An in-depth look at the Swiss corporate tax rate

The corporate tax rate is collected in Switzerland from companies, based on their net income obtained from business activities during a fiscal year. Revenues from the corporate tax rate are an important source of income for the Swiss government, therefore the taxation system is designed in order to create tax advantages and incentives for foreign companies that choose to have business activities in the country, open company branches or establish their headquarters here.

The Switzerland corporate tax rate is levied at federal, cantonal and communal level. Income from foreign sources is attributable to foreign permanent establishments and income from real estate property located abroad is excluded from Swiss taxation. This type of income is taken into account only for rate progression purposes in cantons where progressive tax rates are applied.

Non – resident companies may be a subject to Switzerland corporate tax rate if they have partnerships with Swiss companies, if they have a permanent establishment in the country, own real estate in Switzerland or deal with and act as brokers for Swiss real estate properties. These companies are taxed only on the income that is generated in Switzerland.

Switzerland corporate tax rate at federal level

Corporate tax is levied on federal level at a flat rate of 8.5% on profit after tax. Corporate income tax is deductible for tax purposes and it reduces the applicable tax base, resulting in a tax rate on profit before tax of 7.8%. No corporate capital tax is levied at federal level.

Switzerland corporate tax rate at cantonal level

In addition to the direct federal corporate tax, each Swiss canton has its own tax legislation and levies cantonal and communal income and capital taxes, at different rates. This is one of the reasons why it is important for entrepreneurs and legal entities to carefully analyze which Swiss cantons have the lowest tax rates for company formation in Switzerland. The tax burden of income and capital varies from canton to canton. Some Swiss cantons impose progressive tax rates on cantonal and communal level.

Overall corporate tax rates in Switzerland

As a general rule, the overall approximate maximum corporate tax rate before tax for federal, cantonal and communal taxes varies between 11.5% and 24.2%, depending where the respective company has its corporate residence in Switzerland.

Tax advantages for companies in Switzerland

For certain companies, it is possible to benefit from a special tax status in Switzerland.

Swiss holding companies benefit from full exemption on income tax on cantonal and communal level. Income tax is levied only at federal level, at an effective tax rate of 7.8%. Capital tax levied on cantonal and communal level is also reduced. In order to benefit from the special tax status, holding companies must hold and manage long-term investments in related companies, have no or minor commercial activities and two thirds of the company’s assets need to consist of qualifying shareholdings or two thirds of the company’s income must derive from dividends from qualifying companies.

Mixed companies must conduct the majority of their activities abroad. Minimum 80% of the incomes must be derived from outside of Switzerland and minimum 80% of the company’s expenses must be generated abroad. Following these requirements, only part of the foreign income is a subject to taxation on cantonal and communal level. The overall income tax rate varies between 8.5% and 10.5%, depending on the canton of domicile. Reduced tax on equity is also applicable.

Principal companies may benefit from tax advantages if they centralize the functions and risks within a group and perform business activities such as contracting manufacturing and limited risk distributors or agents. At least 90% of the company’s income must be derived from the sale of Swiss Principal products and the income margin achieved and calculated on the profit or on the total costs must not exceed 3%. Principal companies must also have sufficient personnel to carry out the main functions of the company.  Depending on the business activities performed and on the international income allocation key, the overall income tax rate applicable for the company’s headquarters in Switzerland varies between 5% and 8%.

Tax incentives in Switzerland

Newly formed companies can benefit from important tax incentives, most importantly from a tax holiday of up to 10 years. Other important tax incentives are financing or subsidies that are granted under certain conditions. For a company to qualify for tax incentives, it must serve an economic interest of the Swiss region where it is located and create new jobs for local residents.

Holding companies are provided with limited priviledges, the tax legislation in some Swiss cantons provides privileged taxation for certain corporations, depending on their activity. Holding companies are exempted from cantonal income tax and they pay a reduced rate of capital tax. At federal level, based on the income from significant investments in other companies, it is possible to claim a tax reduction, known as participation deduction.
Investment companies are granted a tax reduction at cantonal level for significant investments in other companies, similar to the participation deduction.
Management companies are fully taxed for revenues generated from Swiss sources, however the income from foreign sources is proportionally taxed depending on the extent of the activities. Income from investments in other companies is exempted from tax levy.
Mixed companies are taxed according to various regulations. The taxable net profit of a mixed company is assessed in accordance with divisional calculation. A certain sum consisting of management costs and taxes may be allocated as a deduction. Income derived from outside Switzerland is taxed on a scale calculated in accordance with the number of fulltime employees in Switzerland.
Principal companies can claim a deduction at the level of direct federal tax for business conducted outside Switzerland, such as trading transactions with foreign subsidiaries and sister companies or allocation of manufacturing orders to such foreign companies.
Withholding tax
The distribution of a corporation’s profits is subject to the Swiss Confederation withholding tax. This tax is levied at the source of the generated profits and is currently at the rate of 35%. A refund is possible, depending on the tax treaty between Switzerland and the country of residence.
In the case of a Swiss company and a Swiss subsidiary, the company that is paying out a cash dividend may choose between delivering up the withholding tax or applying the notification procedure.
Value added tax
The supply of goods and services within the territory of Switzerland gives rise to the Value Added Tax which is levied on gross sales. Export and services rendered abroad are exempted from VAT. Any legal entity which carries on a business is required to comply with the payment of VAT . Any entity which generates turn – over from taxable supplies of less than 100,000 CHF within a year is exempted from the liability of VAT. The normal VAT rate is 8% which is significantly  lower in comparison to other EU countries. Certain goods and services are rated at a mouth watering 2.5% of their gross turn over.
For more details and assistance regarding taxes in Switzerland, you can reach out to our expert consultants. Our highly experienced and well-informed team is ready to answer all your questions and give you all the help you might need.



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