Synopsis

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/Communal

Income and net wealth of individuals.

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.

Transfer tax on immovable property.

TAX LEVELS

Rates of corporate taxation vary from 42% down to 0% depending on the canton of registration. Effective tax planning starts with the selection of the canton and rates vary from:

• Geneva - 42.5%
• Lausanne (Vaud) - 39.8%
• Zurich - 39.8%
• Basel - 34.3%
• Bern - 33.8%
• Zug - 0-10% (negotiable to suit)
• Neuchatel - 0-10% (negotiable to suit)

The most flexible of the Cantons are Neuchatel in the French region and Zug in the German region. In Neuchatel new companies which are foreign owned and engaged in manufacturing, industrial or holding operations may be taxed at zero for both cantonal and federal taxes for a period of up to 10 years. Other companies engaged in commercial and financial activities will be taxed at a rate of approximately 10% again for a limited period of 10 years. Service companies may negotiate a rate of tax on a cost-plus basis by calculating expenses of the company and allowing a margin before agreeing an effective tax rate with the authorities, usually is in the region of 5%. Each projected company is looked at on a case by case basis and it is usual to obtain an advance tax ruling. In Zug a similar regime is in force with each company looked at on an individual basis.

WITHHOLDING TAX

Where a distribution or deemed distribution takes place, that distribution suffers a withholding tax of 35%. This is a fixed rate and is charged at federal level. It can be mitigated in certain circumstances and can be avoided by using a branch registration as described below.

TYPES OF COMPANY

There are two main types of Swiss company whose characteristics are described below:

• Societe Anonyme (SA)/Aktiengesellschaft (AG) - this type of company must have a minimum authorised capital of CHF100,000 and a minimum paid in capital of CHF50,000.
• Societe a Responsibilite Limitee (Sarl)/Gesellschaft mit beschranker Haftung (GmbH) - this type of company must have a minimum authorised capital of CHF20,000 and a minimum paid in capital of CHF10,000.

SWISS BRANCHES

It is possible to establish a branch of a non-Swiss company in Switzerland. Often an offshore company is structured and a branch of this offshore vehicle is established in Switzerland. Unlike a Swiss subsidiary, withholding taxes are completely avoided, since profits of a Swiss branch can be distributed back to the offshore company. A branch does not need to be capitalized. A Swiss resident manager should be appointed, which service is provided as part of our domiciliary fees. Accounts will have to be filed with the local canton each year. The services of a fiscal agent to attend to this are generally provided.

 

User login

This is a cut-down version of this jurisdiction information sheet. To view the full information sheet, please enter your e-mail address and country of residence below and click Login (see our privacy policy about how we use your e-mail address).

 

Last reviewed: Saturday, July 01, 2006

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.