Swiss holding company formation

Definition

To qualify as a holding company for can- tonal income tax purposes, three conditions must be fulfilled:

1. The bylaws of the corporation must state that the main activity of the company is the long-term management of equity investments.
2. The corporation generally must not have any operating business activity in Switzerland (certain activities, however, such as managing the company itself and its investments, providing services on behalf of the consolidated group, debt financing of subsidiaries, or holding and exploiting of IP may be permissible).
3. In the long term, either the company’s participations must represent two-thirds of the assets in its balance sheet (based on market values), or the income derived from such participations (e.g., dividends/ capital gains) must represent at least two-thirds of its total income. Shares of corporations, limited- liability companies, cooperatives, and certificates of participation are considered as participations.

Registration in Switzerland – Company law regarding holding companies

In Switzerland, holding companies are a specific type of company structure with distinct legal and tax benefits. Here’s a broad overview of the company law regarding holding companies in Switzerland:

Definition and Purpose

A holding company is primarily established to hold and manage shares in other companies. Its main purpose is to control and oversee other companies’ activities, rather than to engage in commercial activities directly.

Legal Structure

Holding companies can be established in various legal forms, including a Public Limited Company (AG) or a Limited Liability Company (GmbH). The most common form for holding companies is the AG.
The holding company must have its registered office in Switzerland.

Requirements for Holding Companies

For an AG, the minimum share capital is CHF 100,000, of which at least CHF 50,000 must be paid in. For a GmbH, the minimum capital is CHF 20,000.
The company must have at least one director who is a Swiss resident or a resident of another EU/EFTA country. This is crucial for ensuring that the company meets Swiss residency requirements.

Taxation

Holding companies benefit from favorable tax treatment in Switzerland. They are typically subject to reduced cantonal and federal tax rates, especially if they meet specific criteria.
Holding companies can be exempt from certain business taxes if they meet the following conditions:

– The principal activity of the company must be the holding and management of participations.
– At least two-thirds of the company’s income must come from qualifying participations, and at least two-thirds of its assets must be invested in these participations.

Reporting and Compliance

Holding companies must comply with Swiss accounting standards, which include preparing annual financial statements and conducting annual general meetings.
Small holding companies might be exempt from audit requirements, but larger ones must undergo a statutory audit.

Advantages

Favorable tax treatment can significantly reduce the overall tax burden.
Holding companies can provide a layer of protection for assets and reduce liability.
They offer flexibility in managing and structuring investments.

Registration Process

The process involves drafting the articles of incorporation, setting up the initial capital, and registering the company with the Commercial Register.
It is often advisable to consult with legal and tax professionals to ensure compliance with all legal and regulatory requirements.

Regulatory Bodies

Swiss Federal Tax Administration (FTA) – Oversees tax matters.
Commercial Register – Maintains records of company registrations.

For the most accurate and personalized advice, consulting with a Swiss legal expert or a company formation specialist is recommended, as they can provide guidance tailored to your specific situation and ensure compliance with all relevant regulations.

Taxation

If a company qualifies for a special tax regime, the corporate income tax rate can be reduced significantly to as low as 5%. Non-resident corporations with a permanent establishment in Switzerland are subject to tax on permanent establishment income and equity in the same way as resident corporations.

Advantages

• Exemption from Withholding Tax on Payment of Interest.
• Commercial interest, including loans from foreign shareholders paid by a Swiss company are not subject to withholding tax.
• Exemption from Withholding Tax on Payment of Royalties.
• No withholding tax is levied on payments of royalties made by a Swiss company.

Tax treaties

For an update overview of Swiss tax treaties, click HERE.

Setting up your Holding Company in Switzerland
Canton of Vaud

Advantages and Benefits

– Holding companies based in Vaud enjoy favorable tax benefits on qualifying dividends and capital gains, thanks to Switzerland’s federal holding company framework. This provides exemptions from cantonal and communal taxes on qualifying income (such as dividends and capital gains from participations), along with reduced federal taxation.

– Vaud is located near Geneva, a key financial and business hub in Switzerland. This proximity supports international business operations, facilitates access to international organizations, and offers a highly skilled, multilingual workforce. Lausanne, the capital of Vaud, is an emerging business center, attracting many multinational companies, particularly in technology, finance, and healthcare.

– The canton of Vaud boasts strong infrastructure, top-tier universities (like EPFL), and a highly educated workforce, especially in technology and innovation sectors.

– As with other Swiss cantons, Vaud follows the federal tax regime for holding companies. Holding companies that generate the majority of their income from participations (e.g., dividends) and do not engage in active business activities are exempt from cantonal and communal income taxes. They are subject only to a reduced federal tax rate of 7.83% on net profits.

– For holding companies, capital gains from participations are generally exempt from taxation, provided certain conditions are met.

– The implementation of the Tax Reform and AHV Financing (TRAF) in 2020 brought changes to some preferential tax regimes in Switzerland. While it abolished certain cantonal-level regimes, it allowed cantons to adjust corporate tax rates to stay competitive. Vaud responded by maintaining its attractive corporate tax structure, including the effective tax rate of 13.79%.

– Vaud also offers a patent box regime, providing further tax incentives for companies by reducing taxes on income derived from intellectual property.

Overall, Vaud is a strong choice for establishing a holding company, particularly if you value its proximity to Geneva, access to a highly skilled workforce, and a balanced offering of tax efficiency and infrastructure.