Switzerland

Tax residency – Companies with their registered office in Switzerland or its place of effective management in Switzerland are deemed to be residents for tax purposes.

Basis – Corporate income tax is levied on worldwide profits. However, profits derived from foreign branches or permanent establishments, foreign real properties and profits undistributed by foreign subsidiaries may not be subject to taxation.

Tax rate – Corporate income tax is imposed at both federal, communal and cantonal levels.

The Federal effective tax rate is 7.83%.

Each canton has its own tax legislation and levies cantonal and communal income and capital taxes at different rates. The combined effective tax rate is between 11.5% and 24.2%, depending on the corporate place of residence in Switzerland.

Under certain conditions, companies with predominantly foreign business activities may have cantonal and communal tax reduction or exemption and taxed at an effective tax rate between 7.83% to 11% on foreign-source income.

Capital gains – At the federal level, capital gains are treated as ordinary income and taxed at the standard rate.

An exemption is available for dividends received, whether from resident or nonresident when shares have been held for at least 1 year and constitutes 10% of the share capital or the participation has a value of CHF 1,000,000.

Dividends – Dividends received are usually taxable.

Relief may be granted if the recipient holds at least 10% of the share capital or 10% of profits and reserves of the underlying subsidiary or the residual participation’s market value at the beginning of the year amounted to at least CHF 1,000,000.

Interests – Interests are subject to corporate income tax.

Royalties – Royalties are generally taxable at both federal, communal and cantonal levels. However, some cantons have introduced a patent box regime, where royalties may be tax-exempt or taxed at reduced rates.

Foreign-source income – Foreign-source income is taxable at both at federal, cantonal and communal levels. However, profits derived from foreign branches or permanent establishments, foreign real properties and profits undistributed by foreign subsidiaries may not be subject to taxation.

The aforementioned participation exemption may apply for dividends and capital gains derived from foreign-source.

Withholding tax paid to treaty countries may be creditable, taxes paid on non-treaty countries may not be creditable but may be deductible.

Withholding taxes – Dividends paid to non-residents are subject to withholding tax at a 35% tax rate.

Under the EU-Switzerland savings agreement, dividends paid to EU residents may be exempt from withholding tax if the capital participation is at least 25% and other criteria are met. Rates may be reduced due to a tax treaty.

Interests and royalties are not subject to withholding tax. However, interests derived from deposits with Swiss banks, bonds, and bond-like loans may be subject to a 35% withholding tax, which can be reduced to payments to treaty-countries.

Losses – Losses arising from taxable income may be carried forward for 7 years. Carryback of losses is not allowed.

Inventory - Inventory may be valued at the lower of acquisition/production costs or market value. To determine costs are allowed First in first out (FIFO), Last in first out (LIFO), Highest in first out (HIFO) methods.

Anti-avoidance rules – Switzerland has not formally introduced transfer pricing regulations or documentation requirements, but transactions must be carried out on arm’s length terms.

Thin capitalization rules apply, requiring a minimum equity ratio for each asset class

Switzerland has not enacted controlled foreign company regulations, hence undistributed income from foreign subsidiaries may not be taxable.

Labor taxes – Employers and employees are required to make contributions to several social security insurance funds. If an employee is subject to the Swiss Social Security, both the employer and employee have to contribute a total of 8.02%-23.35% and 12.23%-15.23%, respectively. Each contribution may be capped to certain amounts.

Tax credits and incentives – Withholding tax paid to treaty countries may be creditable, taxes paid on non-treaty countries may not be creditable but may be deductible.

In addition to the holding company, trading mixed company and domicile company tax regimes mentioned above, several cantons offer privileged tax regimes.

Compliance – On average, a company in Switzerland may require 19 payments and 63 hours per year to prepare, file and pay corporate income tax, value-added tax, and labor taxes, including payroll taxes and social contributions.

Personal income tax – An individual is deemed to be tax resident in Switzerland, if he or she resides in Switzerland permanently, or is physically present in Switzerland for at least 30 days to carry out a professional activity or is physically present in Switzerland for 90 days.

Resident individuals are taxed on a worldwide basis, while non-residents pay taxes on income accrued within the borders of Switzerland.

The federal tax rate is progressive at rates ranging from 0% to 11.5%. Cantonal and communal taxes also apply. Top marginal effective tax rates are between 25% to 51% depending on the canton and commune.

Capital gains on movable assets are tax-exempt, provided that the taxpayer is not a professional securities dealer. Capital gains on immovable assets are subject to cantonal capital gains tax, with rates that vary depending on the canton and holding period.

Dividend, rental and interest income are usually taxed at applicable personal income tax rates.

Other taxes – The sale and import of goods and services are subject to V.A.T. at a standard rate of 8%. Reduced rates and exemptions may apply.

A stamp tax is levied on the transfer of securities, the tax rate is 0.15% if security is issued by a Swiss tax resident and 0.3% if is issued by nonresident.

A capital duty of 1% is levied on the issuance and increase of the equity of Swiss corporations. However, the first CHF 1,000,000 of capital is exempt from capital duty.

Cantons and communes may levy a capital tax based on a corporation’s equity at rates that vary from 0.001% and 0.525%.

Several cantons and communes levy real estate property and transfer taxes. They also levy net wealth taxes at progressive rates up from 0% to 1.3% (4.5% in the case of Geneva).