Companies and entrepreneurs who are interested in company formation in Switzerland should also be aware about the important tax benefits that the country provides for companies and especially for foreign investors. This is one of the most important reasons why so many entrepreneurs and companies alike have chosen Switzerland as a business location.
Taxation on cantonal level
The taxation of companies established in Switzerland is based on a multi-cantonal system, because of the country’s federal structure. The tax system provides attractive flat-rate taxation, while on cantonal level; Swiss cantons compete with one another to offer the most favorable tax rates in order to attract foreign investors.
Special business structures may benefit from tax rulings, in the form of tax reductions, tax exemptions and, in some cases, tax breaks.
Swiss income taxes are regulated by the federal tax and by the cantonal tax law, for each of the 26 Swiss cantons. All taxes must comply with the general principles stated in the Federal Tax Harmonization Law, but the cantons have the right to establish the tax rates on cantonal level and the amount of deductions.
Swiss holdings benefit from tax privileges
When looking into company formation in Switzerland, one of the business structures that need to be taken into consideration is the holding company. Swiss holdings benefit from reduced tax rates on income and on capital taxation. Overall, the tax bill can be significantly reduced. In addition, holdings also benefit from tax exemptions if certain criteria are met.
No income tax is levied on cantonal level for holdings if the company’s main activity is long-term management of equity investments, if the company doesn’t have any operating business activity in Switzerland (with the exception of certain activities) and if the company’s participations represent 2/3 of the assets in its balance sheet. If these requirements are met, there is also no cantonal tax levied for income from interest, dividends, royalties, management fees or commissions.
Double taxation avoidance treaties
Switzerland has one of the most developed tax agreements networks in the world. The country has managed to conclude double taxation avoidance treaties with most industrialized countries, including with states with emerging markets such as China, Vietnam or India and with states from all over the world. Opening a Swiss company can be a great way to protect investments in high-risk countries thanks to the investment protection treaties that Switzerland has signed with dozens of countries.
Another important aspect regarding company formation in Switzerland is regarding the tax deductions available for companies. Cantonal authorities provide certain tax incentives to foreign investors, such as consistent tax deductions, for example for travel expenses, representation and even for entertainment of business clients.
Tax deductions also apply for employment expenses, such as commuting costs or the cost of meals at the place of work, self-employment expenses such as rental expenses or car expenses, several general deductions (spouse and child alimony, charitable contributions, daycare expenses, real estate maintenance etc.), social deductions (for married couples, single parents, for persons in need, for children etc.), or expatriates tax deductions.
These are just some of the important tax benefits of companies incorporated in Switzerland, but for further information, it’s recommended to acquire the services of a firm specialized in company formation in Switzerland, to handle all the legal hurdles, tax planning and other aspects regarding a newly-formed company.