Switzerland tax incentives and corporate tax relief
There are three different kinds of companies which enjoy corporate tax relief and Switzerland tax incentives: a reduced tax compared to the ordinary tax scale. These companies are holding companies or management/service companies or the so called auxiliary company.
First it must be stated that Switzerland's tax incentives may apply to federal, cantonal and municipal taxes. A holding, management or “auxiliary” company is considered to be either an SA or SARL (Swiss PLC or Swiss LTD, similar equivalents) as a foundation or a company.
Below, this article describes tax incentives for Swiss holding companies, Swiss management companies and Swiss Auxiliary companies
Swiss holding companies
Swiss holding companies are afforded corporation tax relief in order to prevent double or triple taxation. It is the responsibility of the Swiss cantons to set the conditions for companies to attain the status of Swiss holding companies.
Definition of a Swiss holding company
Rather than describing the conditions of every canton, the following describes the basic requirements which are very similar from canton to canton:
- The company must have a holding activity, meaning to possess affiliates and manage its portfolio of companies in the long term. Its activity should be stated in the corporate mission statement registered at the Swiss trade register.
- In the long term, 2/3 of the assets on the balance sheet must be affiliates, or 2/3 of the revenue must come from affiliates.
- The company cannot carry out any significant trade or manufacturing activity in Switzerland.
- A company is considered a holding either when the it owns at least 20% of the affiliate's capital or when the amount invested in the affiliates attains a value of at least 2,000,000 CHF.
Tax incentives for Swiss holding companies
Swiss holding companies do not pay income tax to the cantons and are subject to a reduced rate for capital. On a federal level, income is normally taxed at a rate of 7.83%. Nevertheless the income from holding activities is not subject to this tax. Having the status of a holding company defines more or less how these taxes are applied in the cantons.
Swiss management company
Definition of a Swiss management company
- To benefit from this status, the company must perform purely management tasks in Switzerland and no commercial activities.
- Management activities generally means that the company offers technical assistance, management services (financial or administrative) or consulting services. There is no official definition of management activities, and as a result this is defined by the cantons.
Tax incentives for Swiss management companies
Income from Switzerland is taxed at a normal rate. Income from abroad is taxed at a normal rate according to the importance of the management activity carried out in Switzerland. The degree of importance is judged on a case by case basis by the canton administration. Income coming from abroad is generally taxed at a rate of between 5 and 15%, and to this the direct federal tax is added at a rate of 7.83% on the total revenue. Swiss tax treaty laws in effect may also offer corporation tax relief.
Swiss auxiliary company
Definition of a Swiss auxiliary company
- In order to benefit from this status, the company carrying out commercial activities must obtain revenue from its activities abroad and not carry out any substantial activity in Switzerland. At least 80% of the company's revenue and expenditures must be done abroad.
- The criteria for this status differs between the cantons. It generally deals with “place of market” (the country where the goods or services are sold or bought) and not with the “place of origin” (the country where the infrastructure and personnel are located). Certain cantons are more restrictive as to what is considered a service.
Tax incentives for Swiss auxiliary companies
Income coming from Switzerland is taxed at a normal rate. Income from abroad is taxed at a normal rate depending on the importance of the commercial activity carried out in Switzerland. This degree of importance is decided upon by the canton administration. The rate of income tax varies between 5 and 12% and to this is added the direct federal tax at a rate of 7.83% imposed on the total revenue. Swiss tax treaty laws in effect may also offer corporation tax relief.