Switzerland provides an ideal business location for multinational companies (MNCs). The main advantages include a central location in Europe for logistics and distribution, a stable fiscal and political environment, a highly developed infrastructure, a good quality of life, highly skilled workforce, an attractive corporate taxation system, business-friendly government policies and focus on innovation and investments in the research and development field.
The reason why Switzerland provides a favorable business environment for MNCs is the fact that these companies, in return, make major contributions to the Swiss economy. More than 30% of the GDP created in Switzerland between 2000 and 2010 came from new or expanding MNCs. These types of companies create every second job opening in Switzerland, which is why they play an important role in the local labor market. Also, more than a half of the investments made in the R&D sector in Switzerland come from multinational corporations.
Corporate taxes in Switzerland
Internationally, Switzerland is struggling to attract multinational companies with countries such as Ireland, the Netherlands, UK and Germany. The relaxed fiscal policy is the most important advantage of Switzerland, but the highly developed academic sector, the efficiency of the public sector and the greatly appreciated legislation in the field of intellectual property rights is also worth taking into account as incentives.
The federal corporate tax rate in Switzerland is only 8.5% and the national average tax after adding taxes levied by local and municipal governments, is 21.2%, compared to 30% in Germany and 25.5 % in Netherlands.
The effective corporate tax rate in the Swiss cantons ranges from 24.2% in Geneva to 16.3% in Zug, 16% in Schaffhausen and 12.7% in Obwalden.
Most multinational companies choose to conduct their business activities in Switzerland through holdings. Many Swiss cantons offer provide permanent tax benefits for Swiss holding companies, particularly in Zug, Glarus or Fribourg. In order for a company to qualify as a holding, it is necessary that the investments made in foreign companies represent at least 2/3 of the total assets or revenues.
The most important benefits of establishing a holding company in Switzerland include the following:
- 7.8% tax rate for corporate income tax on capital and corporate officer tax that varies between 0.35% and 0.07% of the capital.
- The standard tax rate for the source in Switzerland is currently at 35%, however it is possible to reduce it to as little as 15% or 5%, depending on the regulations of several double taxation treaties that are in order.
- Dividends received by subsidiaries from the Swiss holding company are taxed at a standard tax rate of 15%. Switzerland has signed an agreement with the EU, so that dividends paid by a subsidiary of a Swiss holding company are not liable for taxation under certain conditions. This means that Switzerland may be able to receive dividends from EU countries, without having to pay a withholding tax.
A Swiss holding company must have at least 20% or 2 million CHF of the share capital of other foreign companies, which allows it to pay a reduced tax on the received dividends. The tax reduction is based on the relationship between the dividend income and the gross profit. The deduction on equity is based is guaranteed on federal and cantonal level. Thus, there are only a few federal taxes levied on Swiss holding companies.
Swiss cantons also exempt Swiss holding companies from all taxes on income, creating a privileged taxation system. Therefore, the holding company is not dependent on deductions on capital investment. All dividends and profits from the sale of the same and interest income are exempted from tax.
Considering all these advantages, Switzerland is one of the top worldwide locations for MNCs, regardless if they choose to establish holding companies in the country or if they simply establish their headquarters in Switzerland. Even though Switzerland has become more compliant with the EU regulations regarding corporate taxation, it is still offering a very business –friendly environment for foreign investors, entrepreneurs, corporations and small to medium-sized businesses.