1 Basic framework
1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
Swiss taxes are levied at three levels: federal, cantonal and communal.
1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
The two main taxes regularly levied on Swiss resident corporate entities are income tax and capital tax. While income tax is levied at the three levels, capital tax is levied only by cantons and communes. The applicable rates vary depending on the cantons and communes. Under current law, effective corporate income tax rates vary roughly between 12% and 24%, whereas capital tax rates range from approximately 0.001% to 0.5%. An ongoing corporate tax reform may change the applicable rates (see question 2.1).
Any dividend distribution made by a Swiss company triggers a 35% withholding tax, which can then be claimed back, at least partially. While Swiss resident shareholders can seek a full refund under domestic law, foreign resident shareholders must rely on an applicable double tax treaty, if any. Interest paid to bond holders by a Swiss debtor also triggers Swiss withholding tax.
When a Swiss company is incorporated or when its capital is increased, an issuance stamp duty of 1% is owed if the capital exceeds CHF 1 million. A negotiation stamp duty may also be triggered on the transfer of securities where the Swiss company qualifies as a security dealer.
Depending on their activities, Swiss companies may also be subject to valued added tax – the general rate being 7.7% – if their annual turnover reaches CHF 100,000 (see question 8).
1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
Corporate income tax is based on net profits and capital tax is calculated on equity (including reserves). Other taxes may rely on other parameters. For instance, the Geneva communal professional tax is computed on several factors, including revenue, rents and number of employees.
1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
Income and gains arising from qualified participations are generally tax exempt (indirect participation exemption regime), provided that certain conditions are met. Dividends are eligible where the participation represents at least 10% of the capital in a company or is worth at least CHF 1 million. As for capital gains, the participation sold must represent at least 10% (the CHF 1 million threshold is not applicable) and must have been held for at least one year.
1.5 Is the regime a worldwide or territorial regime, or a mixture?
It is a worldwide regime which provides for some exemptions, such as for permanent establishments abroad and foreign real estate. Conversely, Swiss permanent establishments of foreign companies are subject to limited tax liability. The same applies to foreign companies owning Swiss real estate.
1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
Losses may be carried forward for a seven-year period. Losses incurred abroad are generally recognised.
1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
The notion of beneficial ownership is particularly relevant when it comes to nominee arrangements. Provided that the latter meet some formal criteria, the beneficial owner – rather than the nominee – shall be liable to pay the taxes pertaining to the property that is subject to the arrangement. The same applies to other situations, such as usufruct. Likewise, where a refund of Swiss withholding tax (eg, levied on dividends) is sought, the tax administration will verify that the applicant qualifies as the beneficial owner of the income on which the tax has been levied.
1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?
Generally, the corporate income tax and capital tax rates are flat. This is particularly true for federal income tax and most cantonal income tax rates. However, in some cantons a progressive rate applies.
1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
As a rule, corporate income and capital taxes are levied only on companies, foundations and associations. While most investment funds are tax transparent, those owning Swiss real estate directly are liable to corporate income and capital taxes.
2 Special regimes
2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
The current law provides for several special regimes – most importantly, the holding regime and the auxiliary regime. The holding regime offers a general income tax exemption (except for real estate) and reduced capital tax rates at the cantonal and communal levels. The auxiliary regime, which typically applies to trading companies, reduces the tax base of companies whose activities are mainly foreign oriented, which effectively brings down the applicable income tax rates to 8% to 12% on foreign-source income, and also offers reduced capital tax rates.
Under the current corporate tax reform, which was voted on by Parliament on 28 September 2018 and must now be validated by the people in a referendum on 19 May 2019, these special regimes would be repealed and new favourable measures would be implemented. Most importantly, the applicable income tax rates would be lowered. The new expected corporate income tax rates would range from 12% to 18%. Special deductions for research and development expenses would also be granted to Swiss companies and a new patent box would be created, offering Swiss corporations a reduced tax base for income from patents and similar rights (maximum relief of 90%). Some cantons may also offer a notional interest deduction on excess capital. If approved by the people, the corporate tax reform is expected to enter into force in 2020.
2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
Tax-free reorganisations are possible to a large extent. The applicable conditions depend on the form of reorganisation. As a rule, the tax substance must be kept in Switzerland and the assets transferred must be kept at their relevant accounting value. However, some reorganisations do trigger tax consequences, particularly in cross-border situations.
2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
Some companies, where eligible, can apply for any of the special regimes described in question 2.1.
2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
Any gains or losses resulting from conversion of the statutory accounts from a foreign functional currency into Swiss francs cannot be included in the profit and loss accounts.
2.5 How are intangibles taxed?
Under current law, some cantons offer privileged tax treatment for income arising from the use of intangible property, such as intellectual property. As mentioned, the corporate tax reform would implement a new patent box regime (see question 2.1).
2.6 Are corporate-level deductions available for contributions to pensions?
Corporate employers shall pay mandatory contributions to pensions, which are tax deductible.
2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
All companies, irrespective of sector, are subject to the same tax treatment, according to the equality principle.
2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
Real estate taxes may apply to companies owning properties in Switzerland.
2.9 Are there any deemed deductions against corporate tax for equity?
Certain cantons grant a credit of corporate income tax against equity tax.
3 Investment in capital assets
3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
Generally, tax follows the accounts. Thus, accounts which are valid from a commercial law perspective are also valid and binding for Swiss tax purposes. However, certain exceptions apply. For example, special tax guidelines apply as to the generally permissible depreciation rates.
3.2 Are there research and development credits or other tax incentives for investment?
Not under the current rules.
3.3 Are inventories subject to special tax or valuation rules?
Impairments of up to one-third are generally accepted on inventory.
3.4 Are derivatives subject to any specific tax rules?
As private capital gains are tax free, derivatives must be analysed and classified in different categories. In the case of transparent products, that part of the income which is derived from the option component may be tax free. In the case of non-transparent products, the entire income will be taxable.
4 Cross-border treatment
4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?
Foreign companies with a permanent establishment or real estate in Switzerland are subject to limited liability to Swiss tax. Should a company with its seat abroad be considered as effectively managed from Switzerland, an unlimited liability to Swiss tax will arise.
4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
A Swiss withholding tax of 35% applies to dividend distributions to shareholders and interest payments to bond holders by Swiss companies. A total or partial refund can be sought before the Federal Tax Administration based on any applicable tax treaty. Switzerland's treaty network includes over 100 double tax conventions.
4.3 Do double or multilateral tax treaties override domestic tax treatments?
The Swiss authorities are required by the Swiss Constitution to observe international law. Although there are no rules on conflicts between provisions of Swiss law and international law, international law takes precedence over domestic law.
4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?
Where a foreign withholding tax is levied on income paid to a Swiss company, the latter can claim a tax credit only if the applicable double tax treaty so provides. In the absence of a treaty, some cantons may allow for the deduction of foreign tax paid.
4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
Under the upcoming reform, companies migrating to Switzerland will be eligible for a step up in basis, whereby assets are revalued at fair market value with no Swiss corporate income tax consequences. Thus, the basis for depreciations and/or for future disposals is higher. Depending on the facts at hand, there is also potential to create capital contribution reserves, which could be distributed free of tax.
4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?
The transfer of a company's seat or effective management out of Switzerland is equated to liquidation, which implies the taxation of the company's hidden reserves. Both corporate income tax and withholding tax apply.
5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
Yes, anti-avoidance rules can be found both in case law and in the statutory provisions of the applicable laws. Some derive from the general interdiction of the abuse of law; others are based on explicit tax provisions.
5.2 What are the main ‘general purpose' anti-avoidance rules or regimes, based on either statute or cases?
The main rule precludes taxpayers from adopting abusive behaviours. A behaviour is considered abusive if:
- a given structure or transaction is seen as unusual, inappropriate or strange;
- it must be presumed that the structure or transaction was chosen in order to avoid tax that would otherwise have been due; and
- the structure or transaction would indeed lead to a considerable tax saving if it were accepted.
5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
The main rules are:
- the abuse of law theory;
- the concept of simulation (which is based on recourse to the underlying economic reality of a contractual arrangement);
- the old reserve theory (resulting in the denial of a favourable treaty withholding tax rate after an allegedly abusive restructuring);
- hidden profit distributions (where related parties are seen to be receiving an undue benefit from a company); and
- arm's-length adjustments.
5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
Yes, tax rulings are very common and regularly advisable.
5.5 Is there a transfer pricing regime?
Switzerland has not enacted specific transfer pricing rules. However, the notion of dealing at arm's length is generally observed and applied under Swiss tax laws. The Organisation for Economic Co-operation and Development guidelines are generally observed by the Swiss tax authorities.
5.6 Are there statutory limitation periods?
The statutory limitation periods are complex and vary according to the taxes involved. The most important rules are:
- the 10-year absolute statute of limitations for direct taxes (ie, the Federal Tax Administration can make amendments up to 10 years back if the respective legal requirements are met); and
- a five-year ‘relative' statute of limitations regarding withholding tax on dividends. This is relative as the Federal Tax Administration may interrupt and thus extend it indefinitely.
6.1 What are the deadlines for filing company tax returns and paying the relevant tax?
The applicable deadlines depend on the cantons that have tax jurisdiction. In Zurich, the deadline is 30 September; in Geneva, 30 April; and frequently it is set at six months after the financial year end. These deadlines are usually easily extendable within a certain limit.
6.2 What penalties exist for non-compliance, at corporate and executive level?
The penalty for tax evasion can be up to three times the amount of the tax evaded. In cases of tax fraud, there can be an additional fine or even imprisonment. Individuals who aid or abet tax offences not only are exposed to similar sanctions, but may also be held personally and jointly liable for the taxes evaded.
6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
Yes, Switzerland has introduced country-by-country reporting on an international level in accordance with Organisation for Economic Co-operation and Development recommendations.
7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?
No tax consolidation applies in Switzerland (except for value added tax purposes).
8 Indirect taxes
8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
The following indirect taxes may apply in particular:
- value added tax at 7.7% (standard rate);
- stamp duties (issuance stamp duty at 1% on equity capital contributions and transfer stamp duty of 0.15% or 0.3% on transfers of securities by certain types of taxpayers);
- radio and television broadcasting tax (based on turnover); and
- customs duties.
8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
Yes. Where securities dealers for stamp duty purposes transfer ownership in certain securities (mostly shares and bonds), they must pay a transfer stamp duty of 0.15% on Swiss securities and of 0.3% on foreign securities.
9 Trends and predictions
9.1 How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Switzerland is currently focused on its corporate tax reform, which is expected to have a significant impact on the Swiss economy. Bearing in mind that the first project was refused by referendum in 2017, the Swiss government is strongly supporting the new draft law, which should be put to the vote on 19 May 2019.
10 Tips and traps
10.1 What are your top tips for navigating the tax regime and what potential sticking points would you highlight?
It is very common to discuss transactions in advance with the tax authorities and to request advance tax rulings.
Especially in contentious cases, the authorities will usually seek to understand the economic reality and will be less inclined to recognise a mere legal or formal framework. It is therefore paramount that a given structure have economic reality and substance.
Given the federal organisation of Switzerland, the administrative practice regarding a specific legal question may vary considerably, depending on which canton will ultimately be responsible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.