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Switzerland: corporate taxation and advantages of setting up a holding company

Switzerland is considered one of the most stable democracies and, consequently, economies in the world.

With its progressive legislation, direct democracy, attractive tax regime, and ultra-developed banking infrastructure, Switzerland is highly valued by international investors.

It’s true that for years Switzerland was known for its banking secrecy and low taxes. However, the country has evolved into a fully cooperative jurisdiction with many tax incentives aligned with OECD principles.

Thus, common sense and low taxes make the Alpine country a haven for companies.

Why Switzerland?

As we said, Switzerland is no longer a tax haven.

In fact, it’s not included in any international blacklist and has signed multilateral (CRS) and FATCA and bilateral information exchange agreements.

At the tax level, Switzerland has signed almost 100 treaties to avoid double taxation, including many countries in Latin America and Asia.

It has also signed a Bilateral Treaty for the Protection of Investments (BIT) with many countries (especially with developing countries in Latin America), which confers a high degree of protection to investors in case of any eventual expropriation or unequal treatment received with respect to an asset.

But, undoubtedly, one of its greatest attractions is the low taxation it has maintained for years.

What is Switzerland’s corporate tax rate?

The country has a dual system in which federal and cantonal tax is paid.

The direct federal tax is 8.5% on after-tax profits.

But, unlike in many countries, the federal tax is deductible for tax purposes and this reduces the effective taxation to approximately 7.83%.

In addition to the direct federal tax, each canton has its own tax legislation and levies cantonal and communal taxes on companies. Therefore, the tax burden on income (and capital) varies from canton to canton.

As a general rule, the approximate overall range of the maximum corporate income tax rate is between 11.9% and 21.0%, depending on the location of the company’s registered office in Switzerland.

With the entry into force of the latest tax and financial reform on January 1, 2020, the special cantonal tax regimes were abolished. Still, the effective corporate tax rate in most cantons was reduced to between 12% and 15% in most cantons.

The cantons with the lowest ordinary corporate tax rates are the canton of Zug, with a rate of 11.9%, followed by the cantons of Nidwalden (12.0%) and Lucerne (12.2%).

What are the advantages of creating a holding company in Switzerland?

Although the “holding regime” as such no longer exists, there are tax privileges (such as the participation exemption) that can result in an effective combined corporate tax rate for holding companies close to 0%.

To qualify for this regime, one of two conditions must be met:

  • A holding period means one year for capital gains.
  • A holding percentage of 10% in the case of capital gains or 10% or CHF 1,000,000 or the market value in the case of dividends.

On dividend payments from a Swiss holding company to its foreign shareholder, a withholding tax of 35% is applied.

However, it can be reduced to 0%, 5%, or 15% depending on the respective double tax treaty with the other jurisdiction.

In addition, these holding companies have many other benefits apart from tax benefits, the most noteworthy being the following:

  • Application of European Directives (Bilateral agreements).
  • No international tax transparency rules for subsidiaries (no CFC rules for subsidiaries).
  • Possibility of obtaining tax certainty by obtaining a tax ruling to adapt to your tax situation.
  • Application of Double Taxation Avoidance Agreements (DTA) with more than 100 countries.
  • Application of Bilateral Investment Protection Treaties (BIT) that would allow you to protect yourself from expropriation and “patriotic” or “national security” laws.
  • Powerful national banking gives strength to the currency (CHF).

How does a Swiss holding company work?

Setting up a holding company in Switzerland is not for every profile and budget. Switzerland is a jurisdiction that complies with international standards and is therefore far from what an offshore company or LLC would be.

The operation of well-prepared holding companies is fully legal and accepted by the tax authorities, and there’s no risk of it being considered fraud, as can happen with LLCs.

However, this involves the cost of maintaining the structure, traveling to Switzerland, and, therefore, considerable start-up capital or turnover. Thus, it’s not recommended for small entrepreneurs.

The Swiss holding company will operate as follows:

  • Dividends received from subsidiaries will not be taxed if it meets the requirements of the above-mentioned participation exemption.
  • The participation exemption applies even if the subsidiary pays little or no corporate income tax.
  • If such income received through the holding company is subsequently distributed, it won’t be subject to outbound taxation in Switzerland (if certain requirements in the double tax treaties are met).
  • The remaining profits earned by the Swiss company are subject to a corporate income tax of 13.99 %, if the legal seat is in Geneva, for example.
  • In case of any possible dispute between the country of the subsidiaries and Switzerland, thanks to the Treaty of Reciprocal Protection of Investments, allowing access to an international Arbitration with guarantees, which would grant the safeguarding of our assets, providing security for the client and his family.

What advantages does it offer in comparison to other countries?

There are many countries where to set up a holding company to organize your international business (HK, Singapore, Luxembourg, Andorra), however, Switzerland is a very good choice for the following reasons:

  • Application of the subsidiary parent directive thanks to bilateral agreements (e.g. doesn’t apply to Andorra or HK).
  • It’s not necessary for a company to have a minimum number of employees or office space. These rules, known as substantive rules, mean that hiring local Swiss employees is not necessary from a legal point of view.
  • They don’t apply international tax transparency rules to subsidiaries.
  • Swiss banking is very competent and is very fast in compliance and due diligence processes, being able to open bank accounts faster than its competitors and with guarantees and solvency.

Another guarantee that is undoubtedly offered by incorporating a holding company in Switzerland is access to Swiss private banking.

At Relocate&Save we’re dealing with banks from half the world (Emirates, Monaco, United Kingdom, Andorra, etc.) and we can say that Switzerland is undoubtedly one of the most solvent and efficient banks when it comes to understanding international profiles and business.

What is the banking system like?

Switzerland is the main financial destination for international investments and the protection of private investments.

It also offers one of the most solid and stable banking centers in the world, with an AAA rating, the highest in the world.

It operates in more than 26 international currencies and has access to the global capital markets, with a universe of more than 35,000 funds and other products.

There are banks with exclusive departments for particular jurisdictions, providing specific services to clients. The multitude of languages spoken by its employees gives comfort, closeness, and a sense of confidence to its clients.

In fact, at Relocate&Save we’ve been dealing for years with Swiss banking desks specialized in Asia, Latin America, and South Africa. We can provide you with access to the most suitable team for your needs.

Why open a Swiss bank account?

In short, the main benefits of having a bank account in Switzerland are the very high quality of the professionals working in its management, the low levels of financial risk, and the high levels of privacy. It’s a profession with 300 years of history.

There is a wide variety of large national and foreign banks, with experience in financial operations in different industries: trading, commodities, commercial… and also for individuals.

Switzerland is the world’s leading center of private banking, an exclusive niche where personalized financial services and products are provided for the most sophisticated clientele who require a high-quality advisory environment.

With a corporate private banking account after incorporating the holding company, you will have access to all these advantages. 

How to take the first step?

Incorporating a holding company in Switzerland can be a great way to reduce your tax bill and protect your business in uncertain times. However, as you’ve seen throughout this article, the Swiss tax framework is highly complex, and a detailed feasibility study is necessary before undertaking this change.

At Relocate&Save we’ve assisted in recent years in the establishment of several Swiss holding companies. Our presence and contacts in Switzerland make us an ideal traveling companion for this challenging task.

So, if you have any doubts and would like us to help you with the process, please write to us at [email protected] or through the contact form.

Picture of Andreu Capmajó
Andreu Capmajó

Tax director

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