Business Taxation

Tax is imposed in Switzerland at the federal and cantonal/communal levels. The Federal Tax Harmonisation Law (FTHL) has generally harmonised the tax systems of the cantons with respect to the tax base, as well as with the federal income tax law. While the FTHL harmonises the major tenets of cantonal/communal tax systems, one significant aspect is not harmonised – the tax rates, which may be independently set by the cantons and municipalities.

Swiss tax rates for multinationals are favourable compared with the rates in other European countries. On average, headquarter companies in Switzerland are subject to an income tax rate of 8-10%, compared with 30-40% in many other European countries.

Other federal taxes that are imposed are withholding tax, stamp issuance and transfer tax, and value-added tax (VAT). At the cantonal/communal level, corporations are also subject to capital taxes on net equity and real estate taxes based on the relevant tax legislation.

Special Tax Regimes

Various tax privileges exist at the cantonal level, in particular for holding companies and domiciliary/mixed companies. At the federal tax level, such companies remain subject to ordinary taxation.

The holding company tax privilege is granted to corporations whose primary statutory purpose is the administration of participations (that is, where at least two-thirds of the total assets consist of investments or at least two-thirds of income is derived from qualifying investments) and that have no active trade or business in Switzerland. Under the holding privilege, the company is fully exempt from cantonal and communal income taxes.

The domiciliary company tax privilege is granted to corporations that only carry on administrative activities in Switzerland. Pure domiciliary companies may not have their own personnel and own office in Switzerland. Foreign-source income of a domiciliary company is exempt from cantonal and communal income taxes. Consequently, the foreign-source income of a domiciliary company is only subject to the federal effective tax rate of 7.8%. Swiss-source income is taxed at ordinary taxed rates for cantonal/communal and federal income taxes.

The mixed company tax privilege is granted to corporations with predominantly foreign business activity. A mixed company is allowed to perform a subordinate business activity in Switzerland, as well as to have its own personnel and office in Switzerland. The business activity is deemed to be performed predominantly outside of Switzerland, if at least 80% of the total gross income derives from foreign sources and at least 80% of the expenses are incurred abroad. Foreign-sourced income of a mixed company is taxed at an effective rate of approximately 8.5–11% (including federal tax). Swiss-source income is taxed at ordinary taxed rates for cantonal/communal and federal income taxes.

Other tax advantages may be obtained by way of a tax ruling for principal companies, finance branches, among others, in addition to the above incentives.