If you are an entrepreneur and you are looking for a safe place from which you may continue your worldwide expansion, choosing Switzerland may turn out to be a bull’s-eye hit! Switzerland is selected by investors and entrepreneurs who think about rebranding (converting from a local brand to an international one). Switzerland’s strategic position and exceptionally low tax rates (on a European scale) are also its advantage. Switzerland is mainly associated with banks and traditional family-owned, multigeneration businesses and it certainly does not stop there, attracting many technological companies by implementing regulations promoting cryptocurrencies and strengthening the competitiveness of the Swiss banking system.
Today, one may also wonder where to find a location for safe living. If you are also counting on raising the standard of living and taking advantage of an effective tax system, then it is worth considering Switzerland.
Some people might find Switzerland boring. In this case, it is worth visiting the Italian part of Ticino and the valley of Val Poschiavo which is a small part of the Grisons. In this region with Italian background, you can admire almost tropical greenery. The wooded mountain ranges are surrounded by picturesque, vast lakes. The vistas and climate defy words – it is worth experiencing these crystal clear and vivid reflections of verdant vegetation and mountain slopes in the mirror of calm waters. Switzerland abounds in lakes, with 1,500 of them counted all over the country. You can fall in love with the cleanness and greenery of this country… However, let us take a look at tax issues, which are equally important when making the decision to move house or run a business.
What do Swiss taxes look like?
The tax system in Switzerland is a three-tier one due to the fact that the tax is paid at three different levels – federal, cantonal and local. It might seem complicated. In my opinion, this is an inseparable feature of countries that focus on a high standard of living and a significant distribution of public levies to the local governments, directly meeting the needs of their community. A slightly different philosophy than the one implemented in the (notorious) Polish Deal (Polski Ład)…
The Swiss taxing scheme is a progressive one, averaging 24.6% (the highest threshold). However, there are cantons where the tax is as low as 11.2% (Zug), 12.3% (Nidwalden) or 12.5% (Schwyz) – data from 2022. When moving to Switzerland, it should be remembered that there are regions where taxes are higher – about 30%, e.g., Basel-Landschaft, Bern, Geneva, Vaud or Zurich.
What kind of taxes might we actually have to pay? In Zug, for example, the highest threshold (on income above EUR 755,200) is only 11.5%, and this applies to income above that amount! Switzerland continues to have a very extensive tax deduction system: starting with the deduction of the cost of meals (a traditional lunch with colleagues during a break at work) and ending with a tax reduction of CHF 6,500 for each child under the age of 18.
What we are much more interested in, however, is the exemption of capital gains obtained by private individuals (if they do not deal professionally in trading shares – daily traders), as well as tax exemptions for various types of financial and insurance instruments.
This is not the end of privileges – Switzerland offers the so-called fiscal deal permit (for 20 years, despite OECD pressures, you can always reach some agreement with the Swiss…), on the basis of which a wealthy person who would like to live in Switzerland can set the rules for paying taxes based more on consumption expenditure and living standards than on income.
In that case the agreed amount of tax, which can be verified over the following years, depletes the entire tax regardless of the earned income and regardless of where it was earned. This possibility exists in most cantons, except for some German-speaking ones, such as Zurich, Appenzell Ausserrhoden, Schaffhausen, Basel-Stadt, as well as Basel-Landschaft, which have withdrawn from such a solution.
How is such a tax calculated? In discussions with the fiscal authorities, the annual rent expense is determined, depending on the age, status and value of the assets, which, multiplied by 7, constitutes the annual taxable income.
How to obtain a tax residence in Switzerland?
A tax residence can be obtained in Switzerland by declaring that you want to become a tax resident in Switzerland. People who stay in this country for more than 90 days – without an objective to make some earnings, or even 30 days – intending to earn money (in a calendar year), can thus obtain a tax residence in Switzerland.
When choosing a place of residence in Switzerland, you need to bear in mind the inheritance and donation tax as well. Some cantons do not impose such a tax. Moreover, it is possible to choose the legal system under which the heirs will inherit assets. If such a choice is not made or no last will has been left, the Swiss inheritance law is automatically applied – at least 50% of the assets is inherited by the spouse or partner, and at least 75% of the remaining part by children and grandchildren.
It is also important to remember about the wealth tax. This one depends on the chosen place (0.5-0.8%), with all the advantages of financial engineering, or a fiscal deal permit, which may reduce it to zero.
What advantages does having your company headquartered in Switzerland offer today?
The tax system in Switzerland may seem complicated, but it has its own logic. The competition between the cantons allows us to choose the one we prefer the most in terms of taxation as well. A range of deductions further increases the appeal of this country with its already moderate tax rates.
What tax do businesses pay?
Companies in Switzerland pay a federal income tax of 8.5%, but the tax itself is deducted from income, so effectively the payable tax is lower. To this, we should add the cantonal tax, which varies depending on the canton and is anywhere from several to over a dozen percentage points. The effective tax paid by Swiss companies today will amount to between 11.9 and 21.6%. Additionally, a system of numerous tax exemptions and deductions might make the actual sum payable way lower.
The System of Tax Deductions and Exemptions
In Switzerland, the system of deductions and business costs works very effectively, both for companies and for private persons. A business meeting with a business counterparty, a professional lunch (limited to CHF 30 when the expense is off the record! and more when it is documented), trips to and from the office, business trips), etc.
If any company has doubts concerning the amount of paid taxes, it can obtain an individual tax ruling or agreement prior to starting a new project.
Exemptions for holding companies
Companies use the dividend exemption if the dividend is paid by a company in which they hold at least 10% of the capital. The same exemption applies to income from capital gains if this income comes from selling the shares in a company and if 10% of the shares in that company have been held for at least 1 year.
Switzerland offers, like any other country, a deduction of R&D expenses. In Switzerland, we can additionally deduct 50% of such expenses. IP Box allows for obtaining a 90% revenue reduction.
It is also worth noting that VAT rates range from 7.7 to 2.5%.
Is there a catch anywhere?
Switzerland dislikes like the sight of money being withdrawn a lot. What does it mean? It means that the withholding tax in Switzerland is 35% and applies to interest and dividends if we are not protected by a double taxation avoidance agreement.
What are the costs of setting up a company in Switzerland?
Apart from the costs of starting a business (legal and notarial services, which usually amount to approximately CHF 4,000-5,000), one should take into account the payment of the company’s capital, which for an Sarl (LLC) company is CHF 20,000 and must be fully paid, and for a public company – CHF 100,000 and must be paid in 50%. Alternatively, one may consider establishing a branch of a foreign or Polish company, which will make reducing costs possible (no mandatory capital). However, the decision on devising its structure should be based upon an overall strategy. And especially nowadays, it should be well-planned.
So, is Switzerland worth taking an interest in?
Switzerland is thought to be a very expensive jurisdiction in terms of property prices, legal costs and employment costs. However, compared with e.g., the prices of legal services in the present-day Europe, it seems that Swiss lawyers have fairly moderate rates (CHF 300-400 compared to EUR 300 in Germany or EUR 250 in Spain). Those entrepreneurs who are considering Switzerland often think of it in terms of high added value – and that is exactly what this is all about! Its tax system is not really the decisive factor (although it is also important) but rather it is a different view on the company or the whole group that has its own satellite office/holding in Switzerland and develops an international reach from there.
If you need assistance with changing your tax residency or moving your company abroad – feel free to contact us!