Damalion Switzerland desk
Doing business in Switzerland
While Switzerland is not a member state of the European Union, the country enjoys full access to the European Union’s market. Due to its economic, financial, and political stability, as well as its transparent legal system, it is a renowned jurisdiction for international investors. As the country with the third-highest gross domestic product (GDP) per capita, next to Luxembourg and Ireland, its residents enjoy a high standard of living. The economy greatly relies on a highly specialized service sector that includes the most prominent financial services companies. As one of the world’s wealth management leaders, Switzerland’s financial sector generates about 10% of its GDP.
Unlike other countries with unstable economies, Switzerland does not get hit hard by financial crises. The country’s unemployment rate does not exceed 3.3%, and it takes first place in the World Economic Forum’s Global Competitiveness Report. The rate of inflation in Switzerland is moderate and hover at 1% year-on-year.
Switzerland Banking and Financial Services
The country’s banking and financial services are inarguably its largest sector. The Swiss banking system is highly regarded around the globe. Their existing expertise, policies, and reliability make Switzerland a highly attractive option for foreign-owned companies and private investors alike. It’s not surprising that a large percentage of the world’s wealth is managed by Swiss-owned banks.
A Strong Tradition of Neutrality
After the devastation that occurred in France in the Middle Ages, Switzerland started to take a strong stance on remaining neutral across all aspects of global affairs. It was only recently that they broke their neutrality when they enforced sanctions on Russian-owned banks. The aim of the sanctions it imposed on Russia was to hinder the country’s capabilities of financing its attacks against its neighboring country, Ukraine. Nevertheless, the Swiss Federation remains a haven of diplomacy and is esteemed as a neutral intermediary and host to major international treaty movements.
Switzerland is regarded as a premier commodities trading hub with more than 900 trading companies, with the majority operating in the cities of Geneva, Lugano, and Zug. Regulating bodies have imposed strict provisions governing activities in the commodities trade sector. The government firmly supports the trading sector’s innovative global reform initiatives. Additionally, the country actively participates in efforts to enhance fair trade policies and sustainable production.
Dominant Industries in Switzerland
The top industries in Switzerland include manufacturing of medical devices, chemicals, pharmaceutical products, machinery, electronics, high-tech products, as well as services including insurance, international organizations, and tourism.
Limitations on International Investment, Control, and Ownership
Switzerland requires investors in certain regulated sectors, such as banking, traffic, real estate, defense, insurance, and media. Apart from these industries, there are no limitations on investments among international investors.
Limitations and Prohibitions with Certain Entities, Organizations, Countries, and Individuals
Switzerland enforces its own initiative, and through participation in foreign measures, including sanctions and embargos against other countries, individuals, organizations, and businesses. Nevertheless, there are specific restrictions on particular goods such as war materials.
Switzerland Currency Regulations, Exchange Controls, and Registration Requirements Under Anti-Money Laundering Laws
Besides taxes, there are no existing regulations on inward investment or repatriation of profits and capital on disinvestments.
Existing Grants and Incentives for Foreign Investors
Incentives that are designed for international investors at a cantonal rather than federal level. At present, the only significant incentives are tax holidays for up to ten years.
Switzerland Business Structures
Switzerland legal business forms were created and governed under Swiss law. These structures are regulated by the Swiss Code of Obligations.
Sole Proprietorship (Einzelunternehmung)
- One-person business, such as sole traders and sole proprietors.
- Not regulated by law and ineligible to considered as a legal entity.
- Flexible and simple organizational structure.
- In essence, a sole proprietorship is a business than one natural person runs in his or her name.
- Sole proprietors have unlimited liability for the company.
- A sole proprietorship operating as a commercial business must be registered before the Commercial Register.
- A sole proprietorship with less than CHF 100,000 turnover per year is not required entering the company before the Commercial Register.
Silent Partnership (Stille Gesellschaft)
- Not explicitly regulated by Swiss Law.
- A silent partner contributes capital and is entitled to a specific percentage of profits.
- Principal partner enjoys exclusive rights to representing the partnership.
- Principals hold all rights and duties in third-party transactions.
- Unregulated in nature; hence there is contractual flexibility and freedom.
Simple Partnership (Einfache Gesellschaft)
- Two or more natural persons merge on a contractual basis for achieving the specific goal of making profit.
- It does not carry features of neither a simple partnership nor limited partnership.
- Unlimited liability of partners for debts that may be incurred by the partnership structure.
- Used on a short-term basis to accomplish an economic or non-economic objective.
- Cannot operate as a commercial business.
- It does not hold a legal entity, not allowed to own a firm name, and cannot be entered in the Commercial Register.
General Partnership (Kollektivgesellschaft)
- Two or more natural persons merge to establish a common commercial or production enterprise.
- A company may also run as an enterprise that will operate for commercial reasons.
- Required to enter in the Commercial Register.
- A general partnership must be entered in the Commercial Register whether or not it operates in a commercial manner.
- Consensus is that a general partnership does not have a separate legal entity.
- Permitted to obtain rights and assume obligations, therefore, it can sue and be sued.
- Carries unlimited liability for the debts incurred by the partnership structure.
Limited Partnership (Kommanditgesellschaft)
- Two or more persons merge for a common purpose.
- Must be comprised of one individual who will carry unlimited liability for the partnership’s debts.
- Another partner or partners will only carry limited liability to the extent of their capital contribution.
- A legal entity may assume the role of a limited partner.
- Enjoys greater flexibility than a general partnership.
- It has a separate legal personality.
Joint-Stock Company (Aktiengesellschaft)
- Minimum share capital requirement of CHF 100,000 that are divided into tradable equity interests or shares.
- Liable for company debts to the extent of its business assets.
- One share carries a nominal value of at least CHF 0.01 and at least 20%, and CHF 50,000 of the share capital must be paid.
- The company’s supreme corporate body functions as the shareholder’s general meeting.
- During the general meeting, a Board of Directors must be elected.
- Board of Directors will be responsible for managing the day-to-day management of the company.
- A company’s Board of Directors can be a single person.
- There should be one natural person to represent the company. He or she must be a Swiss resident.
- Holding companies may submit a request for exemption from the residency requirement.
- Considered the most popular legal company in the Swiss investment landscape.
- Shareholders can maintain their anonymity.
Partnership Limited by Shares (Kommanditaktiengesellschaft)
- A type of partnership business structure whose capital is divided into shares.
- One or more partners must carry unlimited liability.
- Least common legal form in Switzerland.
Limited Liability Company (Gesellschaft mit beschränkter Haftung)
- Company with a pre-determined capital.
- Members have limited liability in terms of the debt incurred by the company. Their liability is only limited to their respective share capital.
- Total share capital of at least CHF 20,000 and fully paid up upon incorporation.
- Significant body is its member’s general meeting.
- Members are tasked to manage the company.
- Upon agreement during members’ meeting or under the articles of association, third-party natural persons may assume the management role.
- At least one member must be a Swiss resident.
- Incorporation cost includes professional fees for articles of association drafting, translation fees, notary fees, registration fee for publishing pertinent information in the Commercial Register.
- Consisting of an unlimited number of persons and commercial companies.
- Primary objective is to promote and promote economic interests of its members.
- There must be at least seven people to establish a cooperative.
- Operates on an open-door policy.
- Joining a cooperation is simple and straightforward.
- Consists of the general meeting of its members, auditor, and administration.
- Typically used to established companies under the agricultural industry.
- It is also used to establish a consumer’s cooperative or purchasing cooperative.
- Legal form designed for organizations that pursue non-profit objectives.
- Entities with paying members can use an association to run commercial activities.
- An entity has limited liability on debts to the extent of an association’s assets, except not described in its articles of associations.
- Corporate bodies are the general meeting of members and the managing board.
- Ideal legal entity for non-profit interests.
- Carries an independent legal status, therefore has legal rights and obligations.
- Considered a legal entity but does not consist of a body of natural persons.
- Formed by dedicating funds for a specific purpose, either by way of a will or a public deed.
- Dedication of property is lasting and irrevocable.
- Amendment of purpose is not allowed.
- May be found in commercial in the form of a corporate foundation,
- In a corporate foundation structure, the foundation acts as the legal owner of the company or its primary shareholder that manages the overall operations of the business.
Switzerland Business Formation and Registration Requirements
- A certificate confirming the appointment of the Board of Directors and auditors.
- Certified signatures of natural persons authorized as signatories of the company.
- Publicly authenticated Articles of Association.
- Nationality or domicile of board members.
- Public deed of the founder’s general meeting.Application for company registration is filed before the Commercial Register with the following pertinent information:
The registration of a foreign-owned company in Switzerland can take between 7 days up to two weeks. The country’s federal register documents all pertinent information about registered legal entities.
On the other hand, all commercial registers are cantonal. Regional websites are updated to ensure foreign investors and legal entities are well educated about the registration process.
Switzerland Business Reporting Requirements
The company board must submit their business report during the annual shareholder’s meeting and include the following:
- Annual financial statements
- Consolidated statements, if applicable
- Management report, if applicable
Certain fees must be paid in relation to the accurate submission of annual reports. Bookkeeping fees are CHF 2,000 annually while auditor’s fee range between CHF 2,000 and CHF4,000 annually.
Auditing for smaller companies is compulsory. A tax must be filed for each fiscal year. Special reporting requirements are established for regulated companies. There is not requirement to submit financial accounts with the company register.
- A share capital of a foreign-owned company is set at a minimum of CHF 100,000, of which CHF 50,000 must be paid in cash or in kind.
- There is no maximum capital share amount, but at least 20% must be paid up.
Payment in kind is allowed under two conditions:
- A written report, duly verified by the auditor, submitted to a notary public and the Commercial Register.
- Actual payment is disclosed in the Articles of Association and Switzerland’s Official Journal of Commerce.
- The same conditions and rules are applicable to cash incorporation if the cash is utilized immediately afterwards to purchase assets from shareholders and third parties.
Management Structure of Foreign-Owned Business Structures
The Board of Directors must at least have one member. The board can delegate corporate duties and powers to individual directors or third parties. The duties listed below cannot be delegated or delegated from the board by company shareholders:
- Appointment, removal, and supervision of parties entrusted with management and representation.
- Establishment of the organization.
- Company management and issuance of important management directives.
- Notification of negative equity to a judge in Switzerland.
- Preparation of the business report and shareholders’ meetings
- Structuring of an accounting system, financial controls, and financial planning.
Management Limitations of Foreign-Owned Business Structures
In Switzerland, there are no limitations on foreign managers. However, one natural person or more that can represent the company must be a Switzerland resident.
Liability of Directors and Officers
Directors and officers are responsible in the management of the company, while individual shareholders and company creditors for damages intentionally caused or a result of negligence of their duties and responsibilities.
Liability of Parent Companies
A parent company is not held liable for the debts incurred by its subsidiaries unless, it has given a guarantee or eligible as a shadow director.
Switzerland Accounting and Audit Environment
- Businesses are deemed to keep accounting records, prepare balance sheets and income statements not exceeding 12 months.
- Accounting rules are applicable to any-sized companies, except for small entities categorized as sole proprietorships, partnerships, foundations, and associations.
- Small-sized entities with a turnover of less than CHF 500,000 may provide an income and expense compilation without provisions regarding the evaluation of assets and liabilities. However, these entities are required to accrue expenses and income attributable to the accounting period.
- Micro-entities with a turnover of less than CHF 100,000 can do without accruals and remain on a mere cash basis.
- Medium-sized entities are deemed to apply prevailing accounting rules, and therefore should provide notes of the financial statements.
- Medium-sized entities are subject to a limited audit, given they were not chosen for opting-out, a condition which is possible for entities with fewer than 10 employees.
OVERVIEW OF THE SWITZERLAND TAXATION SYSTEM
Corporate Income Tax
- Companies that are considered resident in Switzerland are subject to corporate income tax (CIT) assessed by the federation as well as by cantons and communes on their worldwide income.
- Allocation rules (cantons and communes) as well as double tax treaties may limit taxation rights.
- Non-resident companies are assessed with Swiss taxation across all levels based on their Swiss-source income.
- Corporate income tax rate (federal level) 8.5% or 7.8% (effective)
- Branch tax rate (federal level) 5% or 7.8% (effective)
- Capital gains rate (federal level) 0%/8.5% or 7.8% (effective)
- Imposed on a company’s net profit after tax as disclosed in the financial statements.
- Company’s net profits consist of business or trading income, passive income, and capital gains.
- Foreign-source income is considered taxable income, with relief granted for dividend income from qualifying participations.
- Business expenditures are deductible in calculating taxable income.
- Gains and losses from financial statement conversions in a functional currency into CHF are disregarded for tax purposes.
Taxable Income Rate
- Tax is imposed at the federal cantonal, and communal levels.
- Federal tax rate is set at 8.5% applicable on net income.
- Considering federal, cantonal, and communal income tax, combined effective tax range between 12% and 22% for companies subject to ordinary taxation, depending on the place of residence.
- Effective tax rate in the majority of regions (cantons) ranges between 12% and 14%.
- There is no surtax in Switzerland.
Alternative Minimum Tax
- There is no alternative minimum tax in Switzerland.
- No specific capital gains tax imposed at the federal level.
- Capital gains on the sale of assets are treated as ordinary income, regardless of length of time for which assets were held.
- For assets sold to a shareholder or related company at a below-market price, value gains may be re-evaluated for tax reasons.
- Capital gains arising from the sale of participation of at least 10% in a company may benefit from participation, given participation has been held for more than twelve months.
- Losses may be carried forward for seven years.
- Losses may also be set off against any income or capital gains.
- Losses may not be carried back.
Foreign Tax Relief
- Foreign-source income is taxable.
- Relief is granted for dividend income from eligible participations.
- Foreign-source income is taxed net of total foreign assets.
- There will be no credit granted for foreign tax paid.
Switzerland Participation Exemption
- Dividends are taxable for the recipient company.
- Relief is granted for dividends received from eligible participations in resident and non-resident companies.
- A participation is identified as qualifying where the recipient company owns at least 10% of the capital of the payer company or the total value of the participation is no less than CHF 1 million.
Switzerland Holding Company Regime
There is no holding company regime in Switzerland.
Corporate tax reform of 2020 replaced tax privileged regimes with anew internationally recognized measures.
Switzerland Anti-Avoidance Rules
Transfer Pricing Rules
- Switzerland does not have a formal documentation requirements and transfer pricing legislation.
- All related party transactions however with Swiss entities must be carried out in arm’s length terms.
- Switzerland currently follows OECD pricing rules and imposed a country-by-country reporting requirement.
Interest Deduction Limitations
- Safe-haven thin capitalization rules require a minimum debt-to-equity rate for each assets class.
A firm may borrow funds up to the percentage of its assets as listed below:
- 100% of its cash
- 85% of other current assets and loans
- 90% of domestic and foreign bonds in CHF
- 70% investments in subsidiaries, homes, apartments, lands, and intangible assets
- 80% foreign bonds in foreign currencies and all other immovable properties
- 60% listed securities
- 50% non-listed securities, furniture, and fixtures.
Controlled Foreign Companies
- There are no controlled foreign company rules.
Economic Substance Requirements
- There are no economic substance requirements in Switzerland.
- Exit tax is not applicable in Switzerland.
- Exit tax rate is the same as ordinary tax rate.
General Anti-Avoidance Rule
- Swiss tax law does impose a general anti-avoidance rule.
Value Added Tax
- Standard rate – 7.7%
- Reduced Rate – 0%/2.5%/3.7%
- VAT is applicable to the sale of goods and services that transpire in the Swiss territory.
- VAT is applicable to the acquisition of services from businesses based overseas.
- VAT is applicable to the importation of goods.
- Non-residents that are the usual recipients of export goods are not subject to VAT.
- Acquisition and sale of intellectual property are assessed with VAT. ‘
- Distance selling companies attaining an annual turnover more than CHF 100,000 from low value shipments are subject to VAT.
- VAT rate of certain goods may be reduced at 2.5%.
- Most banking services, insurance premiums residential real estate property, health, education, and unregulated iGaming or casino are exempt.
- VAT at a rate of 3.7% is applicable to the hotel and lodging industries.
- Companies doing business in Switzerland with annual turnover more than CHF 100,000.
- Natural persons not registered as VAT payers that acquire services from overseas with value exceeding CHF 10,000 in a given calendar year is subject to VAT as per reverse charge mechanism will need to register with the Swiss Federal Tax Administration in writing by 28 February of the following year and account for VAT at 7.7% on the services.
- VAT returns in Switzerland must be filed on a quarterly basis, while the relevant VAT amount must be remitted to the Federal tax Administration within 60 days after the end of each quarter.
- No general payroll tax exists in Switzerland, but tax is levied on the wages of foreigners that do not carry permanent Swiss residency status.
- All other Swiss resident employees’ wages are taxed as part of ordinary income.
- No capital duty exists in Switzerland, except for stamp duty.
Real Property Tax
- Some cantons (regions) impose real property tax.
- Securities transfers facilitated by Swiss securities dealers are subject to 0.15% Swiss securities and a 0.3% tax on foreign securities.
- Stamp Duty
- 1% stamp duty is applicable on equity contributions of a Switzerland-based business and can be paid in cash or cash.
- A CHF 1 million exemption threshold is applicable to the issuance of shares in Switzerland.
- Business re-organizational activities such as spinoffs of corporate assets, mergers, and transfer of a company’s domicile from overseas to Switzerland are exempt from stamp duty.
- Only recently, stamp duty was finally abolished by the Swiss Parliament, but is subject to a referendum in 2022.
Net Wealth Tax
- Corporate net wealth tax is imposed at various rates, depending on the canton and prevailing tax privileges within that region. The net wealth tax in Switzerland is between 0.01% and 0.5%.
- Net wealth tax may be credited against income tax liability in many cantons.
- In Switzerland, there is no federal individual net wealth or net worth tax. However, this may be assessed at the cantonal level.
- There is no federal estate or inheritance tax, although it may be imposed at the cantonal level.
Switzerland Tax Treaties
- The OECD Multilateral Instrument (MLI) was enforced in Switzerland on 1 December 2019.
- Switzerland has double tax treaties and tax information exchange requirements with more than 100 countries, including EU countries and OECD member nations. Major countries with contracted double tax treaties with Switzerland include China, Hong Kong, Indonesia, Malaysia, Israel, Kuwait, South Korea, South Africa, and many more.
- The Swiss Parliament is work continuously to expand its double tax treaty network further.
- Exports are exempt from Swiss Value Added Tax.
- Imports are subject to import Value Added Tax.
The challenges of operating in a foreign country such as Switzerland is often intimidating. As regulations, laws, and rules are constantly evolving, it is not surprising that many foreign investors, even well-informed ones, can get confused along the way. As a reputable business consulting specialist, Damalion seeks to be a dependable partner of foreign investors and legal entities looking to do business in Switzerland.
Leveraging our extensive global service network, we work hand-in-hand with other professionals to streamline and simplify the Switzerland company formation process for you. From discussing key points such as taxation, legal form selection to opening a bank account, our team of seasoned consultants will be providing you with expert advice and assistance from start to finish. Reach out to a Damalion expert today if you wish to learn more about the company formation process in Switzerland.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Contact us now to register your company in SwitzerlandOur Damalion Switzerland Desk will answer you shortly. Please fill in this form to describe your need
Want to know more about Damalion Switzerland Desk?
Damalion offers you from bespoke advice provided by directly operational experts in the fields that challenge your business.
We advise you to give information at its best, so we can qualify your demand and revert to you under the next 8 hours.