Taxes

 Corporate Tax

• Resident companies are subject to:
  - the federal corporate income tax, and
  - the cantonal/municipal corporate income taxes, and
  - the cantonal/municipal net worth taxes.
• Non-resident companies deriving income from certain Swiss sources may be subject to certain withholding taxes or be liable to corporate income tax in respect of such income.
• Corporate taxation applies particularly to:
  - Stock companies (AG);
  - Limited liability companies (GmbH);
  - Cooperatives (Genossenschaft);
  - Association (Verein);
  - Foundation (Stiftung) .
• Partnerships are transparent for tax purposes, the partners being taxed individually.
• Switzerland has a classical corporate tax system which results in economic double taxation.
• Specific relief only applies to holding companies in order to avoid triple taxation.
• Nevertheless, profits after tax are often higher in Switzerland compared to other countries using an integration system, because of the low Swiss tax rates.

Tax rates

• The federal corporate income tax rate is 8,5% flat.
• The cantonal tax rates vary considerably. In general they are progressive (depending on different factors). The rates mentioned in the cantonal tax laws are usually subject to cantonal and municipal multipliers.
• In Switzerland, all taxes due by corporate taxpayers are deductible. As this is different in most other countries, Swiss tax rates should not be compared 1:1 with foreign tax rates. If the aggregate of all rates in Switzerland amounts to say 30% (of which 8,5% federal tax), the effective rate would only be about 23% (of which 7.8% federal tax) compared to a country where taxes are not deductible.
• The effective tax rate of a company in canton of Zürich is about 25% (as of 1 January 2001, including federal and church tax).

Mixed holding

• Swiss companies with substantial participations (mixed holding companies) get tax relief in form of a participation exemption (at federal and cantonal/municipal level). The participation exemption operates as a reduction of tax due (i.e. NOT as a reduction of the taxable base!).
• The reduction is calculated according to the proportion (percentage) of the net income from qualifying participations to the company’s total net income. The following income may qualify:
  - dividends received from participations of minimum 20% in the capital or minimum CHF 2 million (fair market value);
  - capital gains realized on participations hold for at least 1 year if minimum 20% is sold (further details should be considered!).

Holding companies

• Less restrictive conditions apply to venture capital companies.
• In addition, all cantons (but not the federation) apply a holding privilege for pure holding companies. This results in a complete exemption from tax at the cantonal and municipal level (including other than participation income!).
• In general the requirements are:
  - holding activity (no active business), and
  - either 2/3 of the total asset must consist of participations
  - or 2/3 of the total income must consist of income from participations.
• As a consequence, qualifying pure holding companies just pay 8,5% federal tax (effective 7,8%) on the income not qualifying for the participation exemption.

Domiciliary companies

• A domiciliary company is a company (or cooperative or foundation) having only administrative activities in Switzerland (e.g. headquarters of multinationals).
• All (or at least the major part of) its commercial activities must be performed abroad.
• All cantons grant a specific tax status to such companies. The federal tax, however, is not reduced. A pure domiciliary company in the canton of Berne, for example, may be nearly exempt from tax. Details should be negotiated in advance.

Tax holiday for newly established corporations

• These incentives include exemptions from federal and cantonal (including communal) taxes for a period of up to ten years after inception of business. They depend upon the type and amount of investments, the number of jobs created, the regional economic planning aspects, etc. Companies not receiving the maximum relief can expect tax reductions of 30-40% over varying periods of up to 10 years.

VAT

• As a rule, anyone who makes, in a regular and independent manner, taxable transactions in Switzerland in excess of CHF 75 000 must register for VAT in Switzerland.
• Swiss Value Added Tax is a multistage consumption tax levied at every stage of production on the value added to taxable supplies. The amount of tax due by VAT registered persons corresponds to the difference between the tax charged on sales of goods or services (output tax) and the tax payable on purchases (input tax).
• Taxable transactions include the supply of goods or services within Swiss territory, self supply, the acquisition of services from abroad and the import of goods.
• VAT is calculated on the basis of the consideration or price paid for the supply of goods or services at a standard rate of 7,6%.
• Certain goods and services, such as food, medicine, books and newspapers, are taxed at the more favourable rate of 2,4%.
• Others, including hospital treatment, insurance and certain banking operations, are exempt but the input tax cannot be recovered, i.e. exempt without credit.
• Switzerland's VAT system follows the destination principle where by the supply of goods and services is taxed in the country of consumption. The import of goods and services is therefore usually fully taxed. Conversely, exports are generally zero-rated, i.e. exempt with credit.

Withholding tax on income distributions

• A 35 % withholding tax is levied on profit distributions made by Swiss companies. Profit distributions include ordinary dividend distributions, liquidation proceeds, stock dividends and constructive dividends (hidden profit distributions).
• Withholding tax is levied in the hands of the Swiss company making the distribution regardless of the State of residence of the beneficiary.
• Interest income accruing on inter-company loans is not subject to withholding tax unless the loan is recharacterised as a bond or bank deposit or unless the interest due is recharacterised as a hidden profit distribution.
• Foreign shareholders of a Swiss company, on the other hand, may only obtain a full or partial reimbursement of the withholding tax by virtue of a tax treaty.

Relief on capital gains

• Qualifying dividend relief is available to all Swiss corporations regardless of their activity.
• The ownership threshold to qualify for this relief is however limited to 20% of the capital in another company for as long as the participation has been held for more than a year.
• Losses incurred as a result of the sale of qualifying participations remain tax deductible.