The Swiss tax on capital companies

The confederal structure of Switzerland leads to a two-tier taxation: the federal and the cantonal level. In addition, the municipalities also levy taxes, most often through “additional centimes” calculated on the basis of the cantonal tax. The tax burden of legal entities therefore differs considerably depending on the canton in which they are established.

In order to simplify taxation and to limit the divergences between cantons, the federal government adopted in 1993 a federal law on the harmonization of direct taxes of the cantons and the communes (LHID). This law came into force on January 1, 1993 and has :

• harmonized the formal aspects of taxation, such as the liability, the object of the tax, the tax periods…
• preserved a large autonomy for the cantons regarding the determination of the tax rates, the rates and the deductions allowed.

This explains why, depending on the canton, there are still great disparities in the tax burden ultimately borne by taxpayers, companies and individuals.

Which legal entities are taxed?

Only legal entities having their registered office or administration in Switzerland are subject to unlimited Swiss taxation on their worldwide income, but in compliance with the double taxation treaties concluded with third countries.

There are two categories of legal entities that are subject to different tax regimes

• corporations (limited companies, partnerships limited by shares, limited liability companies) and cooperatives
• associations, foundations and other legal entities (public or ecclesiastical bodies and institutions, as well as collective investments with direct ownership of real estate).

Which form of company to choose?

The choice of a corporate form has important consequences in terms of legal liability and assets. To learn more, please read our article on the choice of the civil consequences of the different company forms.

Taxation of corporations

Tax on profits: federal and cantonal

Corporations are subject to a tax on profits at the federal and cantonal levels.

This is a tax on the profit net of tax-allowable business expenses and direct and indirect taxes paid by the company during the taxable period.

– The federal income tax rate is 8.5% (art. 68 LIFD).

– All cantons also provide for a tax on profits. The majority of them provide for the application of a fixed rate that varies considerably from one canton to another (from 1.5% in Lucerne to 10% in Geneva). Others establish the tax on the basis of a mixed or progressive rate, generally including a minimum and a maximum. This is the case in the cantons of Bern, Zug and Fribourg. In addition to this basic tax, there are cantonal and municipal surcharges.

Other federal taxes

In addition to income tax, the federal government also levies withholding tax, stamp duty and VAT.

However, it does not levy any capital taxes.

Cantonal capital taxes

With the exception of the canton of Uri, all cantons continue to levy a capital tax on capital companies. This tax is almost always proportional and is expressed as a percentage of taxable capital.

As an exception, three cantons (the cantons of Graubünden, Valais and Geneva) levy a tax based on a progressive rate.

Cooperative and holding companies

Cooperative companies are, in principle, taxed according to the same rules as capital companies.

Holding companies are, for their part, taxed on the basis of special rules which release them from taxation on their profits at both federal and cantonal levels. On the other hand, the cantonal tax on capital remains due at a rate, however, generally lower.

Tax exemptions

In addition, all cantonal laws provide for the possibility of granting tax exemptions (total or partial) or reliefs to newly created companies that develop an activity that the canton wishes to promote.

Such reliefs can also be granted at the federal level. However, these measures cannot exceed the relief granted to the company by the canton.

Essential reflection on the choice of canton

Given the significant differences between the tax systems of the various cantons, entrepreneurs wishing to set up a company in Switzerland must take particular care in choosing the canton in which they wish to establish themselves. In any case, this choice will have to correspond to a real location. Moreover, and as always in these matters, taxation should not be the only criterion, but one of the elements to take into account in the choice.