Switzerland Tax Guide for Artists:
An Executive Summary
This is an introductory guide for Artists, linking in to
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Business Formation: The government has a
moderately light touch in terms of statutory requirements.
You don't need anyone's permission to start making or selling
art-works, and you won't have to register or license your
business unless you form
a limited company (Stock Corporation or GmbH), or you
are Henry Moore and need a fork-lift to move your scuptures
around, which may require a
special license. Many artistic creators operate very successfully
as individuals. Limited companies do have to be registered
of course, and have to report
annually. And remembering that the only two certainties
in life are death and taxes, inevitably you'll have to make
annual tax returns,
whether you're a limited company or not. If you're really
in a small way of business, you won't have to bother with
VAT, which
in any case doesn't apply to many types of artwork. Of course
if you take on staff,
life becomes more complicated!
Domestic Taxation: The big issues are the
choice
of canton, and whether to be taxed as an individual
or as a company.
There are major differences between cantons, which compete
for your business; broadly, though combined
individual and corporate rates top out at 23%. But allowances
and deductions may make a big difference, so you should
study your chosen canton carefully. The special circumstances
of an artist may also have a bearing on the choice to be made;
long-term streams of royalty
income, if you are successful, may dictate the use of
a company. Husbands
and wives can play some interesting variations, and get
the best of both worlds. Longer term, the holy grail is to
turn income into capital, something which artistic creators
can achieve through sales of rights; but it isn't easy - the
tax authorities got there before you! If you're Swiss, another
goal is to remain non-resident,
which means not having a permanent
establishment (fixed place of business) so that you get
taxed only on Swiss-source income. If there's one aspect of
your business on which you should consider taking paid-for
advice, it's probably the tax structure. It's so important
to get it right at the beginning!
International Taxation: If an artistic creator
has a static location, she'll trade from there, but one of
the advantages of this rather special way of life is that
you're not necessarily tied to one spot, and you have the
opportunity to base yourself in a low-tax
location. Getting royalty returns without tax may be straightforward
inside
the EU and EEEA if you have a corporate set-up, although
some countries discriminate against low-tax locations, but
it can be more complicated because the foreign country may
take a bite out of your returns, called withholding
tax. Then you have to turn to double
tax treaties to try to get the money back. It's all a
bit of a jungle. If you set up a studio in a foreign country,
you need to try to avoid the 'permanent
establishment' trap, and you may get bogged down in local
VAT. If you send staff - or yourself - to work in foreign
countries you need to think hard about their tax situation
in advance, both in respect of local
income taxation and perhaps because of withholding
tax.
Tax-Efficient Structures: With reasonably
low corporate and individual tax rates, there appears to be
not much need for exotic structures to minimize tax; but if
you are resident and thinking of becoming wealthy (who isn't!),
things are not so simple. Depending on the nature of your
income flows there may be a case to be made for locating the
business focus of your activities in a low-tax, 'offshore'
jurisdiction, especially if you are eventually planning
to retire
somewhere out of Switzerland. As yet, there are no 'CFC'
rules in Switzerland, so that profits made in such places
can stay there. Offshore structures are often useful for inheritance
tax and asset protection reasons as well, and anti-avoidance
law has not gone nearly so far in Switzerland as in, for example,
the UK. Non-resident artistic creators meaning to operate
in Switzerland can also use offshore structures, as long as
they avoid the 'permanent
establishment' trap.
Incentive Programmes: There are a number
of support
schemes operated by various levels of government, some
of them in association with the European
Union, offering direct grants to support employment,
rebates on taxes, tax credits for investors in small businesses,
and R&D
tax credits. Although not many of these will be relevant to
artistic creators, but it is well worth investigating what's
on offer. However, the saying: 'He who sups with the devil
needs a long spoon' comes to mind. The schemes are well-intentioned,
no doubt, but they can be intensely bureaucratic, with very
intrusive qualification procedures, and a long 'tail' of reporting
requirements.
Employing People: Many experienced employers
will just tell you: 'Don't do it'. 'Marry in haste; repent
at leisure', they say, and it was never so true than when
it comes to employment. Don't kid yourself that employees
will feel that they owe you anything. Today's workers, encouraged
by a slew of anti-business legislation from Brussels, and
the general nannying attitude of government, often feel that
the world owes them a living. Many employers of course bring
problems on themselves by treating employees as little better
than slaves. Most artistic creators run quite skinny operations,
but if you do need staff try as hard as you can to use contractors
(ie self-employed
people) rather than employees. The
tax authority has plenty to say about that, of course,
so if you are left with no choice, realize that you will have
to operate 'PAYE',
provide various statutory social
benefits, and conform with local Swiss employment law,
albeit that is much more liberal than elsewhere in Europe.
Of course, there are plenty of exceptions to these rather
sweeping generalizations. Lucky you if you find some!
Welfare and Lifestyle: Meaning, for the
artistic creator herself. Obviously, state
social welfare schemes apply to artists as much as to
anyone else, although there may be problems if you operate
across national borders. Many creators will want to have improved
(meaning private) health
benefits, and almost all will want to find tax-efficient
ways of making provision for their pensions.
It's important to separate these from your business itself,
in case of failure. If you have it in mind to retire
to somewhere warmer and less highly taxed, then the time to
start is now, in terms of building
up a pension away from the grasp of the tax authorities,
although individual
tax rates in Switzerland are not very high.
Living Internationally: Perhaps you plan
to live out your life as a respected and contented member
of your local community. The salt of the earth, one might
say, if that's not patronising. But some people, and perhaps
especially artistic creators, will find themselves drawn intentionally
or otherwise to an international
existence, working and/or living in other countries. There
are many challenges: apart from the difficulty of arranging
your tax
affairs satisfactorily, there are the problems that go
along with property
ownership, education
of your children, international removals, health
care and pension
provision, just to take some of the more obvious issues. Of
course no one can predict the future with any certainty, but
there are all too many stories of people who have trapped
themselves in the wrong investment in the wrong currency in
the wrong place, with multiple taxmen on their backs. Most
such problems are avoidable, with forethought.
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