Switzerland Companies

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General Introductory and Offshore Tax Information

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.

Switzerland Offshore Business Entities:

  • Switzerland Stock Corporation
  • Switzerland Limited Liability Company (LLC)
  • Switzerland Limited Partnership for Collective Investment
  • Switzerland Ordinary Partnership
  • Switzerland Branch
  • Switzerland Joint Venture
  • Switzerland Sole Proprietorship and General Partnership

Switzerland Stock Corporation

(Aktiengesellschaft (AG) or Société Anonyme (SA)

Main Features:

  • Comparable to the UK Public Limited Company (PLC) and the US Corporation
  • Independent legal entity which is distinct from its members
  • Swiss stock corporations are also joint stock companies or corporations limited by shares
  • Usually incorporated by Swiss foreign companies for their subsidiaries in Switzerland
  • Controlled and managed by a board of directors
  • At least one director required to be resident in Switzerland
  • Minimum of one member
  • A person can be a member without holding shares
  • Minimum of 20% of the authorized capital must be paid
  • A member can be director irrespective of nationality or country of residence

Switzerland Holding Stock Company

  • The holding stock company is often used by foreign investors with permanent foreign company establishments registered in Switzerland
  • Main function is to manage and hold long-term equity investments in affiliated companies
  • Must first be assessed according to income and alternative asset
  • Assessing a Switzerland holding includes ensuring that a company’s assets comprise a significant number of participations or shareholdings, or that no less than two-thirds of all income is be made up of income earned from capital gains or dividends obtained from these shareholdings and participations
  • Enjoys special cantonal and federal tax reductions
  • The net worth tax, for example, receives a cantonal reduction
  • Holding stock companies are generally considered as such if a minimum of 51 to 66% of its earnings derive from dividends remitted by the subsidiary or if 51 to 66% are held through participating shareholding of the subsidiary
  • Companies are classified as holding stock company at the federal level if the market value of the shares it holds in a another company (participating shareholding) is worth a minimum of 2 million Swiss Francs or if its holds at least 20% of another company’s share capital

Switzerland Mixed Trading Company

  • Usually identified under a different name depending on canton
  • Permitted to undertake only limited commercial business ventures in Switzerland
  • No less than 80% of income must be earned from outside Switzerland
  • Most cantons also require that no less than 80% of operating costs be incurred outside of Switzerland
  • No more than 20% of income must be derived from Switzerland sources
  • This Switzerland company has a combination of features deriving from the domiciliary and holding stock company

Switzerland Domiciliary Stock Company

  • Mostly used for savings in corporate income tax and capital gains tax
  • Non-resident companies administered abroad and owned by foreign nationals
  • Must have a registered office in Switzerland
  • Carries out all business outside of Switzerland
  • All income are foreign sourced

Switzerland Auxiliary Stock Company

  • Different to the domiciliary company which is non-resident an auxiliary company has physical presence in Switzerland
  • The majority of income generated must be earned from outside Switzerland
  • May carry out some of its business in Switzerland
  • May establish offices in Switzerland and employ staff

Switzerland Service Company

  • Has the main objective of serving foreign companies
  • Such status is acquired through an advance cantonal tax ruling
  • Principal activities include providing management, financial, publicity, technical, administrative and marketing services to foreign companies belonging to a group of which the service company forms part
  • Income must not be generated from companies outside of the service company’s group

Switzerland Limited Liability Company (LLC)

(Gesellschaft mit beschränkter Haftung(GmbH), Société à Reponsabilte Limitée (Sàrl))

Main Features:

  • Law- GmbH Act, 2008
  • Independent legal entity which is distinct from its members
  • Switzerland GmbH represents an ideal alternative to the stock corporation (AG)
  • Requires only one member to be incorporated
  • The beneficial owner(s) of the Switzerland GmbH can be a natural or legal person (individual or business entity)
  • Authorized capital must be stated prior to incorporation; must be fully paid-in and not lower than CHF20,000
  • Shareholders of a Switzerland GmbH each hold at least one nominal share with a nominal value of no less than CHF100
  • No board of directors; but at least one director is required to be a Switzerland resident
  • Shareholders are able to transfer shares through writing
  • Less stringent auditing requirements according to company’s size
  • Particulars of shareholders are disclosed to the public

Switzerland Limited Partnership for Collective Investments

(Kommanditgesellschaft für kollektive Kapitalanlangen (KkK)

Main Features:

  • Law- Collective Investment Schemes Act (legislated at the federal level)
  • A Switzerland LLP is to be used strictly by qualified investors
  • Unlike ordinary partnerships whose general partners can only be natural persons, the general partner of a Switzerland LLP must be a legal entity (corporation)

Switzerland Ordinary Partnership

Main Features:

  • Swiss ordinary partnerships are the same as ordinary partnership found in most common Law countries
  • Formed on the basis of an agreement by two or more persons to pursue common commercial interests
  • Partners are jointly and severally for all liabilities and obligations
  • The particulars of the members of a Swiss ordinary partnership are not publicly disclosed

Switzerland Branch

Main Features:

  • All branches of both foreign and Swiss companies must be registered in the commercial registers of the canton(s) in which they operate
  • Created in fact but does not constitute a distinct legal entity from its owner
  • Legally dependent on head office but usually financially independent
  • No requirement to publish annual financial statements
  • Subject to the same taxation, licensing and accounting procedures required for all Switzerland companies
  • Branches belonging to foreign corporations are considered resident companies and are therefore taxed on income earned locally at the cantonal and federal levels
  • Required to appoint a Swiss resident as local representative

Switzerland Joint Venture

Main Features:

  • Special type of unincorporated partnership for the purpose of undertaking a joint investment
  • Usually formed by newly incorporated Switzerland foreign companies wishing to do business with a Swiss partner; having a Swiss partner is a basic requirement
  • Swiss joint ventures can be undertaken by ordinary partnerships for small, short-term projects

Switzerland Sole Proprietorship and General Partnership

Main Features:

  • Usually operated and managed by a single individual
  • Owner has unlimited liability
  • Required to be registered if annual income is in excess of CHF100,000 (tax threshold, as explained above)
  • May easily be converted into a regular Swiss company
  • Switzerland sole proprietorships are transformed into general partnerships of the ‘single’ owner is joined by one or more individuals
  • General partnerships have unlimited liability and therefore are not distinct legal entities separate from their owners
  • Switzerland general partnerships are required to be registered
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