Switzerland

Advantages / Disadvantages / Social insurance system

Nothing is glossed over in our consultancy. If you decide to set up or acquire a company in Switzerland, you should have a basic knowledge of Swiss taxes and other duties. Here are some of the advantages and disadvantages of the Swiss tax system, with a special focus on foreign investors. After weighing up the pros and cons, the Swiss tax system is attractive and highly socially fair.

Advantages

• The authorities have great confidence in Swiss taxpayers. The self-responsibility of citizens and executive organs of a company is held in high regard. Tax audits and reviews are therefore kept to a minimum. The tax inspectors are very well trained, which favours a fair tax assessment.
• The deadlines for various duties are reasonable and can be extended well beyond the regular submission date.
• There are generous payment deadlines for settling tax debts, which can also be extended if a credible justification is provided.
• Since the referendum on the VAT III tax reform, which was passed by a large majority of Swiss voters, Switzerland has had very attractive corporate taxes.
• The Swiss VAT rate of 8.1% is very low compared to other countries and the EU, with rates of over 20% in some cases. For this reason, a significant number of companies have already established themselves in Switzerland, mainly exporting overseas.
• In complicated situations, taxpayers and companies can agree tax rulings with the tax authorities. This leads to legal certainty with an otherwise uncertain outcome. Few countries offer this option.
• Switzerland is still incorrectly seen abroad as a tax haven. However, middle and higher incomes can be subject to tax charges (including social security contributions) of around 50%. This must be avoided through skilful tax planning. For foreign investors in particular, the taxation can be reduced to the lowest necessary level. 

Disadvantages

• Swiss taxpayers are regularly subject to detailed checks when their wealth is calculated. The system, which is probably unique in the world, leaves little room for black money and laundering. There is also a simple control calculation:

Taxable assets from the previous year

 +   Taxable income
 -    General living expenses
 =   new level of taxable assets.

If considerably more assets are declared than this control calculation logically results in, the tax inspector will ask where the additional assets come from. The wealth tax is progressive and goes up to one percent (simple tax). As an investor resident abroad, this tax is not relevant.

• The pension-forming AHV income (1st pillar of social insurance - see more on the topic of social insurance in Switzerland) is CHF 84,600. The AHV contributions on a higher salary no longer benefit the person making the contribution. It benefits the state (AHV fund) and is therefore purely a tax. However, the situation is worse with unemployment contributions for members of boards of the companies. They pay 2.2% of their gross salary and are not entitled to unemployment benefits in the event of unemployment.
• Solution for foreign investors: Salary paid abroad (at place of residence) and/or profit withdrawals via dividends.
• Switzerland does not have a corporate group tax law as other countries do. This means that profits of individual companies cannot be deducted from losses of other companies belonging to the group. Each company is taxed separately. Nevertheless, losses can be offset against future profits within seven years.
• Switzerland has an extremely high withholding tax of 35% on profit distributions (dividend payments). Depending on the place of residence abroad and which double taxation agreement has been concluded with Switzerland, if any, a large part of this "security tax" can be reclaimed. We have specialised ourselves in this area.