Why is it worth setting up a company in Switzerland? Do I need any licenses?
Despite the fact that Switzerland is not the member of the EU, it allows that anyone, even foreign citizens, can establish an enterprise, company in Switzerland.
In Switzerland, for the daily business activity, for its permanent operation, you need a work permit and a residence permit.
At our company, the following Swiss company types may be established:
- Limited liability company (GmbH)
- Public limited company (AG)
- Necessary steps for the establishment of your activity:
- Articles of Association, in case of public limited companies, creation of memorandum by notary,
- Opening of Swiss company bank account
- Paying the stamp duty, one percent of the capital (tax exemption up to one million Swiss franc)!
- Introduction of employees into the social security system at both levels, that is at federal and cantonal level, too.
In addition to the share capital and to the liability, an entrepreneur has to take into consideration also the tax policy.
How much is the corporate tax and the local business tax in Switzerland?
Up to what extent am I exempt from VAT?
How is the personal income tax developed in Switzerland?
- Local business tax: exits only in the canton of Geneva
- Extent of the income tax: varies by cantons and municipalities
- The standard rate of the VAT is 8,1%
Corporate Tax
· Aargau (AG) 17.42%
· Appenzell Ausserh. (AR) 13.04%
· Appenzell Innerh. (AI) 12.66%
· Basel-Land (BL) 17.97%
· Basel-Stadt (BS) 13.04%
· Fribourg (FR) 13.87%
· Geneva (GE) 14.00%
· Glarus (GL) 12.31%
· Graubünden (GR) 14.77%
· Jura (JU) 16.00%
· Lucerne (LU) 12.20%
· Neuchâtel (NE) 13.57%
· Nidwald (NW) 11.97%
· Obwald (OW) 12.74%
· Schaffhausen (SH) 13.80%
· Schwyz (SZ) 14.06%
· Solothurn (SO) 15.29%
· St. Gallen (SG) 14.40%
· Thurgau (TG) 13.21%
· Uri (UR) 12.63%
· Valais (VS) 17.12%
· Vaud (VD) 14.00%
· Zug (ZG) 11.85%
Switzerland has a unique and complex taxation system, characterized by the decentralization of tax authority across three levels: federal, cantonal, and municipal. Each level has its own tax laws and rates, leading to significant variation in tax obligations depending on where you live or do business in Switzerland.
1. Types of Taxes in Switzerland
Income Tax
• Federal Income Tax: Levied by the federal government and progressive in nature, meaning higher incomes are taxed at higher rates.
• Cantonal and Municipal Income Taxes: Cantons and municipalities set their own tax rates, leading to considerable differences in overall tax burdens across the country. Some cantons, like Zug or Schwyz, are known for their low taxes.
Wealth Tax
• Switzerland is one of the few countries that imposes a wealth tax.
• It is levied at the cantonal and municipal levels, with rates varying significantly.
• Wealth tax is based on net worth, including property, securities, and other assets, minus debts.
Corporate Tax
• Companies pay tax at federal, cantonal, and municipal levels.
• Federal Corporate Tax: A flat rate of 8.5% on profits.
• Cantonal and Municipal Corporate Taxes: Rates vary, but Switzerland introduced reforms in 2020 to harmonize and lower these rates, resulting in an average combined corporate tax rate of around 12-18%, depending on the canton.
Value-Added Tax (VAT)
• VAT in Switzerland is relatively low compared to other European countries.
• Standard Rate: 7.7%.
• Reduced Rate: 2.5% for essential goods (e.g., food, medicine).
• Special Rate: 3.7% for accommodation services.
Capital Gains Tax
• Capital gains tax on private assets is generally not levied at the federal level but may apply at the cantonal level under certain circumstances.
• For businesses, capital gains are taxed as part of corporate income.
Inheritance and Gift Tax
• No federal inheritance or gift tax.
• Cantonal laws vary widely; some cantons exempt direct descendants, while others tax them at reduced rates.
2. Tax Residency in Switzerland
Tax residency is determined by:
• Physical Presence: Staying in Switzerland for more than 183 days in a calendar year.
• Primary Economic Ties: Having a permanent residence or primary source of income in Switzerland.
Swiss tax residents are taxed on their worldwide income (except income from foreign real estate, which is only used to determine the applicable tax rate).
3. Double Taxation Agreements (DTAs)
Switzerland has signed numerous DTAs with other countries to prevent double taxation. These agreements:
• Define which country has the right to tax certain types of income.
• Reduce withholding taxes on cross-border income like dividends, interest, and royalties.
4. Special Tax Regimes
For Individuals
• Lump-Sum Taxation: Available to wealthy foreign nationals who take up residence in Switzerland but do not work there. Tax is calculated based on living expenses rather than income or wealth.
For Corporations
• Special regimes may apply to multinational companies, such as tax rulings on intellectual property or the application of specific cantonal incentives.
5. Tax Returns and Filing
• Individuals: Tax returns are filed annually, with deadlines varying by canton.
• Companies: Corporate tax returns are also filed annually, typically by June 30 of the following year.
6. Comparison with Other Countries
Switzerland’s tax system is attractive due to:
• Competitive corporate tax rates.
• No federal capital gains tax for individuals.
• Favorable regimes for high-net-worth individuals and multinational corporations.
However, the complexity of navigating cantonal and municipal variations can require professional tax advice for businesses and expatriates.