Switzerland Fact-File Part 1:
Business Formation for Individuals

1.2 Switzerland Individual Business Registration

The Procedures Necessary for an Individual to Commence Business Activity

A sole proprietor is not required to register in the commercial register if annual turnover is (or is expected to be) less than CHF100,000, but will be required to register for VAT if income exceeds the VAT threshold, which since January 1, 2010 has been CHF100,000.

A work permit is generally required before commencement of trading (although residents from EU-17 countries, ie the ‘older’ EU member countries, do not require a work permit to commence business, just a residence permit). Different types of permit are available, including short and long stay, and each type offers a differing degree of freedom (for example B permits allow the holder to change job and canton, whereas L permits do not, and C permits afford the same freedoms as Swiss citizens with regard to work-related matters.) The Swiss authorities also make a distinction between temporary stays (of limited duration) short stays (less than one year), and permanent stays (of unlimited duration).

A sole proprietor will be liable to pay taxes at personal income tax rates (Federal Direct Tax). Sole proprietors must make their own arrangements with regard to certain aspects of social insurance. Self-employed individuals are required by Swiss law to pay contributions for retirement insurance (AHV), invalidity insurance (IV), loss of earnings compensation (EO) and health insurance. The self-employed can contribute to additional retirement pension funds and these contributions can be deducted from taxable income. Registration with the Compensation Fund is optional, though proof of contracts providing work is required, but in such cases a self-employed person will not be able to make contributions to the unemployment insurance fund.

All other forms of business entity, including a partnership, must be entered in the Commercial Register. Where a new business formation is to be in the structure of an incorporated company such as a Stock Corporation or Limited Liability Company, Articles of Association must be drafted and signed by all officials of the new company.

Start-up capital must be lodged in an escrow bank account – this is essential as the business cannot be registered until this has been done. (Although as previously noted, the requirement for a minimum amount of start-up capital does not apply to sole proprietors and partnerships.)

For certain types of business (including certain areas within financial services, hospitality, medicine, law, and the service industry) a professional license will be required.

Where registration for VAT is required, this should be done via the Federal Tax Administration Office. Any employees of the company have to be registered with the Social Insurance System to ensure that they are covered by the retirement, disability and accident insurance schemes. It is a legal requirement that an incorporated business must pay contributions towards retirement, invalidity, loss of earnings and health insurance for its employees.

Need for Tax Residency in Business

It is not always obligatory to be a tax resident of Switzerland in order to conduct business in the country; if forming a joint stock company, there is no requirement for the founder or founders to be either Swiss nationals or resident in Switzerland. With other forms, including a sole proprietor, the business owner is required to be resident in the country.

Non-resident companies deriving income from Swiss sources may however be subject to withholding taxes and corporate income tax.

Switzerland is not a member of the European Union but has bilateral agreements with the European Union on a number of issues, easing restrictions for citizens of these countries to enter Switzerland to live and work; in effect, residents of the ‘older’ EU –17 and EFTA members (France, Germany, Austria, Italy, Spain, Portugal, UK, Ireland, Denmark, Sweden, Finland, Belgium, Netherlands, Luxembourg, Greece, Cyprus, Malta, Norway, Iceland and Liechtenstein) are treated in the same way as Swiss citizens for the purposes of working, and no permit is required for stays of less than 90 days, although registration is still required for such workers. After that period, such nationals must obtain a residence permit, if they want to continue their working residence in Switzerland. Citizens of the remaining, newer, EU member states face certain restrictions (quotas, controls on entry, and the prioritisation of Swiss nationals in the event of a conflict over a position), but these are set to be removed, by May 2011 in the majority of cases, and by June 2014 for the remaining countries.

Non-EU/EFTA resident persons wishing to work in Switzerland must obtain a work permit from the applicable cantonal migration office. Employers are generally responsible for obtaining permits for their employees. A self-employed individual must obtain his or her own permit. Permits may be issued to cover short, medium or permanent stays in the country.

The different types of permits are as follows:

L permit Designed to cover temporary positions and stays in Switzerland.
B permit For foreigners remaining in Switzerland for a specific purpose over a longer period of time (whether employed or not).
C permit For permanent residents (those who have received a permanent residence permit after living in Switzerland for five or ten years).
G permit Intended for cross-border commuters.
F permit For foreigners who have been granted provisional permission to stay in Switzerland; issued by the cantonal authorities based on approval by the Federal Office for Migration.
N permit For asylum seekers.
Ci permit For the employed spouses and children of members of foreign consulates or intergovernmental organizations.
S permit For people in need of protection.

Anyone who works or carries on a business in Switzerland or lives in Switzerland for more than 180 days in any one calendar year is classified as resident for tax purposes.

For corporate income tax purposes a company is deemed resident in Switzerland if it is either incorporated in Switzerland or effectively managed from there. Thus a UK-registered company whose effective seat of management is in Switzerland is a Swiss resident company for corporate income tax purposes.

Resident companies pay tax in Switzerland on their worldwide income, whereas non-resident companies generally pay only on their Swiss-sourced income, meaning that they are likely to be subject to Swiss corporate tax if they are involved in a business based in Switzerland, have a permanent base there, and/or own real estate. The Swiss branch of a foreign company pays the same rates of corporate income tax on profits, income and capital gains as would be paid by a Swiss-resident corporate entity, as it is deemed to be a permanent establishment. Profits remitted abroad by the branch are not subject to any withholding tax in Switzerland, however.

Registration Requirements for an Individual to Begin in Business

An individual trader, or Sole Proprietor, is not required to register in the Commercial Register if annual turnover of their business is (or is expected to be) less than CHF100,000. Sole proprietors that are obliged to register, however, must include the surname of the business owner in the trading name and the Register – for sole proprietors with a turnover below the registration threshold there are no such requirements.
Such individuals must also register for tax and social security contributions. Some occupations are regulated and may require special permits or licences. These include:

Banks, insurance companies and investment brokers;
Hotels and restaurants (although this will vary according to the canton);
Doctors, dentists, pharmacists and lawyers;
Some mercantile and services businesses (such as employment agencies and wine merchants).

Individuals must register for tax with the Federal Tax Administration, although if turnover exceeds CHF100,000 and they are therefore registered with the Commercial Register, then registration for tax happens automatically.

In general, any trading enterprise (with the exception of those under the turnover threshold for sole proprietors) is required by law to register in the Commercial Register. This protects the company name. Larger entities must indicate the legal form of the company in the name.

Details of the Commercial Register are published in the Swiss Official Gazette of Commerce (SOGC). Formation of a limited company normally takes up to 21 days, including registering the company, enrolling employees in the social insurance system and registering for VAT. There are a number of service providers that offer a full service to set up and incorporate a new company. As previously stated, once registered in the Commercial Register, an entity is automatically registered for income tax.

The threshold for VAT registration is CHF100,000 annual turnover (since January 2010; prior to that, it was CHF75,000), whether a sole proprietor or an incorporated business entity. Registration for VAT is through the Federal Tax Administration.