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Corporate Taxes in Switzerland

In today’s article, we’ll be discussing the corporate taxes in Switzerland.

Taxes play a crucial role in business, especially if you are planning on starting a business in a developed nation like Switzerland.

If you want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.

This article isn’t tax advice and the facts might have changed since we wrote it.

Factors to Consider

If you’re considering starting a business in Switzerland, several factors must be evaluated before expanding internationally.

Switzerland, known for its beauty and dynamism, offers a high standard of living, but it is also an expensive place for living and doing business.

Here are some key considerations:

Switzerland’s appeal includes a highly educated workforce, efficient transportation, and a great quality of life.

However, the high cost of living and expensive real estate can pose challenges.

Switzerland’s visa system may require strict criteria for non-EU residents looking to work self-employed.

For online businesses not planning to reside in Switzerland, immigration policies may not be a concern, but import and export duties should be considered.

Budget for High Costs

Switzerland boasts some of the world’s highest wages, so be prepared to factor this into your staffing budget.

Real estate can be relatively expensive, and it’s essential to research rental costs in different Swiss cities to find the most competitive market.

The high cost of living may allow you to charge higher prices for your products or services compared to other European markets.

Research Your Sector

Switzerland is home to thriving sectors such as technology, pharmaceuticals, biotechnology, and science.

Tech startups and businesses in the pharmaceutical sector can find ample opportunities.

Switzerland, particularly Zug, is known as “Crypto Valley” and a hub for blockchain and cryptocurrencies.

The financial sector, including fintech, is well-established with major banks like Credit Suisse and UBS operating in Switzerland.

Research the Markets

Establishing an online presence is essential for any new business, whether through social media or a dedicated website.

Selling products in Switzerland can be expedited by utilizing online marketplaces popular with Swiss consumers, such as Amazon, Ricardo, Tutti, eBay, and Anibis.

Research the market share of online marketplaces to determine the best platform for your target audience.

Select Your City

Switzerland’s diverse landscape and lifestyles across its 26 cantons offer various business opportunities.

Geneva is a global hub for international organizations, making it a great choice if international connections are vital to your business.

Zurich, with a thriving financial sector, offers a stunning setting with the nearby Alps and Lake Zurich.

Basel, situated near the borders of France and Germany, is ideal if you plan to do business in multiple countries and host international trade fairs.

The best location for your business in Switzerland will depend on costs, competition, target audience, and workforce.

It’s crucial to conduct thorough research and assess your business’s specific needs before planning.

Having said that, let us now have a look at the corporate taxes in Switzerland.

Corporate Taxes in Switzerland

All of this information is accurate and exact by the time of writing this article, i.e., 22 October 2023.

Corporate Residency in Switzerland

A company is recognized as a resident in Switzerland when its legal headquarters, or domicile, is located within Swiss borders.

Residency for corporate tax purposes can also be based on the place of effective management.

This typically refers to the location where day-to-day activities are coordinated and where managerial decisions are made.

Permanent Establishment (PE)

For Swiss tax regulations, a permanent establishment signifies a fixed business location.

Such a location is responsible for the operational activities of a company, which are wholly or partially conducted.

This includes but is not limited to:

  • Branches
  • Factories
  • Workshops
  • Sales agencies
  • Permanent representations
  • Mines
  • Natural resource extraction sites
  • Construction sites

Such locations should have been actively maintained for a minimum of 12 months to be considered a PE.

This definition is generally consistent with the criteria found in Article 5, paragraph 2, of the current OECD Model Tax Convention on Income and Capital.

Corporate Income Tax (CIT)

As of July 20, 2023, resident companies operating in Switzerland are liable to pay CIT on their profits generated within the country.

It should be duly noted that CIT is imposed at the federal, cantonal, and communal levels.

Profits originating from foreign permanent establishments (PEs) or real estate located abroad are not considered part of the Swiss tax base.

However, they are factored into the rate progression calculations in cantons that apply progressive tax rates.

Non-resident companies may become subject to Swiss CIT under various circumstances.

This includes:

  • Having a permanent establishment in Switzerland
  • Owning real estate in the country
  • Being partners in a Swiss business
  • Having loan receivables secured by Swiss real estate
  • Engaging in real estate transactions in Switzerland

Non-resident companies are taxed solely on income generated within Switzerland.

Foreign entities with branches in Switzerland are subject to limited taxation in Switzerland, typically classified as Pes.

This specific limited taxation is according to the OECD Model Tax Convention on Income and Capital.

The income of these branches is generally subject to the same CIT regulations that apply to Swiss corporations.

Switzerland does not impose withholding tax (WHT) on the transfer of profits from Swiss branches to their foreign head offices.

Federal Level Taxes

Switzerland imposes a direct federal CIT at a flat rate of 8.5% on profits after tax.

This CIT is tax-deductible and reduces the taxable income, resulting in an effective federal CIT rate of 7.83% (approx.) on profits before tax.

Corporate capital tax is not levied at the federal level in Switzerland.

Cantonal/Communal Level Taxes

In addition to federal CIT, each canton has its tax laws and imposes corporate income and capital taxes at varying rates.

Consequently, the tax burden on income and capital differs from one canton to another.

Some cantons apply progressive tax rates.

Overall Tax Rates

In general, the total approximate range of the maximum CIT rate on profits before tax falls between 11.9% and 21.0%.

This is an evaluation made while combining federal, cantonal, and communal taxes.

This range depends on the corporate residence location within a specific canton in Switzerland.

The Federal Act on Tax Reform and AHV Financing (TRAF) took effect on January 1, 2020.

This resulted in the abolishment of special cantonal tax regimes like those for:

  • Holding companies
  • Domicile companies
  • Mixed trading companies

Altogether, most cantons have either reduced or plan to reduce their CIT rates.

This has led to effective tax rates of approximately 12% to 15% in the majority of cantons.

These changes were accompanied by internationally accepted replacement measures such as an OECD-compliant patent box and a super deduction for research and development (R&D) expenses.

Corporate Taxes in Switzerland
Corporate Taxes in Switzerland | Photo: Canva

Value-Added Tax (VAT)

In Switzerland, sales and services are usually subject to VAT.

Standard rate: 7.7% (to increase to 8.1% on January 1, 2024).

Basic goods are taxed at 2.5% (to increase to 2.6% on January 1, 2024).

Lodging services have a special rate of 3.7% (to increase to 3.8% on January 1, 2024).

VAT applies to businesses (not exempt), regardless of form or profit motive.

Businesses liable for VAT independently conduct commercial activities with the aim of sustainable income.

They must voluntarily register with the Swiss Federal Tax Administration.

Registered taxpayers can offset VAT from suppliers or on imports against VAT liabilities.

Since January 1, 2018, more foreign companies have been subject to Swiss VAT, based on global turnover.

Since January 1, 2019, foreign-based mail-order companies face Swiss VAT if annual Swiss turnover exceeds CHF 100,000.

VAT rates vary by goods and services and some supplies are exempt with no input VAT recovery (e.g., hospital treatment, insurance).

Others are fully tax-exempt (e.g., goods directly transported abroad).

Customs Duties

All imports into Switzerland face customs duties and import VAT.

Customs duties are based on gross weight, with various rates for different products.

Products like alcohol, tobacco, food, and textiles have higher duty rates.

Import VAT was 7.7% since January 1, 2018 (to increase to 8.1% on January 1, 2024).

Certain goods at a 2.5% rate (to increase to 2.6% on January 1, 2024), including food, books, and pharmaceuticals.

Excise Taxes

Switzerland imposes various federal excise taxes:

  • VAT
  • Petroleum tax
  • Heavy Vehicle Fee
  • National road tax
  • Beer and alcohol taxes
  • Tobacco tax
  • Radio and television corporate fee

Property Taxes

Property taxes may apply to real estate in Switzerland and are levied at the cantonal and communal levels, or not at all, depending on the property’s location.

The sale of real estate may incur real estate transfer tax and capital gain taxes.

Federal level: Capital gains are subject to standard corporate income tax (CIT).

Cantonal and communal levels vary in taxing capital gains and Canton authorities determine real estate capital gains taxation.

Securities Transfer Tax

Swiss securities transfer tax is also known as securities turnover tax or transfer stamp tax.

It’s imposed on transferring Swiss or foreign securities involving Swiss security dealers.

Tax rate: 0.15% for Swiss residents, and 0.3% for foreign residents.

Swiss security dealers include professionals buying/selling securities for themselves or others.

Exemptions for certain transactions and securities.

Notable exception: Like-kind exchange of participation by Swiss security dealers.

Issuance Stamp Tax

The Issuance Stamp Tax applies to equity contributions to Swiss corporations.

Rate: 1% of the fair market value, with a CHF 1 million exemption.

Many reorganizations are tax-neutral.

Non-resident companies relocating to Switzerland may incur this tax and there is no tax on Swiss bonds and money market instruments.

Conversion of specific CoCos into equity doesn’t trigger this tax.

Capital Tax

Capital Tax is only applicable at cantonal and communal levels.

It is based on corporate equity, including nominal capital, surplus, retained earnings, and more.

Ordinary rates vary (0.001% to 0.5%) based on corporate location.

Cantons can adapt the capital tax base, especially for participation, patents, and loans.

CIT can be credited against capital tax in some cantons.

Wage Tax Withholding (Tax at Source)

The Wage Tax (WHT) applies to certain employees, including Swiss tax-resident foreign nationals without a permanent residence permit and non-Swiss tax-resident individuals.

Employers deduct wage tax from employees’ gross salaries.

Covers federal, cantonal, communal, and church taxes if applicable.

Social Security Contributions

Employers handle social security contributions.

The Swiss social security system includes:

  • Old-age, survivors, and disability insurance (10.6% in 2023, shared by employer and employee).
  • Unemployment insurance (2.2% on income up to CHF 148,200, employee pays half).
  • Family compensation fund (0.3% to 3.5%, mainly employer-funded).
  • Occupational accident insurance (about 0.17%, fully employer-funded).
  • Occupational pension scheme (2nd pillar) contributions vary; typically split between employee and employer.
Corporate Taxes in Switzerland
Corporate Taxes in Switzerland | Photo: Canva

Income Determination (Corporate)

Swiss company accounts (or branch accounts for non-resident companies) determine taxable income.

Few differences between statutory and taxable profit, except for participation relief, tax law adjustments, and the use of tax loss carry-forwards.

Inventory Valuation

Follows Swiss statutory accounting, typically valuing inventory according to the Swiss code of obligations.

Valuation allowance allowed for inventory exceeding its market value, up to one-third of acquisition or production costs.

Corporate taxpayers can choose inventory valuation methods.

Participation Relief

Percentage deduction from CIT for qualifying dividend income and capital gains from subsidiaries.

Not a full exemption, but a tax reduction mechanism, which is also known as ‘participation deduction’ or ‘participation exemption’.

This generally results in full or near-full exemption of participation income from CIT.

Mandatory at federal and cantonal/communal levels for dividend income, voluntary for capital gains (adopted by all cantons).

Dividends qualifying for participation relief: at least 10% of share capital or profits/reserves or at least CHF 1 million market value.

Dividend Income

Qualifying dividends for participation relief: at least 10% ownership or CHF 1 million market value.

No minimum holding period is required.

Capital Gains

Capital gains are entitled to participation relief if the participation was owned for at least one year.

Participation sold must consist of at least 10% of the subsidiary’s share capital or profits and reserves.

If a partial sale leaves residual participation under 10%, it requires CHF 1 million market value.

Capital gains are eligible for participation relief if the sale price exceeds the original investment costs (acquisition costs).

‘Recaptured depreciation’ is taxable.

Interest Income

Taxable income, regardless of payer (related party or third party).

Royalty Income

Taxable income is subject to ordinary CIT at federal, cantonal, and communal levels.

Patent box introduced at cantonal and communal levels from January 1, 2020, reducing CIT on qualifying patent license income.

Option for cantons to implement R&D super deduction.

Foreign Exchange Gains

Realized foreign exchange gains (transaction gains) are taxable.

Realized and, due to the prudence principle, unrealized transactional foreign exchange losses are tax-deductible.

Foreign gains or losses from translating financial statements from foreign to Swiss francs are not taxable.

Foreign Income

Swiss tax-resident corporations are taxed on worldwide income.

Income from foreign PEs and foreign real estate property is not taxed but may affect the applicable tax rate.

Taxable income comprises dividends, interest, and royalties from Swiss sources as well as foreign sources.

Relief is available for foreign dividend income for CIT at federal, cantonal, and communal levels.

Irrecoverable foreign WHT from most treaty countries can be credited against Swiss CIT.

No controlled foreign company (CFC) rules in Switzerland; undistributed income of foreign subsidiaries is typically not taxed in Switzerland.

Deductions (Corporate)

Swiss company accounts determine taxable income, and expenses must be accounted for to be tax-deductible.

Tax-deductible business expenses include economically justified ones.

Non-justifiable expenses, like excessive depreciation or payments to related parties, are added back to taxable income.

Depreciation and Amortisation

The Swiss Federal Tax Administration provides depreciation rates that are generally accepted for tax purposes.

Here’s a summary:

  • For commercial buildings:

Buildings alone can be depreciated at a 4% declining balance or 2% straight-line.

Buildings combined with land can be depreciated at a 3% declining balance or 1.5% straight-line.

  • For equipment:

Office furniture and equipment: 25% declining balance or 12.5% straight-line.

Computer hardware and software: 40% declining-balance or 20% straight-line.

Other assets, like motor vehicles and intangible assets: 40% declining balance or 20% straight-line.

Some Swiss cantons, such as Basel-City, Bern, Grisons, and Zurich, allow a more flexible approach.

They permit immediate write-downs of certain assets to as low as 20% or even zero in the first year for tax purposes.

However, these write-downs should not significantly reduce taxable income or result in a tax loss.

These immediate write-downs need to be recorded in the company’s official accounts and disclosed in tax returns.

Typically, both cantonal and federal tax authorities accept these immediate write-downs for corporate income tax purposes.

Goodwill

Goodwill can be capitalized and amortized over five years, except for acquired shares with inherent goodwill.

Startup Expenses

Start-up expenses are tax-deductible if recorded in the profit and loss statement for CIT.

Interest Expense

Interest paid to third parties is tax-deductible; interest paid to related parties should reflect market rates.

National Interest Deduction (NID)

Notional interest deduction (NID) is available in the canton of Zurich, based on equity and rates.

Bad Debt Provision

Bad debt provisions can be made for specific impaired receivables and general (up to 10% domestic, 20% foreign) provisions, often accepted for CIT.

Obsolete Inventory Provision

An obsolete inventory provision (up to one-third) is tax-accepted and must be recorded in statutory accounts.

Charitable Contributions

Charitable contributions (up to 20% of net profit) are deductible, subject to specific criteria.

Sponsoring contributions are deductible if commercially justified.

Royalties

Royalty payments are deductible if they align with arm’s length rates.

Employee Share Plans and Stock Option Plans

Costs of employee share and stock option plans are generally deductible for Swiss company employees.

Employee Training and Education

Costs for employee training and continuing education are generally tax-deductible when recognized as expenses in statutory books.

R&D super deduction of up to 50% can be granted for Swiss R&D personnel expenses and third-party contract R&D expenses.

Fines and Penalties

Fines and penalties with a punitive purpose are not tax-deductible, but some fines in the context of profit skimming may be.

Tax Expenses

Tax expenses, both income and capital taxes are tax-deductible, along with some indirect taxes.

Net Operating Losses

Net operating losses can be carried forward for up to seven years.

Payments to Foreign Affiliates

Payments to foreign affiliates are deductible if they align with arm’s length rates.

Tax Credits and Incentives

Corporate Taxes in Switzerland
Corporate Taxes in Switzerland | Photo: Canva

In Switzerland, corporate taxes can vary between 11.9% and 21.0%, depending on the location.

Cantons can offset corporate income tax against capital tax.

They introduced a patent box in 2020, reducing taxes on income from patents tied to R&D expenses.

Tax incentives like holidays are available for new businesses or expansions in many cantons.

There can be a credit for foreign taxes paid on dividends, interest, and royalties from foreign sources, aiming to reduce double taxation.

Specific rules apply under double tax treaties.

Withholding Tax (WHT)

Swiss withholding tax (WHT) rates vary for different types of income. For dividends, WHT can be 35%, but often lower due to treaties.

Interest from regular loans isn’t taxed, but it’s 35% for certain interest payments.

Various treaties provide reduced rates or exemptions for dividends, interest, and royalties.

This is particularly the case when they are paid to certain entities, including governments, central banks, or pension funds.

Regarding royalties and similar fees, there is no Swiss WHT when paid by Swiss individuals or corporations, as long as arm’s-length pricing is maintained.

WHT rates and conditions can vary depending on specific agreements.

Tax Period

The taxable period is the business year, matching the accounting period that can end on any date in a calendar year.

Tax Filing

Companies file annual tax returns for corporate income and capital taxes.

Exemptions are available for the first business year or if an extended business year is selected.

Filing deadlines vary among cantons, usually within six to nine months after the business year.

Initially, provisional assessments are given, followed by final assessments after a tax audit or declaration finalization.

Tax Payment

Unless installment payments are requested, income and capital taxes are paid when a demand is received based on a provisional or final assessment.

Some cantons have exceptions. For example, Zurich imposes late payment interest if taxes aren’t paid on time, irrespective of provisional bills.

Taxpayers often receive a provisional bill about a month before the due date, with an option for discounts on upfront payments.

Statute of Limitations

The right to assess corporate income and capital taxes typically expires five years after the tax period (relative statute of limitations).

In specific cases, a 15-year absolute statute of limitations may apply.

Closed tax periods can be reopened if there’s tax fraud or evasion, with a ten-year statute of limitations after the tax period ends.

Tax Authority Focus

Swiss tax authorities do not specify particular areas of focus. They start by reviewing filed tax returns and documents in their assessments.

Important Considerations

Reorganizations

Most corporate reorganizations in Switzerland can typically be carried out without adverse tax consequences (tax neutrality).

These generally comprise mergers, spin-offs, and cross-border transactions.

It’s advisable to seek advance tax rulings for such reorganizations, and certain aspects may require information exchange.

Foreign Account Tax Compliance Act (FATCA)

In 2013, Switzerland and the US signed a FATCA agreement that streamlined the implementation of US FATCA rules in Swiss financial institutions.

This agreement became effective on June 2, 2014.

It ensures that US account holders’ information is shared with US tax authorities through consent or standard administrative channels (no automatic information exchange).

Base Erosion and Profit Shifting (BEPS)

Switzerland is incorporating BEPS measures into its tax laws, including country-by-country reporting (CbC) and the Multilateral Instrument (MLI).

CbC reporting obliges large Swiss-based multinationals to prepare reports and exchange them with partner states.

The MLI includes a principal purpose test, allowing treaty benefits to be denied in abusive arrangements.

Switzerland is also adopting a minimum tax rate in line with the OECD’s agreement.

Automatic Information Exchange

Switzerland has shifted to automatic information exchange, with agreements covering numerous partner states, including EU members and OECD countries.

Spontaneous Information Exchange

Switzerland’s international administrative assistance rules outline spontaneous information exchange.

This exchange pertains to certain advance tax rulings, such as those related to preferential tax regimes, transfer pricing, and permanent establishments.

The information is shared with foreign tax authorities within three months.

Bottom Line

This extensive tax guide is extremely helpful for people who wish to start a business in Switzerland.

Note that the information can be helpful to both expats and residents alike.

I strongly hope that the data helped find the specific details you have been searching for.

If you are an expat looking to find top-notch wealth management services, you can benefit from my services.

Not only expats, but I also provide investment solutions to high-net-worth individuals and have helped several clients in the past.

Feel free to get back to me to determine whether you can benefit from my best-in-class financial solutions.

Pained by financial indecision? Want to invest with Adam?

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Corporate Taxes in Switzerland 5

Adam is an internationally recognised author on financial matters, with over 735.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

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Corporate Taxes in Switzerland

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