Switzerland is one of the global leaders in terms of innovation, economic freedom (ease in trading, moving and acquiring resources, owning property), secondary and university education, disposable income, average salaries, watches and chocolates. It is one of the countries with the highest gross domestic product per capita in the world. The country has a competitive and vibrant business environment. It is one of the countries in Europe that levies the lowest level of corporate income tax which makes it attractive to those who are looking to start a business or expand their business to cater to the European market. If you are planning to incorporate a business in Switzerland, this is all you need to know about the tax scenario.
Different types of taxes in Switzerland and its advantages
At the national level a direct federal corporate income tax at the rate of 8.5% is levied.
Advantages of federal tax
- In case of a corporation or a limited liability company, the federal tax is reduced by 40% on the taxable dividend amount of the shareholder.
- The net effective federal corporate income tax comes down to 7.83% as it is levied on after-tax profits.
The cantonal tax (state level) rates vary from canton to canton in Switzerland. Most of the cantons have reduced their tax rates since 2007 to improve their attractiveness as business locations.
Advantages of cantonal tax
- Some cantons provide tax relief to new businesses that create at least 30 permanent jobs for Swiss people within their first five years of incorporation.
- Cantons provide tax deductions for entertainment and travel of business clients.
- A pure holding company (one that holds and manages participation in other companies, must not be engaged in commercial activity in Switzerland, and two-thirds of the company1s total income must be a part of participation income) is exempt from cantonal corporate income tax.
- Profitable corporations do not owe annual equity taxes at the cantonal level as the cantons are allowed to credit annual equity tax against corporate income tax.
- Most of the cantons reduce the cantonal tax rate by 40% or more on the taxable dividend amount of the shareholder for corporations and limited liability companies whereas some cantons provide other tax relief.
- A Domiciliary Company (a company that has a registered office in Switzerland but is managed as well as controlled from abroad) enjoys special tax reduction from cantonal authorities as the corporate income tax imposed on income and capital gains is almost 15% less than the regular cantonal taxation of income for other types of companies.
- A Mixed company (similar to a domiciliary company and a holding company but is classified as neither; 80% of its income comes from abroad, a registered office with no staff in Switzerland, foreign controlled and managed from abroad) enjoys exceptional tax privileges from cantonal authorities. The income and capital of such a company is taxed at reduced rates which vary from 0% to 11%.
- A Service company (a company that is a member of a group of companies and provides assistance to these in matters such as marketing, technical, administrative and scientific) receives tax relief on corporate income tax from cantonal authorities depending upon the international orientation of the services.
At the municipal level, the authorities are allowed to set their own communal tax rates following certain defined parameters but they generally follow the cantonal tax laws.
Advantages of communal tax
- A service company enjoys tax relief on corporate income tax from communal authorities.
- In case of newly established companies,significant tax relief for up to ten years is allowed by many communal authorities.
All the above-mentioned benefits make Switzerland sound like a haven for people who are looking to start a new business or expand their business to new territories. We at Business Setup Worldwide are here to help you in your venture by providing an extensive range of services such as company registration, corporate secretarial services, accounting and bookkeeping services, intellectual property services, tax services and visa services. Our experts with extensive experience are here to help you. For more information and queries you may contact us- we’d be glad to assist.