Taxes in Switzerland
Principles of taxation
The Swiss tax system is characterized by three levels of direct taxation: direct federal tax, cantonal and municipal taxes. The tax legislations differ from canton to canton. Even though a tax-harmonization law came into force on the 1.1.2001, the law did not aim to make every canton adopt the same legislation. Hence, the setting of tax rates and tariffs remains under the authority of each canton. The corporations doing business in the canton of Switzerland are able to enjoy very attractive location benefits. switzerland does not only offer law rates of taxation but another decisive advantage is the uncomplicated, unbureaucratic communication between the cantonal tax authorities and the tax-payers.
The federal structure in Switzerland results in the taxation of companies and individuals on three levels:
- national (federal tax)
- cantons (cantonal tax)
- local (municipal tax)
The majority of taxes are levied by the cantons and municipalities, which results in increased competition among them. Due to the fact that the rates of taxation need to be approved by the people (tax payers) by direct democratic vote, the danger that the taxes are as low as possible is very high. The company location and the place of economic activity are key to the place of taxation.
Low corporate taxes
Compared to international standards the taxes are very low. The rates for companies vary depending on the canton, but the federal tax is uniform. For enterprises in the canton Schwyz or Zug taxes are among the lowest.
The equity, share capital, original stock and capital, of the company presents the basis for capital taxes. The capital tax rate equals 0.01% of the taxable equity, but a minimum of CHF 250.-, multiplied by the cantonal and communal multiplier.
The distribution of corporation profits is subject to the Swiss Confederation´s withholding tax, at a rate of 35%. This tax is levied at source and a refund depends on the presence of a double taxation treaty between Switzerland and the respective country of residence.
Value-added tax (VAT)
The supply of goods and services within Switzerland is subject to value-added tax (VAT), levied on gross sales. The VAT liability begins if the domestic gross sales exceed CHF 75,000.- per year. The rate is 7.6%, for particular goods only 2.4%. The turnover resulting from the supply of goods and services overseas is freed from the VAT.
Double taxation treaties (DTT)
Switzerland has signed double taxation treaties with a variety of industrialized countries in order to avoid a duplication of taxes.
The DTTs cover the following aspects:
- exemption of profits from branches in the partner-nation
- reclaiming of source taxes
- taxation of royalties and license fees
- Tax relief for companies
- Holding companies
Holding companies are corporations which do not conduct business in Switzerland but are concerned with the ongoing management of investments in other companies. These assets must represent at least 2/3rds of the entire assets. These companies are excluded from the cantonal income tax and pay a reduced rate of tax on capital. A tax reduction (participation deduction) may be claimed at a federal tax level.
Similarly to the federal level, a tax reduction is granted at a cantonal level for considerable investments in third companies.
Management companies are either domicile or mixed companies. Domicile companies only have their business seat in the canton, but do not conduct business in Switzerland.
Mixed companies, on the other hand, are corporations of foreign companies who primarily do business abroad. The business activity has to be performed mainly outside of Switzerland, at least 80% of sales, i.e.
Income tax is charged on the taxable net profit of a mixed company. Taxable are:
- Investment income (interest, dividends, capital gains) domestically
- Income from intangible rights (licenses, trademarks) in Switzerland (up to 20%)
- Trading income domestically (up to 20%)
- Double Taxation Treaty protected income (interest, royalties) taxable in Switzerland
- Income from real estate in Switzerland (hypothetical rental value)
Net proceeds of specific participations (according to Section 67 of the tax law) are tax free.