Mag. Johannes Schwarz, MBA, CEO Zugimpex Group
- Switzerland – Political Stability and New Tax Law in 2020
- Swiss Company Formation
- Confidentiality of Shareholders and Beneficial Owners
- Special Blocked Bank Account for Capital Injection
- Full Address or c/o Address
- Company Bank Account for Business Activities
- Part time Employees
- Swiss Resident Person
- Professional Trustee as Nominee Director – Alternatives
- Requirement for an audit
- Recommendations to save Costs and avoid Bureaucracy
Switzerland – Political Stability and New Tax Law in 2020
It is attractive to incorporate company in Switzerland which is known as a neutral country with a hard currency. The political systems of “Konkordanz” and of “Direct Democracy” ensures political stability: there is an ongoing coalition government. When this government proposes a law and the parliament approves it, the population still can ask for a referendum against the law. Several times a year, there is a voting about multiple national and regional subjects.
A new tax law is in place since 2020. After pressure from the European Union, Switzerland had to eliminate special benefits for companies with activities outside the country. They introduced a uniform corporate tax in every canton and some additional benefits for innovation.
Swiss Company Formation:
A Swiss share company (AG) or Limited Liability company (GmbH) is not cheap because of the highest labour costs in Europe. When does it makes sense to invest into a Swiss entity?
- Substance and access to Swiss markets and Swiss customers, who often prefer local suppliers: often, such companies provide sales, distribution, local services, or they engage in research.
- Swiss image: to have a Holding in Switzerland can be an image factor; to have a Swiss company to transport Swiss image for products and services; to use a Swiss entity for security and protection of assets.
- Advantage of legal differences: for example, Switzerland does not require companies to publish annual financial data (and an EU branch of a Swiss company is therefore not obliged, too). There is no public beneficial ownership registry; competent authorities in Switzerland rely on beneficial ownership information maintained by legal entities themselves or collected by financial institutions. Money laundering based on fiscal evasion is not seen as an associated crime if the undeclared tax is below 300.000 CHF per year.
Confidentiality of Shareholders and Beneficial Owners:
While the shareholders of a GmbH can be seen in the public commercial register, the board members of a share company (AG) keep their register of shareholders and beneficial owners only at the domicile of the company and are responsible for it. There is a responsibility of the board in relation to the shareholders, who have no rights for a dividend if they are not registered.
Even here, beneficial owners only need to be registered if they own at least 25% of shares or control at least 25% of voting rights.
Ownership of shares is bound to registration at the share register by the board and there may be conditions (e.g. a certain approval) that delay (on purpose) a change of ownership or voting rights.
Shareholders have several rights: the right to receive dividends, the right to vote and the right to sell the shares. All these rights can be isolated, waived or transferred temporarily to someone else (by power of attorney).
A temporary delay of ownership can be organized with options, futures, and private profit-sharing contracts.
In case of GmbH, silent partnerships or participating loans are possible instruments on the contractual level that allow investors to invest into an entity without being named in the commercial register.
Special Blocked Bank Account for Capital Injection
The law defines the company formation process:
- shareholder(s) have to open a blocked capital deposit account at a Swiss bank and pay the capital to this account, according to art. 663 OR (Swiss code of obligations) and art. 777c OR.
- The minimum paid in capital is 50.000 CHF for a Swiss AG and 20.000 CHF for a Swiss GmbH.
- When the money is on the blocked account, the bank issues a paper, which is then forwarded in original to the notary and goes with the deed to the commercial register.
Nowadays, Swiss banks exercise extensive compliance procedures, some of them open blocked accounts only for Swiss residents, and all require the payment to be done directly from the account of the future shareholder (in case of several shareholders, it must be exactly in the relation to their share subscription). Irregular payments are sent back, and the bank keeps a huge amount as compliance fee.
When foreign shareholders cannot travel to Switzerland, they are looking for alternative solutions:
- they can form a company with contribution “in kind”: the shareholders provide an asset with an appropriate value (e.g. a subsidiary, a property, a car, an inventory), create an agreement for the contribution in kind and a statutory report and let an auditor confirm the latter one.
- they can buy an existing so-called shelf company or ready-made company. However, not every company can be used, because laws prohibit the commercial register to register changes of shareholders of sleeping companies (with only financial assets). Before such a company is sold, the existing director needs to continue activities and eventually expand the object before the change is done. This way, an interim income statement can be presented that shows the company is active.
Full Address or c/o Address:
The criteria for the commercial register to register a regular address vary among the Cantons. In most cases they require proof of a separate area (in a shared office), a separate post box and the presence, so registered mail can be delivered.
For those who can handle the tasks in blocks, it is possible to join a shared office and have a c/o address.
Company Bank Account for Business Activities:
Swiss banks offer excellent service but are expensive and bureaucratic in their compliance. Some require additional substance, so the company has to provide a rental contract for the shared office and an engagement contract.
It is important to know that once formed, a Swiss company can have bank accounts in every country. Several banks worldwide offer good conditions. It is recommended to have at least two different accounts at different banks: in case a bank starts to be problematic, it is easy to move the money to the account at the second bank. If there is only one account, it is stressful to start a new opening procedure under time pressure.
Swiss banks must consider that Swiss law differentiates between “active” and passive companies. For a passive company that mainly administrates assets, reporting from a Swiss bank may go to the country of residence of the shareholders. However, reporting from a foreign bank goes almost always to Switzerland.
Part time Employees:
In Switzerland it is usual to employ staff part time. This is done particularly with elder employees. The second pillar of social security requires a certain threshold, and this second pillar of costs can be avoided with part time employment.
For employments up to 2300 CHF per year, there is no requirement at all for social charges. When the employees are living outside Switzerland, this can be a reasonable amount and at the same time such a contract can provide substance requirements for the banks.
Another possible solution is to temporarily post a person from another country to Switzerland. This person remains in the Social system of his home country and benefits from low Swiss tax on the salary. This structure is recommended when the original residence country has a low ceiling for social security contributions or when the maximum level in the home country is already given (if the tax progression according to article 23 does not kick in negatively).
Swiss Resident Person:
Swiss law allows that all board members have their residence outside Switzerland. Where the majority of tasks can be done with a few visits, the managing director can visit Switzerland regularly, there is no need to appoint someone else, e.g. as a fiduciary director. If the amount of visits is below the threshold for registration, the company has substance, but foreign board members need no special permit, and it is not mandatory that they receive a compensation or salary.
However, according to art. 718 and art. 814 Swiss Code of Obligations, “the company must be able to be represented by one person who is resident in Switzerland. This person must be a member of the board of directors or an executive officer.” The German word for the executive officer is “Direktor”, a term that is not specifically defined in the law. Consequently, if no board member lives in Switzerland, the company can grant signature rights without board function to an executive officer. This person can have an extremely limited task and authority (e.g. represent the company in one specific country) with no right of access to the financial data and de facto no access to the bank account. For additional security, it is possible to appoint two Swiss residents with joint signature rights to avoid “misunderstandings”. With the proper contract, these persons have no liability, charge less, and the company saves costs, too.
When tasks must be done in Switzerland but cannot be fulfilled in blocks, options are employees, outsourcing, or fiduciary activities. Good employees provide substance and are a stable asset in serving the local market. Technically, outsourcing activities to partners can produce similar results, however from a tax point of view, a minimum of substance shall be given.
Professional Trustee as Nominee Director – Alternatives
The most expensive solution is a nominee director who is a professional trustee and therefore qualifies as a professional financial intermediary: often there is limited interest in the business, a delay in the activities, the person is not permanently available, and there are permanent compliance checks.
Art. 305 criminal law defines „neglect of professional due diligence“, and so nominees are often scared. If a company qualifies as passive and if a board member is professional intermediary, the board member must join a regulatory body, to document all relevant transactions and to keep special records.
Swiss regulation puts liabilities on board members of all kind. Therefore Swiss resident board members have higher pressure from authorities, if they are nominee directors. If the board members live in a country with lower or no tax, there may be more obstacles with Swiss banks, but such a structure can result in an overall tax advantage.
For nominee directors, the legislation defines two criteria: non-active company and professional intermediary.
If the company has active business operation, is a former active business in liquidation or acts as a holding with majority of assets in one or more active companies, then it is considered as active and less compliance bureaucracy is required.
If the company is not clearly active, the board members do not qualify as professional intermediaries, if their revenue from the activities is less than 50.000 CHF per year, if they have less than 20 contracting parties, if they have less than 5 million CHF under administration or if they handle at least 2 Million external transaction volume.
Requirement for an Audit
While it is comfortable for nominees to suggest an audit that approves their activity, the law allows to waive this obligation if the company does not exceed two of the following threshold values in two consecutive financial years (Art. 727 OR): CHF 20 million balance sheet total, CHF 40 million turnover and 250 full-time positions.
Recommendations to save Costs and avoid Bureaucracy
As a result, it is possible and cost effective to create a company (or to buy one if there are issues with the blocked bank account) and outsource many activities (more info: www.zugimpex.com):
- a qualified officer living in a low tax country who may even help to save tax
- a Swiss resident person without board membership
- employees posted from other countries to social charges and benefit from low tax
- other employee(s) living abroad with salaries less than 2300 CHF per year with no social charges
- a shared office contract to register a full address in the commercial register
- Legal structures to keep some degree of confidentiality
- Have a bank account in or outside Switzerland
- And have several bank accounts to avoid stress in case of compliance requests