Switzerland Tax Guide for Small Businesses:
An Executive Summary
This is an introductory guide for Small-Business Owners,
linking in to our full Switzerland Fact-File. If you'd rather dive
right in to the Fact-File, you can use the navigation on the
right of this page, or start from the Switzerland
home page.
Business Formation: The government has a
fairly light touch in terms of statutory requirements. You
don't need anyone's permission to start a business, and you
won't have to register or license your business unless you
form
a partnership or a limited
company (Stock Corporation or GmbH), or unless you require
a
special license, eg to run a pub or make atom bombs. Limited
companies do have to be registered
of course, and have to report
annually. Partnerships also have to be registered. 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 a small business, you won't have to bother with VAT.
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
trader 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. Broadly, if you are building
an investment-heavy business, a company may be best, while
if you are in a simple cash in/cash out sort of business,
being an individual trader may be better. 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, but it isn't easy - the tax authority
got there before you! If you're not 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: A small business
usually has a static location, and you'll trade from there.
If you're selling goods
overseas it's straightforward, at least within the EU
and EEEA, but if you're selling services
to corporates 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. And if you're big enough, VAT is an extra
complication. If you set up a branch 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.
E-commerce companies have special opportunities and special
problems, although the new EU VAT rules do simplify matters
to some extent.
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. There is a case to be made for locating
businesses in low-tax, 'offshore'
jurisdictions, 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 small businesses meaning to trade in
Switzerland can also use offshore structures, as long as they
avoid the 'permanent
establishment' trap.
Business Incentives: 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. 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 businesspeople 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. At all events, 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
business person herself. Obviously, state
social welfare schemes apply to business owners as much
as to anyone else, although there may be problems if you operate
across national borders. Many business-people 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.
International Aspects: 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 will find
themselves drawn intentionally or otherwise to an international
existence, doing business 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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