Due to the federal structure of the state, there is no centralized fiscal system in Switzerland, with some taxes being perceived exclusively by federal authorities, while other taxes are perceived on a competitive basis at the cantonal and communal level. Although the federal tax quota is consistent, the practices applied at each canton are differentiated (currently there are legislative proposals to diminish, if not to eliminate this variation, to reorganize the division of responsibilities and revenue between federal and cantonal administrations, but their application dates are still in the project phase). Therefore, as current differences in the tax system are significant, the choice of the canton is an important element in everything that means tax planning.
In line with international standards and the OECD, Switzerland’s corporate tax rate is relatively low.
Swiss resident companies
In terms of profit tax, a company is considered to be resident in Switzerland, whether it is registered in that country or is managed by it (the place of active management). Thus, a company registered in another country, which is managed from Switzerland, is thus considered a resident company of the Federal State for tax purposes.
The general rule is that resident companies are taxed on global income, less those that have generated profits through businesses, permanent headquarters and out of country properties, while non-resident companies are taxed only for the profit generated by enterprises, permanent establishments and properties located in Switzerland.
The Switzerland corporate tax rate is regulated at several levels: federal, cantonal, communal, so tax rates vary quite a bit. However, at present, the Cantons of Zug and Friborg are considered the most suitable for the location of companies with commercial activities.
Foreign subsidiaries located on Swiss territory owe tax on income and capital gains to the same tax rates applied in the case of national entities. Profits transferred to foreigners by branches and subsidiaries are not subject to Switzerland corporate tax rate.
Determining the taxable base
At the federal state of Switzerland, with regard to income taxation, there are a number of substantial differences between the federal government and cantons on the one hand and between the different cantons on the other. If you want to profit from an advantageous Switzerland corporate tax rate, you should know the following aspects before deciding to start a business in a certain canton:
- GAAP principles apply to most aspects of the tax calculation;
- Losses can be carried forward for a further period of between 4 and 7 years, but this principle can’t be applied retroactively;
- There is no tax law on foreign controlled companies, as is the case in other jurisdictions.
- Capital gains from the sale by a non-resident parent company of its shares to a Swiss subsidiary are not subject to taxation (except in cases where the Swiss subsidiary owns property in Switzerland);
- Payment of interest from loans made by a resident or non-resident subsidiary to a parent company is not subject to any tax provided for by the legislation of corporations in Switzerland;
- Reserve funds set up to retire employees are tax deductible.
It is also important to note that the Switzerland corporate tax rate can be more advantageous for certain types of business structures, such as holding companies, mixed companies, asset management companies, Swiss vereins etc. Considering the business purpose of the company and the business activities that take place in Switzerland (or abroad), it is important to opt for the most suitable business structure, to benefit from certain tax advantages that also affect the Switzerland corporate tax rate.