The founding principles of Swiss corporate tax law
Swiss corporate tax
Unlike legislation in the vast majority of other countries in the world, Swiss corporate tax is deductible such that the given rates are applied to the net profit after taxes. The following illustrates the calculation of the rate which must be applied to the gross profit (like in France, Belgium, Luxembourg, etc.).
For example, in the canton of Geneva:
- Swiss federal tax: 8.5%
- Swiss canton (state and church) tax is 23.5%
The Swiss tax rate appears to be 32% but, in Switzerland, taxes are a deductible expenses, so the real global Swiss tax rate on the gross profit is: 32/1.32=24.24%.
When a company operates in several cantons, only one tax return must be filed to the main canton. This canton then distributes the tax charges from the different cantons where the company operates.
Capital tax
This tax is based on the corporation's capital. The capital can be increased from surpluses in current shareholders accounts (beyond what the company could borrow from banks) from which the interest will no longer be deductible (when the withholding tax is applied).
The canton tax rate in Geneva is 0.4%.
Withholding tax (tax withheld at source)
The withholding tax on all the dividend distributions made by Swiss companies can reach 35%.
However, the rate of this tax is governed through Swiss tax treaty and the Switzerland tax administration.
There is no withholding tax for dividends distributed to a company of the European Union which owns Swiss company at 25% or more for at least two years.
Tax incentives for companies
1) The tax regime for holding deductions: to benefit from this tax incentive, the holding company must own at least 10% of the affiliate for 12 months or more and then taxed profit including dividends received or the capital gains attained from the affiliates are exempted. In Switzerland, the holding deductions are very similar to those in Luxembourg Soparfi companies.
2) Holding companies: To acquire the status of a holding company, the company must have no commercial activities in Switzerland, and must receive at least two thirds of its revenue income from its affiliates (these must be subsidiaries in which the holding company owns more than 20%). This last condition is also fulfilled at the moment when the affiliates represent at least 2/3 of the assets of the company which seeks the status of a holding company. When the company acquires a holding status, the company does not pay income tax which includes administrative services, management fees and revenue from intellectual property, etc., but only the federal tax (at a global rate of 7.8%). We would like to add that holding companies are subject to capital tax at a reduced rate (for example 0.0672% instead of 0.4% in the canton of Geneva).
3) Auxiliary company: For a company to have the tax regime of an auxiliary company, it must not have commercial activities in Swiss territory, unless that activity is very marginal. When a company acquires the status of a auxiliary company, it enjoys the following tax benefits:
- the revenue from its holdings are tax exempt (as for a holding company),
- income from abroad is subject to a tax rate negotiated with the Swiss tax administration,
- income from Switzerland is taxed at a normal rate.