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Taxation of Swiss mixed companies

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The term "mixed company" refers rather to a classification than a legal definition for a Swiss company, as mixed companies are types of companies that can have several business structures, such as AG, GmbH, or they can even be branch offices for foreign companies. However, the main condition for a company to qualify as a mixed company is to have its business activity primarily based outside of Switzerland.  Any business activity conducted in Switzerland is of secondary nature.

Swiss mixed companies may have their own offices and employees. A company director that is also a Swiss resident and a contract with a firm that provided fiduciary services is often used to provide a local contact point for authorities, business partners or clients whenever employing full time staff is not necessary and not viable from an economic point of view.

Swiss mixed companies are used for various business purposes and operations, but mainly for the following:

  • Purchase and sale of goods that are passed only abroad;
  • Account management – especially providing financial services such as financing activities, cash management, purchases and invoices;
  • Intellectual property management – trademarks, licenses, patents;
  • Administrative functions for international group firms or for divisional headquarters;
  • Marketing and sales.

Most Swiss cantons grant special tax privileges to mixed companies. The income tax and the capital tax are usually reduced. Nevertheless, federal taxes are applied at normal rates. For example, the federal income tax rate is 8.5%. The tax privileges granted to mixed companies are significant, for example in the canton of Zug, mixed companies pay between 0% and 7% in cantonal taxes. The overall tax rate can go up to 11%, depending on the amount of net profits made.

Qualifying conditions for Swiss mixed companies

A company can qualify as mixed company for taxation purposes under the following conditions:

  • The main business activity must be performed outside of Switzerland, which means that at least 80% of sales and purchases must take place abroad. Purchases can be made in Switzerland under exceptional circumstances if the payment is made on arm’s length basis.
  • Mixed companies are not allowed to have production or manufacturing activities in Switzerland.

Tax basis for Swiss mixed companies

The taxable net profit of a mixed company is assessed on the basis of divisional calculation.

Investment income from domestic sources, fiduciary businesses, commissions, income on intangible rights, trading income from Switzerland, income from real estate in Switzerland and double taxation avoidance treaty protected income is all taxed at ordinary rates in Switzerland.

Costs incurred in relation to specific income are allocated or in cases where this option is not available, a lump-sum deduction is granted for taxes and management costs.

Income that is derived abroad is taxed in Switzerland based on a taxable scale, in accordance with the number of full time employees of the Swiss-based company at the end of the business year, as follows:

  • For companies with less than 6 employees the taxable scale is 10%;
  • For companies with 6 to 10 employees the taxable scale is 15%;
  • For companies with 10 to 30 employees the taxable scale is 20%;
  • For companies with more than 30 employees the taxable scale is 25%.

If a shareholder with decisive influence is a Swiss resident, the tax scale is increased by 10%, but the scale can’t exceed 25%. The income derived outside of Switzerland will be taxed at 10%, if it exceeds 200 million CHF annually, regardless of the number of employees or if there is Swiss resident shareholder with decisive influence.

Net proceeds out of specific participations such as dividends and capital gains after losses and deductions on the participations are exempt from taxes. Net losses from participations can be set off only against income from participations.

Even if the special treatment of mixed companies might be abolished in Switzerland by the end of 2020, under the proposed tax reform, this will not affect the tax relief available under the Swiss Participation Exemption. Thus, Swiss mixed companies will still benefit from full relief on federal and cantonal taxes on any qualifying participation, if they are properly structured.

For capital taxes, the equity of the company constitutes the taxable basis. The capital tax for mixed companies equals with 0.1 ‰ of the taxable equity. The capital tax has a minimum rate of 250 CHF multiplied by the cantonal and communal multiplier. The company’s equity consist of the paid in share capital, original stock or capital, declared and hidden reserves created from taxed profits, participation capital and retained earnings.

To find out more about incorporating a Swiss mixed company, associated costs and taxes, please contact us for further information.

 

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