Switzerland does not have an official offshore regime per se, but legally allows companies to operate onshore as resident companies or non-resident (offshore) companies and as international business companies which operate from within Switzerland. No specific fiscal regime is established for Swiss offshore companies which can take diverse forms and structures due to Switzerland’s elaborate business climate, though there are standard taxes and rates.
The fiscal regime for Switzerland companies may seem intricate in that taxes are levied at both the cantonal and federal levels, with the exception of certain taxes which constitutionally can only be imposed by the federal government. This system exists due to the fact that Switzerland’s fiscal regime was designed in response to Switzerland’s federal structure which comprises 26 cantons, representing around 2,650 independent municipalities.
Studies conducted by the Independent Market Research Institute and Ernst and Young’s European Investment Monitor in 2009, revealed that the importance of the Swiss fiscal regime was no longer a dominating factor for investing and setting up companies in Switzerland. But rather, political and legal stability, purchasing power, availability and quality of R&D, transport and logistics infrastructure, and quality of life in Switzerland were much more appealing than the country’s fiscal system. Meanwhile, banking continues to be an important factor in Swiss economy and proven to be pivotal in maintaining the country’s positioning as an international hub for investors.
But over the years, a series of reforms were implemented in order to create a more uniform structure for tax laws at the cantonal level which varied in fundamental areas such as procedures for assessing taxes and what constitutes taxable income and deductions. Given, however, that cantons still exercise a large degree of autonomy in setting tax rates, the tax burden varies from one canton to the other and between cantons and communes.
As a corollary of the foregoing, two main special tax regimes are currently in force in all cantons for holding and mixed trading companies; two types of Switzerland offshore companies frequently used by foreign investors. As such, Switzerland Holding Companies are not subject to cantonal income tax but are liable to income tax on real estate which is levied after subtracting mortgage expenses, whilst cantonal capital tax is set at reduced rates of 0.12% such as in Canton Zug and 0.07% in Canton Zurich. At the federal level, these privileges are not available to Swiss Holding Companies and as a result, tax is levied at 7.83% before any tax exemptions are applied to dividends and capital gains which qualify for tax relief.
On the other hand, Switzerland Mixed Trading Companies may request preferential tax treatment if capital gains, income, revaluation gains and dividends qualify for tax exemption, or, if revenue generated within Switzerland is taxed at the regular rate. Also, Mixed Trading Companies qualify to operate under the special tax regime for a portion of the revenue generated outside Switzerland. Such revenue is subject to cantonal taxes based on the amount of business conducted in Switzerland with respect to the 80/20 offshore/onshore ratio requirement (explained below), and on whether expenses incurred, such as a certain losses, qualify for tax deduction.
Switzerland taxes are applied on individuals, corporate entities and associations for gainful activity which generate over CHF 100,000 annually. Consequently, legal and natural persons earning less than CHF 100,000 are not liable to Swiss tax. For local Swiss parent companies and their establishments, tax is applied ‘singly’, i.e., as if everything were a single entity, whereas Swiss foreign parent companies along with their local entities are taxed as separate corporate bodies. However, tax is assessed and imposed on these companies in the same manner as local Swiss companies. There are no Controlled Foreign Corporation (CFC) rules in Switzerland and consequently, revenue earned by foreign subsidiaries is not liable to any Switzerland tax prior to being distributed.
Non-resident Switzerland companies which provide their goods and services to or within Switzerland or with revenue in excess of CFF 100,000 are required to meet the necessary VAT obligations and to designate a licensed VAT representative in Switzerland. As an incentive, non-resident companies that wish be tax exempt are able to directly lay a claim for input VAT deduction. Similarly, if a Swiss offshore company (non-resident entity) conducts business exclusively outside Switzerland, VAT is not applicable. If for any reason a Swiss non-resident company engages in any activity subject to Switzerland tax, an application can be submitted for a VAT refund if tax was paid in Switzerland and if the jurisdiction in which the Swiss offshore company operates offers the same privilege to Swiss businessmen (such as in a DTA).
In Switzerland, corporate laws define and regulate the use and structure of unincorporated and incorporated corporate forms. Unincorporated Swiss onshore and offshore business entities include sole proprietorships, limited and general partnership, whilst incorporated companies have a capital base and include limited liability companies (GmbH) and stock corporations (AG). Legislation was recently passed to introduce the limited partnership for collective investment or KkK, which is comparable to the limited liability partnership (LLP) incorporated in most Common Law countries. Swiss law allows a variety of GmbH (incl. holding stock company, domiciliary stock company, mixed trading company) and AG corporate forms to be used so as to better cater to an increasingly sophisticated business environment. Stock corporations and limited liability companies are the most frequently used Swiss business entities for domestic and offshore commercial activity.
(Aktiengesellschaft (AG) or Société Anonyme (SA)
(Gesellschaft mit beschränkter Haftung(GmbH), Société à Reponsabilte Limitée (Sàrl))
(Kommanditgesellschaft für kollektive Kapitalanlangen (KkK)
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