Corporate Income Tax Rate                              (%)12 to 24(a)

Capital Gains Tax Rate                                       (%)–(b)

Branch Tax Rate                                                  (%)12 to 24(a)

Withholding Tax                                                  (%) (c)  

Dividends                                                              35 

Interest                                                                  0/35(d)

Royalties from Patents, Know-how, etc          0 

Branch Remittance Tax                                      0 

Net Operating Losses                                        (Years)  

Carryback                                                            0(e)

Carryforward                                                        7(e)

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(a)The rates reflect the maximum aggregate effective tax burden of ordinarily taxed companies and are composed of federal and cantonal/communal taxes. Approximately 7.8% of the rates relate to the federal tax. The rates depend on the canton and commune in which the taxable entity performs its activities. Lower rates are available for privileged companies described in Section E.

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(b)See Section B.

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(c)The withholding tax rates may be reduced under the Switzerland-European Union (EU) agreement (see Section E) and under double tax treaties (see Section F).

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(d)Withholding tax is levied on bank interest, but normally not on interest on commercial loans, including loans from foreign parents to Swiss subsidiaries.

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(e)Income of the current year may be offset against losses incurred in the preceding seven years. Losses may not be carried back (see Section C).

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TAXES ON CORPORATE INCOME AND GAINS

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Income tax. Switzerland is a confederation of 26 cantons (states). Taxes are levied at the federal and cantonal/communal levels. As a result of this multilayered tax system, no standard tax rates exist. Under the Swiss income tax system, earnings are taxed at the corporate level and, to the extent profits are distributed as dividends, again at the shareholder’s level. However, see Dividends for details regarding the participation exemption.

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In general, a resident corporation is a corporation that is incorporated in Switzerland. In addition, a corporation incorporated in a foreign country is considered a resident of Switzerland under Swiss domestic law if it is effectively managed and controlled in Switzerland.

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Resident companies are subject to corporate tax on worldwide income. Income realized by a foreign permanent establishment of a Swiss company or derived from foreign real estate is excluded from taxable income. Losses incurred by a foreign permanent establishment are deductible from taxable income. However, if a foreign permanent establishment of a Swiss company realizes profits in the seven years following the year of a loss and if the permanent establishment can offset the loss against such profits in the foreign jurisdiction, the Swiss company must add the amount of losses offset in the country of the permanent establishment to its Swiss taxable income.

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A company not resident in Switzerland is subject to Swiss income tax if it has a permanent establishment in Switzerland.

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Tax Harmonization Act. The Tax Harmonization Act (THA) sets certain minimum standards for cantonal/communal taxes. However, cantonal/communal tax rates are not harmonized under the THA.

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Rates of corporate tax. The federal corporate income tax is levied at a flat rate of 8.5% of taxable income. Because taxes are deductible, the effective federal corporate income tax rate is approximately 7.8%.

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Cantonal/communal tax rates vary widely. The cantonal/communal tax rates are usually a certain percentage (known as “multipliers”) of the relevant cantonal statutory tax rates. The total effective maximum tax burden, which consists of federal and cantonal/communal taxes, ranges from 12% to 24%, depending on the canton and commune in which the taxable entity is located.

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Tax incentives. In Switzerland, tax incentives are granted to companies either by the cantons or by both the cantons and the federation. Except for the limitation on the duration of tax incentives to a maximum period of 10 years, the cantons are autonomous in granting cantonal/communal tax incentives to the following:

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• Newly established enterprises

• Existing companies that substantially change their business if such change corresponds to the incorporation of a new enterprise

 

Tax incentives at the federal level require approval of the federation. Incentives at the federal level are governed by the federal law on regional policy, which is based on the following key factors:

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• Establishment of new business activities in a qualifying area of economic development

• The performance by the applying company of industrial activities or services that have a close nexus to production activities

• Creation of new jobs or maintaining of jobs

• Particular economic relevance of the planned project for the area

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Effective from 1 July 2016, Switzerland’s Federal Council adopted revised regulations on the Swiss federal tax holiday scheme, which provide for the following main changes:

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• Introduction of a maximum amount of federal tax relief in relation to the number of jobs. Production-related service providers are eligible for a federal tax holiday only if they create at least 10 new jobs within the first 5 years. No such limitation applies to industrial enterprises.

• Adjustment of the qualifying areas including new areas that are much more attractive for business than the very remote and rural areas taken into consideration before the revision.

• Enhanced transparency (the information regarding federal tax holidays granted will be published annually).

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Federal and cantonal/communal tax holidays are typically subject to claw-back provisions. The claw-back clause is generally triggered if the conditions for the tax holidays are no longer met (for example, the envisaged number of jobs have not been created or have not been maintained within the relevant time frame).

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Capital gains. Capital gains are generally taxed as ordinary business income at regular income tax rates. Different rules may apply to capital gains on real estate or to real estate companies at the cantonal/communal level.

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Capital gains derived from dispositions of qualifying investments in subsidiaries qualify for the participation exemption. Under the participation exemption rules for capital gains, the parent company must sell a shareholding of at least 10% and, at the time of the disposal, it must have held the shares for at least one year (for further details regarding the participation exemption, see Dividends).

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Administration. Income tax is generally assessed on the income for the current fiscal year, which corresponds to the corporation’s financial year. The financial year does not need to correspond with the calendar year. Corporations are required to close their books once a year and file annual returns. This rule does not apply to the founding year. Consequently, the first fiscal year can be extended up to a maximum of nearly two years.

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The cantonal deadlines for filing the corporate tax return vary, and extensions may be obtained. The federal and cantonal tax returns are generally filed together. 

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Corporations may pay income tax in one lump-sum payment or in installments. The deadline for the payment of federal income tax is 31 March of the year following the fiscal year. The deadline for cantonal/communal taxes is usually between 30 June and 31 December.

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Dividends. Dividends received are taxable as ordinary income. However, under the participation exemption rules, the federal tax liability is reduced by a proportion of dividend income (as defined by the law) to the total taxable income if the recipient of dividends satisfies any of the following conditions:

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• The recipient owns at least 10% of the shares of the distributing corporation.

• The recipient has a share of at least 10% of the profits and reserves of the distributing corporation.

• The recipient holds shares with a market value of at least CHF1 million.

 

The participation exemption also applies at the cantonal/communal level. However, participation income received by qualifying holding, domiciliary or mixed companies is directly exempt from cantonal/communal corporate income taxes (see Section E).

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Swiss companies distributing dividends or proceeds from liquidation exceeding the nominal share capital and the capital contribution reserves are generally required to withhold tax at a rate of 35%. Under the Net Remittance Procedure, Swiss companies distributing qualifying dividends may apply the treaty withholding rates prospectively without making the full 35% prepayment. The Net Remittance Procedure applies to dividends distributed on “substantial participations.” These are participations that qualify for an additional reduction or a full exemption from Swiss withholding tax under a comprehensive income tax treaty or under the Automatic Exchange of Information (AEI) Agreement Switzerland-EU (see Section E). To distribute dividends under the Net Remittance Procedure, companies must file an application with the Swiss Federal Tax Administration (SFTA) before distributing dividends, as well as a notification form no later than 30 days after the due date of the dividend.

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However, under a revised law, which entered into force on 15 February 2017, the application of the Net Remittance Procedure remains possible even if the 30-day filing period is not met. As a result, late filing of the dividend notification forms no longer results in a denial of the notification procedure with late interest consequences.

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Under the capital contribution principle, which entered into force on 1 January 2011, contributions to equity made by a shareholder on or after 31 December 1996 can be distributed without triggering withholding tax consequences, provided certain requirements are met.

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Intercantonal tax allocation. If a company operates in more than one canton, that is, the head office is in one canton and permanent establishments are in other cantons, its taxable earnings are allocated among the different cantons. The allocation method depends on the type of business of the company. The determination of the method is based on case law, which is governed by a constitutional guarantee against intercantonal double taxation.

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Foreign tax relief. Income from foreign permanent establishments of a Swiss company is not taxable in Switzerland. The international allocation of profit is based on intercantonal rules, unless a tax treaty provides for a different method. For the treatment of losses of foreign permanent establishments, see Income tax.

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To continue reading, and to obtain the full publication, please visit: https://www.ey.com

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The content is based on information current as of 1 January 2018, unless otherwise indicated in the text of the chapter. Changes to the tax laws and other applicable rules in various countries covered by this publication may be proposed. Therefore, readers should seek independent tax advice from their local and international firms to obtain further information.

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This publication contains information in summary form and is sourced from the Ernst & Young Worldwide Corporate Tax Guide, and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Aston & Willson LLP  or EYGM Limited nor any other member of an organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.