Tax Compliance Services in Switzerland: An Overview
Switzerland is popular for its lean government, low duties and taxes. The low tax rates for companies and private individuals are one of the important reasons for international companies to choose for setting up offices in Switzerland. Along with the low tax rates, there are further benefits contributing towards Switzerland being a popular location, such as smooth cooperation between authorities and companies, a low value-added tax and an extensive network of double tax treaties. On January 1, 2020, the Federal Law on Tax Reform and AHV Financing (TRAF) entered into legal force. With this reform, the Swiss tax system has been modernized and now provides companies with an attractive tax environment in tune with internationally established tax practices.
Different Types of Taxes in Switzerland
Various taxes in Switzerland are discussed below-
Non-resident companies may be liable for Swiss Corporate Income Tax(CIT) if they (alternatively) have a Permanent Establishment in Switzerland, Partners in a Swiss business,own real estate property in Switzerland, dealing with or acting as a broker of real estate property in Switzerland or are having loan receivables secured by a mortgage on real estate property of Switzerland.
Foreign legal entities that have a branch in Switzerland are liable for limited taxation in Switzerland. Such branches generally qualify as PEs in line with the OECD Model Tax Convention on Income and Capital. The income of the branch generally attracts the same CIT rules applicable to Swiss corporations. It must be noted that there is an absence of any Swiss withholding tax (WHT) on profit transfers from the Swiss branch to its foreign head office. The corporate tax in Switzerland is levied on 2 levels, i.e.
1. Federal level
Switzerland levies a direct federal CIT on profit after tax. Accordingly, CIT is deductible for the purpose of tax and leads to the reduction of taxable income leading to a direct federal CIT rate on profit; no corporate capital tax is levied at the federal level.
2. Cantonal/communal levels
Along with the direct federal CIT, each canton has their own tax legislation and levies cantonal as well as communal corporate income and capital taxes at different rates. Therefore, there is a differentiation in the tax burden of income (and capital) on the carton. Some cantonal and communal taxes are levied at progressive rates.
The company pays the dividends from its profit after tax. This does not attract Swiss social security and AHV pension contributions.
The withholding tax is levied @ 35% withholding on dividends paid by a Swiss corporation and as payments such as cash bonds,Swiss bonds and any client deposits at Swiss banks.In many cases, this tax can be partially or wholly refunded. Swiss resident individuals, and legal entities, are eligible for full refunds. Foreign shareholders receiving dividend payments from a Swiss company can get a partial refund upon their home country being a part of Switzerland's tax treaty network.
Issuance Stamp Tax
An issuance stamp tax may be leased wherein a Swiss corporation is issued or has increased its equity @1% on the asset's fair market value, but the first CHF 1 million is exempt.
Securities Transfer Tax
Securities transfer tax is levied in specific circumstances where there is an exchange of the ownership of Swiss and foreign taxable securities– through sale,purchase, or exchange – and a Swiss bank or other Swiss securities dealer is acting as a counter-party or intermediary.The securities transfer tax is applicable @ 0.15% on Swiss securities and 0.3% on foreign securities.
Real Estate Capital Gains Tax
Capital gains earned from selling real estate either attract the income tax or real estate capital gains tax, depending upon the canton or municipality of the property. Thesame applies to capital gains which are earned from selling a majority of the shares in a real estate company.
Corporate Tax Exemptions and Credits in Switzerland
There are certain corporate tax exemptions and credits in Switzerland, which are discussed below -
Swiss Corporate Tax Exemptions
Swiss residents need to pay taxes on their worldwide income; this doesn't apply to foreign businesses as the Swiss corporate tax isn't applicable to income from foreign permanent establishments, foreign businesses or foreign real estate.
But, the income from these sources is taken into consideration when making a decision regarding the tax rates a company should pay.
Additionally,certain items don’t attract corporate tax on cantonal or federal levels – even if a company does pay Swiss corporate tax. Exempt items include:
- Money from gifts, inheritance and matrimonial property rights (however, these may attract gift or inheritance tax)
- Compensation for damages
- Payments regarding private or governmental social welfare
- Private capital gains on movable assets (inclusive of cryptocurrencies), as long as it isn’t qualifying as a business activity
Corporate Tax Deductions in Switzerland
In general, any expenses that are essential for running a business are deductible from the gross income. However, the definition of an expense can differ between cantons.
Business expenses include things such as:
- Buying costs of the sold goods
- Rental expenses(or a proportion of rent on a privately-rented property)
- Other related business expenses
Expenses also include losses, which can be offset against other income and carried forward.
Whereas general deductions include:
- Charitable donations
- Insurance premiums
- Property management
- Interest charges on mortgages and other borrowings
- Maintenance costs on any real estate, such as repair and replacement costs
Expat Corporate Tax Deductions
There are various deductions specifically for ex-pats. In this case, ex-pats mean executives and specialists temporarily assigned to work in this destination for up to 5 years.
Expat-specific deductions can include the following:
- Costs of travel b/w Switzerland and place of residence abroad
- Reasonable costs for the purpose of accommodation in Switzerland, if the permanent residence place is in the home country
- Cost of Moving
- Schoolingexpenses for the taxpayer’s children for a foreign language private school – but only if public schools do not offer schooling in the child’s language.
Corporate Tax Credits in Switzerland
Swiss corporate tax credits are fairly rare, as it is generally using the exemption method for qualified foreign income.
However, in cases where investment income is derived from a country having a tax treaty with Switzerland, a tax credit is available for the non-refundable part of withholding taxes on interest rates,dividends, and royalties. Switzerland has a great network of more than 100 tax treaties.
Filing Corporate Tax Returns in Switzerland
A Swiss tax return must be filed on an annual basis, but the deadlines vary between cantons. It’s generally due between 6 - 12 months after the end of the business year.Tax losses could be carried forward for up to 7 years, but there is no way to carry them back.Cantons need a visit to the local tax office for picking up the forms.beThe assesse then simply needs to fill out each section of the form applicable to his circumstances. Supporting necessary papers might include:
- Salary statements
- Year-end statements from all securities, bank accounts and custody accounts reflecting interest and dividends earnings
- necessary papers reflecting the purchase of things like bonds, equities, and funds
- AHV pensionstatements
- Swiss life insurancestatements
- Invoices, bills, and receipts
Services provided by Enterslice
Enterslice is a market-leading management consultancy firm offering end-to-end business setup, taxation, financial planning, and regulatory, legal and advisory services to entrepreneurs, young start-ups and large corporate houses across the globe.Our services regarding Tax Compliance in Switzerland are discussed below -
- Corporate Tax Advisory
At the time of formulating tax plans and strategies for Swiss and international companies, initially, there is a need to have an in-depth knowledge of the business operations.Working closely with the management team, the advisors from Enterslice analyze the overall tax situation of the company for laying the foundations for tax management in the long term. An ongoing knowledge transfer and a multidisciplinary approach make sure that our client’s business operates complying with tax law in any situation, responds flexibly to any changes and takes benefit of any tax privileges. Targeted support on the questions arising day is a vital prerequisite for optimizing a company's tax situation.
Our tax advisors are familiar with Swiss and international tax law and arealways updated with the latest trends. We can share our expert knowledge anywhere across the globe Advisors work in teams structured to suit the needs of our clients. They have a clear understanding of tax laws and many different areas of a business. Enterslice keeps clients and industry professionals updated with the latest technical developments and tax news from its international centres of expertise and its Swiss tax offices.
- Preparation of tax returns and tax balance sheets for Switzerland's and international companies with any legal form
- Formulation of tax optimization measures, e.g. in the event of restructuring or transactions
- Assistance with company audits
- Preparation of financial accounts, annual financial statements and financial reports as per the Swiss and international accounting and reporting standards
- Guidance on specific tax issues such as salary and expenses payments or succession arrangements
- Value Chain Analysis (VCA) methodology detecting and defining value creation activities, people and locations, including DEMPE – Analysis for IP planning
- Advisory on ESG in Tax
Political initiatives such as the EU Green Deal, responsible business objectivesand the increasing focus on climate are influencing organisations in Switzerland as well. Now is the time to act and include the impact of environmental taxes, people/social aspects, as well as governance (tax strategy, operations and transparency) in the decisions of the business.
The new ESG focus and increased use of environmental taxes will impact companies’ pricing and margins. A clear assessment of this impact will not only enable the entrepreneurs for the adaptation of technology strategy but also for the identification of funding opportunities. Environmental taxes aren't usually on the radar of the tax function. But the increasing no. of tax audits regarding this will likely lead to the tax function becoming responsible for the management of these taxes. The same is applicable to the people – social and governance components. We help our clients in turning the tax functions of their company into an informed discussion partner for their management and other business units in charge of ESG.
- Assessment of ESG tax readiness
- Environmental tax
- Green tax database and incentives navigator
- Green tax modelling tool
- Company selfie
- Tax transparency strategy
- Tax transparency report
- Total tax contribution
- Patent box and R&D super deduction
- M&A Tax & Deal Advisory
Mergers, acquisitions and sales are often tied to complex issues, even fromthe point of view of tax. Enterslice can support clients through the whole process. Taxes play a vital role at every stage of a transaction. From the initial methodology to the structuring process to due diligence and final implementation - each phase includes tax opportunities and risks which must be considered from an early stage.
- Assistance in Acquisitions and sales
- Consultancy on Mergers and joint ventures
- Guidance on Reorganizations
- Management buyouts
- Going private
- Tax Transformation
Taxes are important for a company’s financial figures, implying that they are also becoming the general public’s interest. Due to this, businesses require a well-organized tax department which works efficiently, ensures tax compliance and can calculate and report tax expenses in the correct way while at the same time creating transparency regarding tax positions and risks. Only by doing all this can companies quickly and flexibly respond to local changes to the law and standard practice, spot tax risks at an early stage and deal with them in the best way possible.
- Optimization of the client’s tax processes and systems for obtaining complete, transparent and reliable information on their tax affairs
- Implementation of tax compliance systems
- The correct and timely preparation and filing of tax returns across the globe.
- Increase trust in the reliability of the client's tax information and thus also in their financial reports.
- Enterslice’s solutions provide clients with the ability of getting an overview at any time during the current processing of matters related to all group companies involved at home and abroad.