Switzerland Fact-File Part 4:
Individual Business Tax-Efficient Structures
4.1 Switzerland Individual Business Tax-Efficient Structures
Tax-Efficient Structures
There are a number of specialized forms of the basic Stock
Company which can take advantage of tax-privileged treatment.
A Holding Company is defined as such if
it holds either a minimum of 20% of the share capital of another
corporate entity or if the value of its shareholding in the
other corporate entity has a market value of at least CHF2m
Swiss (known as a "participating shareholding").
Swiss holding companies enjoy the following relief from
corporate income tax:
- At federal level a holding company pays a reduced level
of corporate income tax on any dividend income received
from the subsidiary or the company in which it holds a "participating
shareholding". The reduction in the level of corporate
income tax payable depends on the ratio of earnings from
"participating shareholding" to total profit generated.
- At cantonal or municipal level no corporate income tax
is payable on income represented by dividends so long the
corporate entity meets the cantonal definition of a holding
company.
Furthermore holding companies which hold a minimum of 20%
of the share capital of a subsidiary pay reduced corporation
tax on any capital gains made on the sale of that shareholding
so long as:
- The shareholding was held for at least one year and was
purchased after 1st January 1998;
- The shareholding was purchased before 1st January 1997
and will be disposed of after 1st January 2007.
Fribourg is currently considered the best canton in which
to locate a holding company for corporate income tax purposes.
A Domiciliary Company is defined as:
- Being both foreign-controlled and managed from abroad;
- Having a registered office in Switzerland (i.e. at a
lawyer's premises);
- Have neither a physical presence nor staff in Switzerland;
- Carrying out most if not all of its business abroad;
- Receiving only foreign source income.
As such, a Domiciliary Company enjoys the following relief
from corporate income tax:
- At a federal level there are no tax advantages in terms
of corporate income tax payable on income and gains;
- At a cantonal and municipal level, the corporate income
tax rate may be substantially reduced or even reduced to
zero; taxes levied by the cantons are calculated according
to a formula that relates the company's paid up share capital
and reserves to profit.
An Auxiliary Company is essentially a domiciliary
company that in addition may carry out a certain proportion
of its business in Switzerland. Auxiliary companies can exist
in only certain cantons. An auxiliary company may:
- Have Swiss offices and staff;
- Be in receipt of Swiss income (which is taxed at normal
rates) though most of its income must be from a foreign
source.
Auxiliary companies enjoy the following relief from corporate
income tax:
- At a federal level no exemptions are granted on corporate
income tax;
- At a cantonal and municipal level the level of corporate
income tax payable on income and capital gains varies among
the 7 cantons that give favourable treatment. However, in
general Swiss-sourced income is taxed at 5% whereas foreign-sourced
income is tax exempt. The tax concessions can vary and an
advance tax ruling should be sought.
A Service Company is a company whose sole
activity is the provision of technical, management, marketing,
publicity, financial and administrative assistance to foreign
companies that are part of a group of which the service company
is a member.
Service companies may not in general derive income from third
parties (i.e. companies outside their corporate group). Service
company status is obtained by way of an advance tax ruling.
Service companies enjoy the following relief from corporate
income tax:
- At a federal level relief is not available on corporate
income tax payable;
- At a cantonal and communal level corporate income tax
rates will be adjusted depending on the international orientation
of the services provided. There are a number of ways of
calculating annual taxable profit for cantonal and municipal
purposes but generally speaking annual taxable profit will
be the equivalent of 8.5% of the payroll or 5%-20% of overheads
(unless overheads are very low in which case a higher percentage
rate will be used).
A Mixed Company is one which has the characteristics
of both a domiciliary company and a holding company but which
does not qualify as either. A mixed company gets the following
relief from corporate income tax:
- At federal level no relief is granted;
- At a cantonal and municipal level a mixed company may
pay reduced tax or be totally exempt if it meets the following
conditions:
- It is foreign controlled;
- A minimum of 80% of its total income comes from foreign
sources;
- The company has close relationships to foreign entities.
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