Switzerland is considered a major international business hub, and this is evidenced by the many multinational companies who have chosen to put up offices as well as their European headquarters in the country. The country is attractive to businesses from all over the world mainly because of the ease of doing business here, a highly skilled labour force, proximity to other European markets, and most importantly, a simple and transparent corporate tax system that is highly regarded across the world.
If you are planning to relocate your business to the country, then understanding the corporate tax system here is paramount. According to the business relocation experts from Cosmos Values, the following are some of the main elements you need to understand about the Swiss corporate tax system.
- Unlimited and Limited Liability
The first thing you need to understand is the distinction between unlimited and limited liability when it comes to corporate taxes in Switzerland. All companies that have a registered office in the country have unlimited liability when it comes to paying Swiss taxes. However, foreign companies that have a piece of real estate in the country, or have any type of permanent establishment in Switzerland, only have limited tax liabilities towards the Confederation.
Hence, your company’s business structure will determine the type of tax liability that the government will enforce on it.
In addition, the legal structure of your business will also have an impact on exactly who is liable for the taxes. If the company is a sole proprietorship, then the business owner is the one that will be taxed. However, when it comes to companies and limited liability corporations, these entities are considered legally independent from their owners, and are thus liable for their own taxes.
- Determination of Taxable Income
Companies that are resident in Switzerland are taxed based on their worldwide income, excluding the proceeds derived from foreign real estate or establishments. On the other hand, foreign businesses are only taxed based on the income derived from within the country such as that from in-country business activities, Swiss real estate, as well as Swiss establishments.
One thing that makes Switzerland completely unique when it comes to corporate taxes is the fact that all corporate taxes are deductible.
Under the Swiss corporate tax law, the applicable deductions on taxable income include interest expenses, royalties, depreciation, expenses incurred in the management of interest, as well as service fees.
- The arm’s length principle
One of the main principles that governs the levying corporate tax in Switzerland is the arm length’s principle. This principle dictates that if two entities within the same corporate structure conduct a transaction, the price of this transaction needs to be the same as when two independent companies are transacting together.
This principle usually applies when there is an interest management/expense or a service fee to be deducted from the taxable income. When enforced, the principal ensures that these deductions only go to a certain extent especially when the companies involved are in the same corporate structure.
- Corporate Tax Rates
The Confederate’s corporate tax rate is 8.5% levied on every resident company in the country. This federal corporate tax rate is flat, and does not vary based on location of the company, or its size. However, the cantonal corporate tax rates vary significantly across the different cantons. Hence, the choice of canton will have a direct effect on the total corporate tax that a corporation will be obliged to pay. However, in most instances, the cantonal corporate taxes are progressive, except in very few instances. It is also imperative to note that the cantonal tax rates are subject to the multipliers set by the cantons and municipals.
As mentioned earlier in the article, all the corporate taxes are deductible, which ensures that the maximum corporate income tax rate is 24%, while the minimum applicable rate is 13%.