By Vadim Neumann
A welcoming location for all companies
Large corporations are not the only ones basing themselves in Switzerland. In 2019 over 41,000 small and medium sized companies were entered into the Swiss commercial register.
Economic, social and political stability
The country’s advantages are often cited as being its stable currency, federal state system, strong purchasing power and economic, social and political stability.
Other advantages of Switzerland include:
- Business support – Switzerland is home to large community of international lawyers, bankers, accountants, insurance and service providers
- A highly educated, multilingual workforce
- Its central Europe location whichalso benefits from sharing part of the working day with the US and parts of Asia
Bilateral trade agreements with every country in Europe
Although not in the EU, Switzerland has bilateral trade agreements in place with every country in Europe. The economy benefits from the free movement of goods, services and people and Switzerland actually has 41 separate free trade agreements- more than the EU.
Setting up a holding company in Switzerland
In 2019 the Swiss government approved whole-scale corporate tax reform. The changes, which came into force in January 2020, included the abolition of previous cantonal tax privileges for holding companies.
Holding companies (which are often set up in order to hold participation rights in both Swiss and non-Swiss subsidiaries) were not subject to corporate income taxes on a cantonal level before January 2020 – they only had to pay tax on a federal level.
As dividends and capital gains were also eligible for a participation exemption, holding companies often effectively paid a combined corporate income tax and capital tax rate of around 0.1%.
Although the “holding regime” is no longer available, there are taxation privileges (such as a participation exemption) which might result in a combined effective corporate income tax rate for holding companies close to 0%.
To qualify, you must have a minimum:
- holding period which is one year for capital gains but not applicable to dividends; or
- percentage in a holding which is 10% for capital gains or 10% or CHF 1,000,000 or fair market value for dividend income
In relation to withholding tax on dividends payments from a Swiss holding company to its foreign shareholder: a standard rate of35% applies. However this can be reduced to 0%, 5% or 15% based on the respective double tax treaty with the other jurisdiction.
There is no need to have a minimum number of employees or larger office space for a holding company. These rules – known as substance rules – mean there is no need from a legal point of view to hire Swiss local employees. The company can also be managed exclusively by Swiss directors.
Switzerland’s cantonal tax regime
Switzerland is unique in having a taxation regime whereby its 26 cantons can determine their own tax rates, and Swiss-based holding companies continue to benefit from a participation exemption despite the recent corporate tax changes.
Depending on the cantonal and communal tax location in Switzerland, the ordinary overall federal, cantonal, and communal (CIT) rates applicable on corporate income/profit before tax typically vary between 12% and 13%.
R&D super deduction – the Swiss Patent Box
Other incentives include a patent box which reduces CIT on income from qualifying patents, which is known as an R&D super deduction.
Many cantons also offer tax incentives for newly established companies or for expansion investments, such as tax holidays on cantonal and communal taxes for up to 10 years or significant tax relief for cantonal and communal tax purposes.
Companies relocating operations from overseas also benefit
As of January 2020, Switzerland also introduced an “immigration step up regime”. Companies migrating to Switzerland with existing operations (e.g. functions, business units, assets) may benefit from a preferential regime. Goodwill on these operations can be disclosed tax-neutrally and subsequently depreciated to reduce the income tax burden.
How ZEDRA can help
If you are considering setting up a holding company in Switzerland or would like to know more about the options and many benefits to doing business in Switzerland please contact Vadim Neumann.