Switzerland is the preferred destination by most businesses wishing to expand their operations. With its low tax rates, modern infrastructure, and stable economy, companies running in the country are among the most successful in the world. In fact, it’s ranked as the world’s best country for doing business by Bloomberg Rankings.
For some investors and business owners, the tax environment may be the pull factor. Most companies thrive as the Switzerland corporate tax rate is designed to incentivize them to generate wealth.
Continue reading to learn more.
How the corporate tax system works in Switzerland
The Swiss tax system is based on a flat rate of 8.5%, meaning that all companies pay the same rate of tax.
This is an important point because it means that any profit made by a Swiss company will be taxed at its corporate tax rate regardless of its size, wealth, or, profitability.
Specifically, companies domiciled in Switzerland are required to pay corporate income tax (CIT) on taxable profits they generate in the country.
A non-resident company will also be subject to corporate tax if it is involved in a Swiss business, has a permanent office or structure in Switzerland, owns real estate, or acts as a property broker in the country. However, the levy paid will be on the income generated in Switzerland.
Note that the amount you’ll actually end up paying may even be less than the required flat rate - depending on your taxable base.
However, in addition to federal CITs, companies are also subject to cantonal and communal taxation requirements. The Swiss cantons have their own tax laws, which vary from place to place, so the cantonal tax your company pays will depend on where it is located.
So what is the total CIT estimate you can expect to pay in Switzerland?
The maximum tax rate on profit between federal and cantonal or communal rates will generally range from 11.9% to 21.0% of your company’s net corporate income for the year - depending on your business location or corporate residence in the country.
Your tax liability can be reduced through deductions, including cantonal and communal rates.
However, holding companies, unlike sole proprietorships, partnerships, and limited partnerships, are not subject to cantonal or communal rates, therefore they pay an effective due of 7.83% on their federal CIT.
Companies that qualify must hold or manage long-term investments in related companies; have limited commercial activities, and derive two-thirds of their assets from qualifying company dividends.
Who is liable to pay CIT in Switzerland?
If you run a Swiss business, whether as a sole proprietor, limited company, or partnership, you may be subject to corporate tax rates.
All Swiss companies now pay the same rates rate since 2020. Prior to that time, the Swiss cantons in which multinationals were based allowed them to negotiate preferential rates before 2020.
Non-resident companies must only pay taxes on their Swiss profits, as compared with Swiss companies, which pay levies on their worldwide income.
Tax exemption considerations in Switzerland to note
For foreign businesses, rates aren't paid on worldwide income as they are for Swiss residents. Foreign businesses, foreign permanent establishments, and foreign real estate are exempt from Swiss corporate tax.
However, when deciding on a company's rate, these sources of income are taken into account. In addition, certain items are exempt from federal or cantonal taxes, including
- Gifts, inheritances, and matrimonial property rights (These may, however, be levied as gift or inheritance tax)
- Payments made by the government or the private sector for social welfare
- Profits from movable assets (including cryptocurrencies) that don't qualify as business activities
- Compensation for damages
Bottom Line: Swiss corporate tax structure is a plus for foreign firms
Switzerland offers a variety of benefits to foreign companies looking for a European footprint. In particular, corporate rates are comparatively low and are a draw for foreign firms.
A number of factors could also be considered, however, this is a basic outline of some of the key points to consider if you are thinking about setting up and running a business or corporation in Switzerland.
With a strong workforce and a transparent legal framework, Switzerland's strengths make it an elegant choice for foreign business owners who may be looking to establish their headquarters abroad.