Corporate taxation

Switzerland offers a highly competitive and business-friendly tax environment, with relatively low corporate tax rates compared to other European countries. The Swiss tax system is structured at three levels: federal, cantonal, and municipal. Each canton has significant autonomy to set its tax rates, making corporate taxation vary depending on the location of the company. Below is an overview of corporate taxation in Switzerland:

Corporate Income Tax (CIT)

Corporate income tax in Switzerland is levied at three levels

• Federal level: Uniform across the country.
• Cantonal level: Varies by canton.
• Municipal level: Varies by municipality within each canton.

Federal Corporate Income Tax

• Rate: The federal corporate income tax rate is 8.5% on profits after tax.
• Effective Rate: Due to the way Swiss tax law is structured (taxes are deductible from profits), the effective federal tax rate is slightly lower, around 7.83% on taxable profits before tax.

Cantonal and Municipal Corporate Income Taxes

• Each canton and municipality imposes its own corporate tax rates. These vary significantly, depending on the location.
• Cantonal Variability: Depending on the canton, the combined effective corporate tax rates (federal, cantonal, and municipal) generally range from 11.9% to 21%.
• Low-Tax Cantons: Some cantons like Zug, Lucerne, Nidwalden, Schwyz, Appenzell Ausserrhoden and Vaud offer some of the lowest tax rates in Switzerland, with total effective corporate tax rates as low as 11.9% to 15%.
• Higher-Tax Cantons: Cantons like Geneva and Basel-Stadt have higher combined corporate tax rates, ranging from 15% to 21%.

Effective Tax Rate Across Switzerland

• National Average: The average effective corporate income tax rate across Switzerland is approximately 14% to 18%, depending on the canton and municipality.
• Tax Planning Opportunities: Due to the significant variation in cantonal tax rates, companies often choose to incorporate in lower-tax cantons for more favorable tax treatment.

Capital Tax

In addition to corporate income tax, most cantons levy a capital tax on a company’s equity. This includes the company’s paid-in capital, retained earnings, and any reserves.

• Rate: Capital tax rates range from around 0.001% to 0.5% of the company’s taxable capital, depending on the canton.
• Federal Capital Tax: Switzerland does not levy any capital tax at the federal level; it is purely a cantonal tax.
• Offset with Income Tax: In some cantons, companies can offset their capital tax payments against their corporate income tax liabilities, effectively reducing the total tax burden.

Withholding Tax

Switzerland imposes a withholding tax on certain types of payments made by Swiss companies, including:

• Dividends: 35% withholding tax on dividend distributions.
• Interest: 35% withholding tax on interest payments from bonds and similar securities (not generally applied to regular loan interest).
• Royalties: No withholding tax on royalty payments.

Exemptions and Reductions

• Double Tax Treaties: Switzerland has an extensive network of over 100 double taxation agreements (DTAs) that often reduce or eliminate withholding tax on dividends, interest, and royalties paid to foreign shareholders or companies.
• Parent-Subsidiary Exemption: Under Swiss law and EU rules, there are exemptions for dividends paid to foreign parent companies in certain countries, provided specific ownership and holding period conditions are met.
• Swiss-EU Savings Agreement: Dividends paid within Swiss or EU multinational groups often benefit from a withholding tax exemption under the Swiss-EU Savings Agreement.

Tax on Capital Gains

• Corporate Capital Gains: Capital gains realized by Swiss companies on the sale of assets are treated as regular corporate income and are therefore subject to corporate income tax at federal, cantonal, and municipal levels.
• Participation Exemption: Switzerland offers a participation exemption on capital gains if the company sells a stake of at least 10% in another company and has held that participation for at least one year. In such cases, capital gains are either tax-exempt or subject to a reduced tax rate, depending on the canton.

Value-Added Tax (VAT)

• Standard VAT Rate: 7.7%. This is one of the lowest VAT rates in Europe.
• Reduced VAT Rate: 2.5% for essential goods such as food, books, newspapers, and medicines.
• Special VAT Rate: 3.7% for accommodation services (hotels).
• Exemptions: Certain services, such as healthcare, education, and insurance, are exempt from VAT.

Special Tax Regimes

Switzerland offers several special tax regimes to encourage specific types of businesses, particularly in the areas of innovation and international trade:

Holding Company Privilege

• Holding Companies: Swiss holding companies, which primarily hold and manage long-term investments in other companies, benefit from significant tax advantages.
• Tax Advantages: Holding companies are exempt from cantonal and municipal corporate income taxes and only pay the federal income tax at 7.83%. They also benefit from capital tax reductions and exemptions.
• Dividend Exemption: Dividends received by holding companies from their subsidiaries are exempt from taxation under the participation exemption.

Domiciliary Companies

• Domiciliary Companies: These are companies that carry out most of their activities outside Switzerland. They benefit from reduced cantonal tax rates, depending on the nature of their operations.
• Tax Advantages: Domiciliary companies are often used by multinationals to benefit from Switzerland’s favorable tax regime for international activities.

Principal Company Regime (Ending)

• Switzerland used to offer a Principal Company Regime that provided tax advantages for multinationals managing regional or global business activities from Switzerland. However, this regime is being phased out to comply with international tax standards, particularly in response to OECD initiatives.

R&D and Innovation Incentives

• Patent Box: Switzerland offers a patent box regime at the cantonal level, allowing companies to benefit from reduced tax rates on profits derived from patents and intellectual property.
• R&D Deductions: Many cantons offer enhanced deductions for research and development (R&D) expenditures, which can reduce a company’s taxable profits significantly.

Reform: Tax Reform and AHV Financing (TRAF)

• Implementation: In 2020, Switzerland implemented a major tax reform known as Tax Reform and AHV Financing (TRAF) to comply with international tax standards.
• Impact: TRAF abolished certain preferential tax regimes (like the principal company regime) but introduced new measures, such as the patent box, R&D incentives, and reduced corporate tax rates in many cantons to maintain Switzerland’s competitive tax environment.

Other Taxes

• Stamp Duty: Switzerland levies stamp duties on certain transactions, including:

– Issuance Stamp Duty: 1% on the issuance of company shares, applicable if the capital exceeds CHF 1 million.
– Securities Transfer Stamp Duty: 0.15% on the transfer of Swiss securities and 0.3% on foreign securities when a Swiss securities dealer is involved.

• Real Estate Taxes: Cantonal and municipal real estate taxes apply on the ownership and transfer of real estate property.

Summary of Swiss Corporate Taxes 

Switzerland offers a highly competitive corporate tax environment, with relatively low effective tax rates, especially in low-tax cantons. It also provides several incentives for innovation, R&D, and holding companies, making it an attractive location for multinational corporations, SMEs, and startups alike. The combination of low taxes, a stable economy, and a favorable regulatory environment makes Switzerland a leading destination for businesses looking to minimize their tax burdens while enjoying a robust business ecosystem.