Switzerland Tax & Business Guide - Deloitte

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Basic facts
Population 7.4m Inflation 1.1% (2005)*
Main languages German, French, Italian GDP per head US$49,778*
Currency Swiss franc (CHF) GDP growth 1.8% (2005)*
Economic communities European Free Trade Association, OECD, WTO
GDP sources 2% agriculture, 34% industry, 64% services
*Economist Intelligence Unit.
Political environment

Switzerland is a federal state and a parliamentary democracy. Several national referendums are held every year, and the need to build strong popular support for legislation has led to a consensus-oriented political process. The result is a stable and reliable political environment.

The federal government is comprised of four major parties: the centre-right Radical Democratic Party (FDP), the centrist Christian Democratic Party (CVP), the populist right-wing Swiss PeopleÌs Party (SVP) and the left-wing Social Democratic Party (SP). Next federal elections will take place in October 2007.
Foreign trade and investment
Exports US$144.4bn (2005)* Imports US$130.9bn (2005)*
*Economist Intelligence Unit.

Leading exports: Chemicals, machinery, precision instruments, watches and jewellery.

Major export markets: EU countries, with Germany the largest single trade partner.

Switzerland welcomes foreign direct investment in manufacturing, services, and research and development (R&D). Switzerland has federal and cantonal incentives for new investors, particularly for enterprises requiring skilled workers.
Business and financing
Business forms Corporation

The most frequently used company form is the corporation, a soci»t» anonyme (SA)/Aktiengesellschaft (AG). The Swiss limited liability companyÛthe soci»t» á responsabilit» limit»e (SárL)/Gesellschaft mit beschrânkter Haftung (GmbH)Ûis also popular.

Switzerland is a popular location for establishing holding companies. Branches are also a common form used for business operations in Switzerland.
Labour environment
Unemployment rate 3.8% (2005)* Minimum wage None
*Economist Intelligence Unit.

There is no minimum wage by law.

Switzerland has a liberal labour law compared with those of other European countries.

Social security contributions of approximately 12% (state pension, disability insurance, unemployment insurance) are split equally between the employee and the employer. Employee pension funds are mandatory in the private sector and add an average of 10Ò15% of base salaryÛsplit equally between the employer and employeeÛto the cost of labour.

Foreigners account for nearly one-fifth of the population. The employment of foreign nationals from outside Switzerland or the ÏoldÓ EU member states is based on application and subject to the available contingent of work permits.
Taxation
Corporate tax
Main rate Rates range from 13% to 25%

Resident companies are taxed on their worldwide income apart from profits derived from foreign branches and immovable property, which are tax-exempt; non-resident companies are taxed on permanent establishment/branch income and/or immovable property located in Switzerland. Companies with their legal seat (registered office) or place of effective management in Switzerland are considered to be resident for tax purposes. Taking into account the federal and cantonal tax, the effective rate is between 13% and 25% for companies subject to ordinary taxation, depending on the place of residence. Dividends received are taxable, but there is participation relief where a resident company has a 20% shareholding in a resident or non-resident company or the shareholding has a fair market value of at least CHF 2m. Interest and royalties are included in taxable income.

Beneficial tax regimes exist, inter alia, for holding companies (corporations whose primary statutory purpose is the administration of participations and that have no active trade or business in Switzerland), domiciliary companies (corporations that only carry on administrative activities in Switzerland) and mixed companies (corporations with predominantly foreign business activities). The typical tax rate is between 8% and 11%. The effective tax rates can be even lower for principal companies and certain finance operations, which may take advantage of additional special ruling practices.

Tax holidays may be granted at the federal as well as cantonal and communal tax levels. Cantons generally grant a tax holiday for up to ten years to new enterprises that bring or expand business in the canton and create a certain number of jobs. A federal tax holiday may only be granted to a business that relocates to certain areas of Switzerland outside the main municipalities.
Individual tax
Federal rate 0Ò11.5% Cantons 0% to approximately 30%

Resident individuals are taxed on their worldwide income apart from profits derived from foreign businesses, branches and immovable property, which are tax-exempt; non-residents are taxed on Swiss employment income, business profits and profits attributable to immovable property. Residence is determined on the basis of whether a person intends to stay in Switzerland permanently, as indicated by the individualÌs centre of personal and business interests or where the individual is present in Switzerland for 30 days to carry out a professional activity, or present for at least 90 days. In addition to the federal income tax, all cantons levy a tax on personal income. Tax rates are progressive. The maximum federal tax rate is 11.5% for income over CHF 715,000 (married persons). Income tax is levied by the cantons at rates up to approximately 30%. A married person with two children and a gross employment income of CHF 100,000 pays federal and cantonal/communal income taxes of between 6% and 13%, depending on the place of residence.
Capital gains
Capital gains of companies taxed as income; individual gains exempt

Capital gains are generally included in taxable income in the amount exceeding the book value of the disposed asset. Capital gains realised on the disposal of a shareholding of at least 20% in a resident or non-resident company qualify for participation relief if the investment has been held for at least one year.

Mergers, divisions or other reorganisations may be tax-neutral provided the book values remain constant and the entities involved remain taxable in Switzerland. Depending on the specific form of reorganisation, additional conditions may need to be satisfied.

Individual gains, including those on immovable property, are not subject to federal income tax unless derived in the course of a business.
Indirect tax
Standard rate 7.6% Lower rates 3.6%, 2.4%

Value-added tax (VAT) applies to the supply of goods and the rendering of services. VAT is only applied at the federal level, and cantons may not impose similar taxes on items that are subject to the federal VAT. The standard rate is 7.6% and a lower 3.6% rate applies to hotel accommodation. A 2.4% rate applies to essential items, including food, medicine, water, printed media and newspapers. Exports are zero-rated. Exemptions include transfers and leasing of property, education and health services, financial transactions and cultural activities.

Registration is compulsory for businesses with annual turnover above CHF 75,000. A voluntary registration may be recommended for certain businesses to obtain input tax deductions.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

There is combined tax-return filing for both federal and cantonal income tax purposes. A self-assessment procedure applies for corporate and individual taxpayers, except for certain foreign individuals.
Additional tax information
Withholding taxes Dividends 35%, Interest 0% or 35% (collective financing), Royalties 0%. Rates may be reduced by tax treaty or under the bilateral agreement with the EU.
Tax treaties More than 70 tax treaties have been concluded by Switzerland.
Dividends Participation relief is available.
Revenue protection There is thin-capitalisation legislation, but no CFC rules.
Groups There is no group consolidation for corporate income tax, but domestic group consolidation is available for VAT.
Incentives Beneficial tax regimes, inter alia, for holding companies, domiciliary companies, mixed companies and principal companies. Tax holidays may also apply.
Other taxes Customs and excise duty, Environmental taxes, Inheritance and gift tax, Net worth tax, Securities transfer tax, Stamp duty, Real estate gains tax, Real estate transfer tax.