises general partners have unlimited liability, whereas limited partners are liable up to the agreed amount. Registration in the Commercial Registry is mandatory.
This is the most common legal form of business. The Corporation is considered as a
separate entity. At least one director or board member with single signatory power
or two directors or board members with joint signatory power by two shall be
resident in Switzerland.
Shareholders liability is limited to the amount of their personal contribution. The minimum required share capital is CHF 100,000, and at least CHF 50,000 of the capital must be fully paid up. The company shall comply with the formal registration procedures, which usually take from 2 to 4 weeks. Once completed, the Corporation obtains the status of a legal person.
Limited Liability Company is another form of entity. The minimum required share
capital is CHF 20,000, and at least CHF 10,000 are to be fully paid up. At least one
director with signatory power must be resident in Switzerland.
In the general case, all members jointly participate in management and representation of the GmbH / Sàrl. However, management functions may be delegated to non-members as well. Setting up a Limited Liability Company is less costly than registering a Stock Corporation, but, unlike AG / SA, the list of GmbH / Sàrl shareholders is publicly available. Participants are jointly and severally liable for the company’s debts up to the amount of its share capital.
Subsidiary is a separate entity connected with a foreign legal person. It tends to operate more as a Swiss company than as a branch office. Subsidiaries may be Stock Corporations or Limited Liability Companies.
Branch office is not regarded as a separate entity. However, it is financially independent of the head office and operates outside the country where the latter was set up. The foreign parent company is held liable for the branch’s debts and activities. The branch office, for its part, is subject to taxation in Switzerland as a Swiss company. There shall be the authorised representative of a branch who is entered into the Commercial Registry and is resident in the country.
Tax residency – companies with a registered office address in Switzerland or with a place of effective management in the country are regarded as its residents for tax purposes.
Tax base – corporate income tax is levied on the company’s worldwide income. However, the income attributed to the enterprise’s branch offices, permanent establishments or real estate abroad as well as the retained income of the foreign subsidiaries is not subject to taxation.
Tax rate – corporate income tax is charged at federal, cantonal, and municipal levels.
The effective federal tax rate is 7.83%
Each canton has its own tax legislation and levies cantonal and communal (municipal) taxes at different rates. Combined effective tax rate varies from 11.5% to 24.2%, depending on the canton where the company was incorporated.
Under certain conditions, the companies carrying out commercial activities mainly abroad may enjoy cantonal and communal tax benefits or tax exemption, with their foreign source income being taxed at the effective rate of between 7.83% and 11%.
Capital gains – at the federal level capital gains are considered as an ordinary income and taxed at the standard rate.
Capital gains are generally entitled to participation relief if the following two cumulative conditions are met: the participation sold was owned by the company for a period of at least one year and consists of an investment of at least 10% of the share capital or entitles to at least 10% of the profits and reserves of the subsidiary. If a residual participation is less than 10%, further relief is only possible if the residual participation’s market value at the beginning of the year amounted to at least CHF 1 million.
Dividends – dividends are usually taxed.
Dividends may qualify for participation relief if received from participations representing at least 10% of the share capital or 10% of profits and reserves of the subsidiary and/or those having a market value of at least CHF 1 million.
Interest income – interest income is subject to taxation at the CIT rate.
Royalties – royalties are generally taxed at federal, cantonal, and communal levels. However, in some cantons, a patent box regime was introduced, under which royalties may be exempt from taxation or be taxed at reduced rates.
Foreign source income – foreign source income is taxed at federal, cantonal, and communal levels, but the income attributed to the company’s branch offices, permanent establishments or real estate abroad as well as the retained income of the foreign subsidiaries is not subject to taxation.
The aforementioned exemption may as well be applied to dividends and capital gains from a foreign source.
Foreign tax on investment income paid in the countries with which Switzerland has double taxation agreements may be credited against and up to the respective Swiss tax. The same taxes paid in the countries that are non-parties to DTAs may not be credited; however, in some cases deductions are available.
Taxation at source – dividends paid to non-residents are taxed at source at a rate of 35%.
In accordance with the EU-Swiss Savings Agreement, dividends paid to residents for tax purposes in EU member states may be exempt from withholding tax, provided that a company holds directly at least 25% of the share capital of a paying company, and some other criteria are met. Tax rates may be reduced pursuant to the Agreement.
Interest income and royalties are not subject to taxation at source. However, the interest earned from Swiss bank deposits, bonds, and bond-like instruments may be subject to 35% tax at source. The tax rate may be reduced up to the respective rates applied in the countries that are the parties to DTAs with Switzerland.
Losses – commercially justified losses may be carried forward for 7 years. No carry-back is possible.
Inventory – inventory may be valued at the inventory’s acquisition costs, production costs, or current market value, whichever cost is lower. The following methods are applied for inventory valuation: “first in, first out” (FIFO), “last in, first out” (LIFO), and “highest in, first out” (HIFO).
General Anti-Avoidance rules – there are no country-specific transfer pricing legislation or special requirements for documentation in Switzerland, but transactions must be carried out on an arm’s length basis.
In Switzerland, thin capitalisation rules are applied, which provide for various limits on debt-to-equity ratio, depending on the class of the company’s assets.
There are no controlled foreign company rules in Switzerland. Accordingly, retained income of foreign subsidiaries is generally not taxed.
Social security – employers and employers are obliged to make relevant contributions. If the employee is subject to the Swiss social security system, he or she, together with the employer, shall contribute a total of 8.02–23.35% and 12.23–15.23% of remuneration, respectively. Contributions may be capped.
Tax benefits and deductions. Foreign tax on investment income paid in the countries with which Switzerland has double taxation agreements may be credited against and up to the respective Swiss tax. The same taxes paid in the countries that are non-parties to DTAs may not be credited; however, in some cases deductions are available.
Apart from federal benefits and deductions, some cantons offer preferential tax regime.
Regulatory compliance – on average, it takes a Swiss company 63 hours per year to comply with all tax-related procedures, with 19 payments to be made annually.
Personal income tax – an individual is considered as a resident for tax purposes if he or she permanently resides in Switzerland, or stays in the country with the intention to carry out professional activities for a consecutive period of at least 30 days, or stays in Switzerland with no intention to exercise such activities for a consecutive period of at least 90 days.
Resident individuals are taxed on their worldwide income, whereas non-residents subject only to tax on income from Swiss sources.
The rate of federal income tax is progressive and ranges from 0% to 11.5%. Cantonal and communal income taxes are levied as well. The maximum effective personal income tax rate varies between 25% and 51%, depending on the canton or the commune.
Private capital gains on movable assets are tax-exempt, provided that an individual is not a professional securities dealer. In contrast, capital gains on non-movable assets are subject to the relevant cantonal tax, the rate of which varies depending on the canton and the holding period.
Dividend, rental, and interest income is generally taxed at the ordinary rates together with the other income.
Other taxes – sale and import of goods and services are subject to VAT and are taxed at a standard rate of 8%. Reduced rates and exemptions may be applied.
Stamp duty is levied on transfer of securities, the rate being 0.15% for securities issued by a Swiss tax resident and 0.3% for securities issued by a tax resident of a foreign country.
Capital duty of 1% is charged on the first issue or an increase in equity of a Swiss corporation. An exemption on the first CHF 1 million of equity is applied.
Cantons and communes may levy capital tax based on a corporation’s equity at a rate ranging from 0.001% to 0.525%.
Some cantons and communes charge property tax and real estate transfer tax. Cantons also levy net wealth tax at progressive rates, which vary between 0% and 1.3% (4.5% in the case of Geneva).
Tax Identification Number is automatically assigned to companies at the moment of their registration. VAT number is to be received if the company’s annual turnover exceeds CHF 100,000.
Swiss companies shall annually prepare and file with the local tax authorities the balance sheet, profit and loss report, and cash flow statement. Financial records must be kept at the company’s registered office. Annual general meeting of shareholders must be held within six months following the end of the financial year (in Switzerland, the tax year typically corresponds with the calendar year or runs from 1 July to 30 June). In the general case, financial reports shall be submitted to the relevant authorities by the end of September of the year following the reporting one. Annual audit is mandatory for all companies.