Switzerland has a unique position within Europe and one of the world’s most stable economies based on finance, banking, technology and commodities. Bordering Austria, France, Germany, Italy and Liechtenstein, Switzerland has a long and strong tradition of political and military neutrality.
What does Switzerland Offer as a Location for a Company or an Individual?
There are a number of reasons why Switzerland is an excellent base for companies and individuals:
- Located in the centre of Europe.
- One of the most economically and politically stable countries in the European geographic region.
- Over 100 Double Taxation Agreements.
- A lengthy history and expertise in finance and business.
- High labour specialisation and very good working conditions.
- One of the top “quality of life” countries in the world.
- English is spoken in all of the major cities of Switzerland in addition to the four national languages: French, German, Italian and Romansh.
Who does Switzerland Appeal to Internationally?
In terms of companies, Switzerland is home to many international headquarter companies and substantial trading companies.
Switzerland is also host to many family offices and offers an attractive tax regime to individuals seeking to redomicile geographically within central Europe without necessarily being in the EU.
This article contains a summary of the tax position of Swiss companies. It is not intended to detail Swiss corporate tax law in detail and it should be noted that tax is levied at federal, cantonal and communal levels.
The tax advantages available to companies include:
- An effective tax rate for pure holding companies of 0% when clearly defined conditions are met.
- The effective tax rate for international trading companies administered in Switzerland, but whose business is conducted abroad, varies from 8% to 12%.
- The effective tax rate for local, ordinarily taxed, companies varies between 12% and 24.5%
- Tax rulings are available.
- There are no Controlled Foreign Company Rules.
a) Taxation of Savings and Income Agreement
The Taxation of Savings and Income Agreement between Switzerland and the EU generally exempts dividend distributions from Swiss companies to companies in EU member states from tax. The Swiss company can file a request for confirmation that the zero tax will apply.
b) Double Taxation Agreements (DTAs)
The rate of Swiss withholding tax is 35%. Switzerland, however, has DTAs with over 100 countries, which, in many instances, reduces the withholding tax to between 5% and 15%.
Particularly Attractive DTAs
The following Swiss DTAs are particularly attractive:
- Malta: 0% on dividends and 0% on substantial holdings.
- Austria, Denmark, Finland, France, Germany, Hungary, Netherlands, Norway, Spain, Sweden and the UK: 0% on substantial holdings and 0% on interest.
In general a substantial holding is defined as the recipient company owning at least 25% of the capital of the Swiss company. However, the precise percent varies depending on the DTA and should always be checked.
c) Royalites and interest
There is no withholding tax on royalties and interest on inter company loans.
Planned Future Changes to the Swiss Corporate Tax Regime
Switzerland is currently proposing extensive corporate tax reforms to maintain and further develop Switzerland’s position as one of the most attractive business locations in the world.
Various measures to replace a number of the “special” tax regimes are to be introduced.
- Introduction of a patent box regime for income arising from the exploitation and use of intellectual property.
- General lowering of cantonal income tax rates.
- Introduction of a notional interest deduction on equity.
The new legislation could be in force by January 2017 and would then be implemented into cantonal law by January 2019 at the earliest, if no referendum takes place.
In the meantime the current tax system, outlined in this Article, remains fully in place.
Use of a Swiss Company as a Trustee
A Swiss company can act as Trustee of a Trust formed under the law of another jurisdiction.
The Trust is not subject to taxation in Switzerland. The Settlor and Beneficiaries are not subject to taxation as long as they are not resident in Switzerland.
The Lump Sum System of Taxation for Individuals Moving to Switzerland
The key features of the Swiss Lump Sum System of Taxation are:
- Applies to individuals taking up residence in Switzerland for the first time or returning to Switzerland after an absence of at least ten years. They must not engage in any gainful activity in Switzerland.
- Income and wealth taxes are levied based on the taxpayers’ living expenses in Switzerland, rather than on their worldwide income and assets.
- For federal tax purposes, a taxpayer's living expenses are assessed at least seven times the annual rental cost or the deemed annual rental income of the taxpayer's dwelling in Switzerland. In Geneva the minimum acceptable taxable income is CHF 300,000.
Please note that the Lump Sum System of Taxation is not available in three of the 26 Swiss cantons.
If you require any additional information regarding the jurisdiction of Switzerland, please speak to Christine Breitler in our Swiss office: email@example.com or to your usual Dixcart contact.