Taxes, tax Residency and Company registration in Switzerland [2024] – NOMAD TAX

If you read this blog you will save yourself from searching for more information about Switzerland ||

Would you like to know why Switzerland is the country with the most millionaires per capita in the world?

In this article, we will analyze why the founder of IKEA chose Switzerland as his tax residence for more than 30 years. You will also discover why many big names have chosen ‘company registration in Switzerland’ for their businesses, including companies like Nestlé, Roche, UBS, and Novartis.

Switzerland: The best country in the world to live in

How much does it cost to live in Switzerland?

Switzerland undoubtedly ranks among the most expensive countries in the world. This isn’t an issue if your income is sufficient or if you have the necessary funds to cover these expenses.

Nevertheless, when considering the average salary level in the country and the taxes paid, it becomes evident that the quality of life for residents in Switzerland is exceptionally high.

According to data provided by WorldData.info, the cost of living in Switzerland is 71.7% higher compared to other places. However, in line with this figure, the average salary in Switzerland is 204% higher than in Spain, contributing to a notably elevated standard of living.

Healthcare is another relevant aspect to consider. The Euro Health Consumer Index, which assesses healthcare systems in European countries, ranks Switzerland at the top, ahead of the Netherlands and Norway. In contrast, Spain occupies the 19th position out of 35.

To live in Switzerland, however, you will need health insurance. On average, health insurance for an adult usually costs between 300 and 400 Swiss francs per month.

Company in Switzerland

Attractiveness of Switzerland for companies

Switzerland is home to numerous renowned companies such as Nestlé, Roche, UBS, and Novartis. There are several reasons why companies prefer to register in Switzerland:

• A perfect corporate image: Swiss companies enjoy an impeccable reputation in the global business community. This positive perception enhances their credibility and facilitates fruitful collaborations.

• Stable political environment: Switzerland offers a stable political climate, minimizing the risk of sudden and drastic changes in legislation.

• Preference for local presence: If a company intends to focus on Swiss customers, having a local presence is highly advantageous.

• Tax benefits: One of the primary reasons companies choose Switzerland is the favorable tax environment. We will delve into this aspect in the following sections.

Why set up a company in Switzerland?

You probably know Switzerland for its friendliness, neutrality, and stability in the business environment, which is why people from various parts of the world choose this country as the ideal destination for their commercial activities.

Investors and entrepreneurs from around the world choose Switzerland to establish their companies due to the numerous advantages they can obtain. Below, we mention some of them:

• When registering your company in Switzerland, it will not be considered an offshore company from its initial constitution. This provides you with the opportunity to access significant business benefits and receive governmental support in Switzerland.

• Once your company in Switzerland is established, you will be able to access the European market.

• The Swiss economy is robust, and companies operating here enjoy a stable and resilient environment.

• Switzerland has an extensive network of commercial treaties with more than 100 countries, eliminating concerns about double taxation and other issues when operating in multiple countries.

• The Swiss Franc, Switzerland’s currency, is stable. Switzerland’s politics, banking, and investments make it one of the safest, if not the safest, places in all of Europe.

Creating a company in Switzerland is quite straightforward but can entail certain legal complexities. If you’d like our experts to handle this for you, don’t hesitate to contact us.

What types of companies can I create in Switzerland?

After making the decision to register your company in Switzerland, it’s time to choose the legal form that best suits your needs and start the incorporation process.

In Switzerland, there are various corporate options, so it’s important to pay attention as you will likely find one that fits your requirements.

GMBH

To create this type of company, you need to meet a very important requirement, which is that you must be a habitual resident in Switzerland.

You should also consider that when establishing a company in Switzerland, there is a minimum capital requirement that must be paid in. In this case, the minimum limit is 20,000 Swiss francs.

Additionally, you must have this capital deposited in a bank before creating your company in Switzerland.

If you opt for this type of company, you will be obligated to submit annual financial statements in accordance with the regulations of the canton where your Swiss company is located.

However, it’s important to note that you won’t need to undergo an audit as long as your company has fewer than 250 employees or its turnover is below 40 million Swiss francs.

You should be aware that if you decide to make your Swiss company a GMBH, your name and the name of any partner will be publicly registered in Switzerland, meaning that anyone can access this information.

However, if you value privacy, there are options such as silent partnerships or participatory loans. These instruments allow shareholders to invest in the company without being mentioned in any commercial registry. If you would like more information about this, you can schedule a call HERE

A Swiss anonymous company is a great way to do business.

Swiss Anonymous Company (AG)

Here, the directors and team members must be appointed by the company’s creator.

The director must be an active resident in Switzerland, and the incorporation of this type of company requires you to deposit 20% of issued capital ranging from 100,000 to 500,000 Swiss francs.

In this type of company, you cannot avoid an audit.

The corresponding Swiss authorities must receive an annual accounting report and, of course, a report on the profits and turnover of the anonymous company.

The Swiss anonymous company is the most common way to establish companies in Switzerland because it is more flexible and adaptable to various economic activities and all types of businesses.

Expand your business in Switzerland by incorporating branches

If your business has international reach and you are considering expanding to Switzerland, it may be interesting to establish a branch. This way, you can maintain separate accounts but operate under the same trade name. The parent company will be responsible for any debts of your business in Switzerland.

Here you should take into account some factors, such as the director must be a habitual resident in Switzerland, the company must be registered with Swiss authorities, and of course, this branch is ultimately a company in Switzerland, so it will have to pay taxes in Switzerland, but it can also benefit from some tax advantages to reduce its tax burden.

Company registration in Switzerland

We already know what types of companies exist in Switzerland and how they operate; now it’s time to learn about the necessary procedures to create your company in Switzerland:

• The first step is to select the type of entity that best suits the needs of your business. Do you prefer the Swiss stock corporation or perhaps the GmbH? If you have any doubts, consult us [HERE]

• Something very personal and delicate, you have to choose and register the name you have selected for the formation of your company in Switzerland.

• Each canton is different and has different advantages. Define the location of your company in Switzerland and draft articles of incorporation.

• Open a bank account (this is an integral part of the company formation process, not a separate step).

• Now is the time to make the authorized capital transfer to the account and receive a bank certificate necessary to finalize the company establishment process.

• Register the company in Switzerland before a notary with an entry in the state register and then initiate a permanent business account.

• And finally, you have to register the company for VAT purposes.

How to establish a company in Switzerland?

If you wish to partner with another shareholder to create a company in Switzerland, you will need to draft a partnership agreement among the participants of the Swiss company, and, of course, have it notarized.

Furthermore, it’s important to note that the company can be established with any minimum required capital amount.

However, it is crucial to keep in mind that the participants of the company in Switzerland will be responsible for the debts or any issues that may arise in case the Swiss company goes bankrupt.

Additionally, it is necessary to register the Swiss company in the country’s commercial register. This Swiss company is intended to engage in commercial activities, which involves paying taxes in Switzerland and registering for VAT.

A notable advantage of a company in Switzerland is that the shareholders assume the tax responsibility instead of the company itself, as the tax system applied here considers personal income levels.

Taxes in Switzerland

Is Switzerland the ideal destination for your company in terms of taxes?

Many times, when Switzerland is mentioned, we think of scenes from movies where international bankers evade taxes or open bank accounts to hide their money.

However, it is important to note that Switzerland is not considered a tax haven. To better understand this, we will compare Switzerland’s tax situation with that of other countries.

As you can see, Switzerland is attractive for reducing the tax burden compared to other countries, although it cannot be considered a tax haven.

In fact, registering your company in Switzerland offers advantages such as a strong infrastructure and projecting a positive corporate image to your clients.

Furthermore, as mentioned earlier, the corporate tax rate varies from one canton to another. If you would like us to analyze which canton best suits your needs, we invite you to schedule a call (HERE).

Federal Taxation: Corporate Tax in Switzerland

As we’ve seen, Switzerland has a favorable tax system for businesses and offers a low tax burden for corporations.

Corporate taxes are applied at both the federal and cantonal levels, with rates varying depending on the canton in which the company is registered.

In addition, foreign companies can benefit from double taxation agreements and special regimes, which can result in an even lower tax burden.

Corporate tax in Switzerland operates somewhat differently than in other countries. All companies pay an 8.5% tax on their profits after taxes.

This tax amount is deducted from the taxable income, effectively reducing the tax rate to approximately 7.83%.

However, additional taxes imposed by the canton and municipality must also be considered, as they vary in different regions.

Overall, the total tax rate, combined with federal and municipal taxes, ranges from 11.9% to 21.0%. Tax rates in Geneva are considered among the highest in Switzerland.

Taxes Among Swiss Cantons

Zug has the lowest tax rate. This favorable rate, which is below 12% when combined with federal tax, has made Zug a preferred option for many large corporations seeking a lower tax burden.

Additionally, companies can deduct losses incurred in the past seven years from their taxable base, resulting in significantly reduced tax rates.

Corporate Capital Tax in Switzerland

As mentioned earlier, there are different types of taxes in Switzerland. One of them, which does not exist in most countries, is corporate capital tax.

Corporate capital tax is levied only at the cantonal level, not at the federal level. The rules for this tax vary from canton to canton. In most cases, it is only applied when a company generates no income.

Therefore, as long as a company generates income, there is generally no need to worry about corporate capital tax in most cases.

Social Security Contributions in Switzerland

Let’s start by examining social security contributions in Switzerland, which are attractive for both workers and businesses. Social contributions are solely allocated to the Swiss federal government.

The Swiss Social Security system consists of four different insurance components:

• In 2023, contributions to retirement and disability insurance, both by the employer and the employee, amount to 4.35% of gross salary.

• For disability insurance, both parties contribute 0.70%. As for unemployment insurance, the rate is 0.25%.

• Finally, unemployment insurance costs 1.1% for both the employer and the employee, but only on the first 148,200 Swiss francs annually.

• Any amount exceeding this figure is considered part of the solidarity unemployment insurance, which means it does not translate into a higher benefit in case of unemployment and is taxed at 0.5% for both parties.

For both the worker and the employer, the total burden amounts to approximately 6%.

Dividend Distribution for Swiss Tax Residents and Residents of Other Countries

Well now let’s remember two important points.

It is important to remember that income taxes are divided into federal (applicable throughout Switzerland), cantonal (with greater variations), and municipal levels.

It is relevant to note that neither dividends nor interest are subject to social security contributions.

For example, if our gross income from labor income amounts to around 100,000 Swiss francs, and we live in Zurich, our marginal income tax rate is approximately 24%. This means that if we have received 20,000 Swiss francs in dividends, the applicable rate will be 24%.

Wealth Tax in Switzerland

The other types of taxes include wealth tax in Switzerland, gift tax, and inheritance tax in Switzerland.

Regulations vary by Swiss cantons. In many cantons, there are no taxes imposed on gifts or inheritances between parents and children.

However, it is important to consult the specific regulations of the relevant canton to determine the applicable tax obligations.

Value Added Tax (VAT) in Switzerland

The value-added tax, known as Mehrwertsteuer in Switzerland, is one of the lowest among developed countries, with three different rates and a general rate of only 7.7%.

It is worth noting that these rates have been in effect since January 1, 2018. Before this date, they were slightly higher, with a general rate of 8% implemented in 2011.

Tax Residency in Switzerland:

Now, Nomad, we will take a brief look at the criteria for obtaining tax residency in Switzerland. This topic could be extended in a single post, so we will only cover it in a cursory manner. There are three main criteria for acquiring tax residency in Switzerland:

Residing without working

By residing in the country of mountains for 90 days without engaging in work activities, individuals can obtain tax residency in Switzerland.

Residing and working

Tax residency can also be achieved by residing in Switzerland for 30 days while actively working.

Sphere of interests

Individuals with a significant sphere of interests in Switzerland, such as possessing a residence permit, automatically acquire tax residency in Switzerland.

The Choice of Global Taxation by the Founder of IKEA

The founder of IKEA, Ingvar Kamprad, chose Switzerland’s global taxation system.

This choice allowed him to enjoy numerous benefits, such as automatically obtaining a residence permit, exemption from declaring and paying taxes on foreign income, and an unlimited period of taxation under the global taxation system.

These advantages played a significant role in his decision to reside in Switzerland for half of his life.

To conclude

Remember that when considering tax residency in Switzerland, it is essential to comply with all tax obligations and maintain accurate records of your income and assets.

Furthermore, it is advisable to seek the guidance of experts in international taxation and local specialists to ensure compliance with the specific regulations of each canton.

If you have more questions about Switzerland, feel free to write to us on our WhatsApp.

FAQ

1. What are the tax advantages of establishing a company in Switzerland?
   • The tax advantages of establishing a company in Switzerland include a low tax burden, double taxation treaties, and special regimes that can reduce the tax burden.
2. How can I obtain tax residency in Switzerland?
   • You can obtain tax residency in Switzerland by residing in the country for a specific period or having a significant sphere of interest in Switzerland, such as a residence permit.
3. What are the differences between federal and cantonal taxes in Switzerland?
   • Federal taxes are applied throughout Switzerland, while cantonal taxes vary depending on the canton you are in. Cantons have some autonomy to set their tax rates.
4. What are the necessary steps to open a bank account in Switzerland?
   • To open a bank account in Switzerland, you generally need to provide identification documents, proof of income, and undergo an interview with the bank.
5. What is the value-added tax (VAT) rate in Switzerland and how is it applied?
   • The general VAT rate in Switzerland is 7.7%. It applies to most goods and services, but there are reduced rates for certain products.
6. What are the most popular investment options in Switzerland?
   • Switzerland is known for its stable banking and financial system, making it a popular destination for investments in private banking, funds, and real estate.
7. How do inheritance and gift taxes work in Switzerland?
   • Inheritance and gift taxes vary by canton and the relationship between parties, but in many cantons, there are no taxes on gifts or inheritances between parents and children.
8. What is the current status of information exchange agreements in Switzerland?
   • Switzerland has signed information exchange agreements with several countries, which means it shares financial information with other countries to combat tax evasion.
9. What criteria must be met to obtain a residence permit in Switzerland?
   • The criteria for obtaining a residence permit in Switzerland may include having employment or a significant sphere of interest in the country, among other factors.
10. Which Swiss cantons have the most favorable tax rates?
    • Swiss cantons with favorable tax rates vary, but some, like Zug, are known for their low tax rates and special tax advantages.

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