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Switzerland offers attractive options for reducing the tax burden for Swiss Companies, in addition to the overall low tax rates.
Minimizing a company's tax burden depends on its type of business and especially on the share of foreign business done by the Swiss company. A professional evaluation of the corporate structures such as purchasing and selling agencies, Business Control Centers, Shared Services Centers, the administration of intellectual property rights, finance companies, holdings and principal companies is therefore required.
Advance Tax Ruling with the tax authorities
An advance "Tax Ruling" from the tax authorities provides a written and binding determination of taxation. Relevant factors for taxation are the type of business engaged in by the company and its location in Switzerland.
Management Company
The management company (either a mixed or domicile company) coordinates its activities from a base in Switzerland and does most or all of its business abroad.
The company in Switzerland furnishes services to other companies in the group, such as management support, accounting, marketing or HR administration where at least 80% of the earnings and 80% of the expenses are generated abroad.
All income from abroad is subject to a 7.83% tax at the federal level. At the cantonal level, a very low tax rate applies depending on location, e.g. 2%. All income from Swiss sources is subject to regular taxation.
Total effective tax burden varies form 9% to 12%.
Principal Company
Corporate risks, assets and decision-makers are in Switzerland.
The principal company takes on coordination and trading functions for an international group of companies in the sense of a principal structure, i.e. "contract manufacturing" and "stripped buy-sell."
Risks and responsibilities are shouldered for activities like procurement, production, sales, logistics, financing, R&D planning, and drawing up marketing strategies.
Special tax models are used at the federal and cantonal level.
An effective total tax burden various between 5% and 7%.
Holding Company
The primary purpose of a holding company is to hold and manage stakes in other companies.
At the same time, the holding company is authorized to handle financing activities, manage cash and assets and administer intellectual property rights.
Conditions for being taxed as a holding: At least 2/3 of the assets are financial holdings in affiliated companies, or at least 2/3 of the income derives from these holdings.
At the cantonal/communal level, the company is completely exempt from taxes on income from dividends, interest, capital gains and other income from capital holdings. At the federal tax level, tax benefits are granted on income from qualified holdings and capital gains.
The total tax burden is 0% on income from qualified holdings, and 7.83% on income from non-qualified holdings and capital tax of 0.03%- 0.05%.
Swiss Holding Company
Conditions for Swiss Holding Company Status
Swiss companies whose principal statutory aim consists of holding participations and managing investments on a permanent basis, and who have no commercial activity in Switzerland, benefit from a cantonal holding company status, provided that these investments or their income represents at least two thirds of the total assets or revenue. Capital gains on investments are also included as part of investment income.
In order to benefit from a holding company ruling, at least one of the following conditions must be fulfilled:
§ at least 2/3 of the estimated assets of the company (book or fair market value, whichever is the highest) consist of investments or
§ at least 2/3 of the revenues consist of investment income (the remainder being made up of passive income). Income from capital gains is also counted as investment income.
Federal income tax
Holding companies do not enjoy tax privileges on direct federal tax.
Income tax is, however, reduced by means of the participation exemption, namely in the ratio of investment income to net profit. For a pure holding company (100 % income from investments), the company pays no direct federal income tax.
Cantonal and communal income tax
Holding companies are not taxed at the cantonal and communal levels as other companies.
Capital tax
At the cantonal and communal levels, companies with holding company status are subject to a special tax. The cantonal tax rate on the capital of holding companies domiciled in the Canton of Fribourg (Canton offering holding privileges that are amongst the most attractive in Switzerland) is 0.02 %, but only 0.01% for that part of the capital exceeding CHF 500 million. The rates for communal tax vary between 30% and 100% of the cantonal tax rate, dependent on the commune.
Conditions for Participation Exemption
Corporations holding at least 20% of the share capital of another company, or who hold an investment of at least CHF 2 million (based on fair market value) in another company, benefit from an income tax reduction by means of a participation exemption.
When the investment represents at least 20% of the shares of another company, the holding reduction also covers capital gains on investments.
At the federal, cantonal and communal levels, income tax is reduced proportionally to the relationship between net income from investments (investment income and capital gains less management and finance costs) and total net earnings.