Switzerland (limited liability company (Sàrl); joint stock company (SA)

Switzerland (limited liability company (Sàrl); joint stock company (SA)

Switzerland has a relatively low rate of income tax for individuals and legal entities. Tax regime, although relatively mild, is quite complex.

Companies are subject to the laws of the canton, and federal laws. The cantons have their own regulatory and taxing powers, which are quite different in various cantons.

In Switzerland there are two main forms of business entities for foreign investors, namely:

• Limited Liability Company (Sàrl)
• Joint Stock Company (SA)

Main Features of a Limited Liability Company (Sàrl):

• is mainly used for small and medium companies;
• minimum Charter capital is 20,000 CHF Francs;
• no restrictions for foreign participation;
• at least two persons are required for foundation of a company;
• one of the directors should be a resident of Switzerland.

Main Features of a Limited Liability Company (SA):

• is mainly used for small and medium companies;
• minimum Charter capital is 100,000 CHF Francs;
• at least 50% of the charter capital must be paid;
• shareholders may be completely anonymous;
• the majority of board members should be residents of Switzerland.

Please find below some features of taxation of Holding Companies in Switzerland:

Taxation of a Specialised Holding Company

A Holding Company is granted a special tax regime in Switzerland. Regardless of the size, Holding Companies are exempted from cantonal and municipal taxes on income from dividends received.

Holding Companies pay:

- cantonal tax from capital - 0.05-0.25% of the amount of capital paid and reserves accumulated;

- federal tax from capital - 0.085% of the amount of capital paid and reserves accumulated;

- federal profit tax - 3.63% - 9.8%.

Income received from dividends are exempted from federal profit tax, if investments of a holding company to the shares of a company paying the dividends are at least 2 mln CHF francs and 20% of the paid capital.

Dividends paid by a holding company are subject to 35% additional tax on dividends.

Agreements for avoidance of double taxation signed by Switzerland with more than 40 countries reduce the tax on dividends down to 0 - 15%. However, the agreements contain a number of restrictions on the use of reduced tax rates:

- no more than 50% of income must be exported from Switzerland in the form of costs, royalties and interests;

- no more than 25% of income must be paid in the form of dividends.

Taxation of a Mixed Holding Company

Mixed Holding Company besides holding activities may also engage in trading activity and industrial production.

Income received from dividends are exempted from federal profit tax, if investments of a mixed holding company to the shares of a company paying the dividends are at least 2 mln CHF francs and 20% of the paid capital. The company is exempted from cantonal and municipal profit taxes in the two-thirds of the cantons.

Taxation of a Domiciled Company

These companies cannot conduct its business activities and acquire immovable property in Switzerland, or have an office, staff in Switzerland.

Domiciled companies are exempted from cantonal and municipal profit taxes.

A Company shall pay the federal profit tax (3.63% - 9.8%) and the cantonal and federal taxes on capital. Domiciled companies are not resident and, therefore, cannot apply the Agreement for avoidance of double taxation. The exception is a company registered in the canton of Fribourg, where domiciled companies are regarded as residents, and they are allowed to have an office and staff.

Please note that this information may be changed from time to time and shall be re-checked by experts of the relevant jurisdiction. To obtain updated information and information on the cost of registration, please contact our representatives.