Taxation of income and capital of legal entities: 

In the Canton Zug profit tax 2022 is formally 11.80%, part of it is federal, cantonal, or municipal tax. As the tax itself is deductible, so in fact the rate is 10,55 % (11,80/1,1180). Also, there is a capital tax of 0,07% (a wealth tax for the company).

The tax return for corporate tax must be submitted within 9 months after the end of the calendar year in which the accounting period ends (usually end of September), and it is possible to apply for extensions. The taxable income is calculated in CHF, and there are some attractive incentives like the IP-Box or step-up rules; to pay the tax (and later for prepayments), the cantonal tax department issues a provisional calculation based on past declarations, which includes the tax to the confederation, the canton and the municipalities (the local tax rate differs a little between the communes).

Withholding tax:

(“anticipatory tax”, e.g. on interests or on dividends): 35% withholding tax. For foreign corporate shareholders, there is a possibility to avoid this totally or partial if there is an active parent company in an EU country (because with art 15 of the Switzerland- EU savings agreement, Switzerland takes part in the former version of the parent-subsidiary directive of the EU- ownership: 25%, 2 years), or in a country that has a favourable tax treaty with Switzerland. Also, the “Denkavit” practice allows to distribute dividends immediately to a mother company in an EU member state, and to pay as a deposit the withholding tax that is defined in the double taxation treaty, which will be refunded later, when the criteria of the Savings Tax Agreement are met. However, Swiss administration is famous to impose bureaucratic hurdles, so the company paying dividends first has to hand in form 823B and/or form 823C to declare the transfer to a mother company and apply for the approval to use the notification method. Then it is usually necessary to answer to an extensive questionnaire without falling into a trap, and then wait for the approval (granted for 5 years) before deciding a larger dividend. After the approval finally arrives, decisions about further dividends within the granted period can be communicated by notification with form 108 plus form 103 for AG and form 110 for GmbH.

When receiving a request, the officers of the tax authority usually send additional questions. Basically, they look for substance and for evidence that the structure is not only motivated by tax purposes. Substance, however, is not defined in the law, so the questions have their roots in some court decisions (cases with holdings in Netherlands, Luxembourg, Denmark and Guernsey). Misuse is never assumed if the holding company has a production or a real service business.

• • Personal substance, substance at the seat of the holding (beneficial owner, his nationality and residence; office rental, phone bill, bank account, eventually personnel – however personnel can also be employed at a related entity in the country of the holding.): if there is evidence, the other criteria are less important.
  • Financial substance: it is seen positively if 30% of the capital of the holding is equity, or 15% in case of a pure financing holding.

Functional substance: purpose of the holding company, it is positive if there is not only one holding; also if the holding has its own activity.

In case of dividends without approval, the company first has to notify and pay 35% withholding tax (tax at source) to the federal tax administration (FTA) within 30 days from the date when the decided dividend payment was due. A refund claim can be done with form 60.

To reduce risk, it is recommended to decide on a small dividend first and to wait with further dividends until the approval is received.

If a double tax treaty defines a lower rate as maximum withholding tax, then the recipient has the right to receive the difference as a refund using the following procedure:

• • Minutes of the General meeting that decides about the dividends and mentions amounts, date and method of payment.
  • Dividend warrant that includes gross amount, withholding tax, and net amount of dividend.
  • Payment must correspond to the dates in the dividend warrant.
  • Declaration: Form 103 for AG, Form 110 for GmbH; attached the dividend warrant. It can be submitted online.
  • Refund claim: the federal tax administration publishes different forms depending on the country of residence of the recipient. If there is no special form, then form 60 shall be used for private person to claim parts of the withholding tax back.
  • The form must then be stamped by the tax administration in the residence country (who may consider and tax the dividend depending on their local legislation) and the original of the form with original signatures must be submitted to the Federal Tax Administration in Switzerland. After the authority checks it and eventually asks some more questions, the repayment can take place.

For foreign individual shareholders, there are only little improvements in the double tax treaties. As described above, reimbursement or crediting against other or future taxes is bureaucratic and associated with high costs. Another obstacle is the “old reserve practice”: if the company has old capital reserves and changes from private to corporate shareholding (or if there is a holding in a country with a less favourable double tax treaty and there is a change to a holding in a country with a more favourable double tax treaty), a different handling may be established by the authorities: dividends originating from profits before the change shall be taxed according to the original structure, and only dividends originating from profits after the change can be taxed according to the new structure. There are still solutions, but they are sophisticated, slow, and cost intensive.

To avoid withholding tax, there are additional options, resulting mainly to avoid dividends:

• • If the Swiss company expands quickly and/or has costs abroad, there remains no profit and the problem is solved.
  • If a foreign entity establishes a branch in Switzerland, this branch is part of the foreign entity in terms of civil law. Therefore, the remittance to the main seat is no dividend and there is no withholding tax. Usually, the remittance from the branch does not constitute income at the main seat.
  • If the main seat is in a country that has no tax on outgoing dividends, there still may be a tax for the shareholders in their country of residence. Therefore, one should consider structuring the transfer from corporate to private level, too.

VAT: 

8,1 % to transactions received by Swiss recipients, special rates for special tax objects; no VAT on export of goods and services; imports of services are subject to the reverse charge system. For companies, there are little obstacles to receive a VAT number, but if declarations are not submitted in time, the tax office quickly issues an assessment based on estimations.

There is an obligation to register a VAT number as soon as it is clear that the company will exceed a turnover of CHF 100,000 per year.

Voluntary registration is possible and useful when goods or services are purchased so that input VAT can be claimed.  If a company that does not have VAT registration or a private individual purchases services from abroad that exceed a total amount of CHF 10,000 per calendar year, the reverse charge procedure must be applied.  This means that in Switzerland, the so-called “Bezugsteuer” must be declared on behalf of the foreign supplier. However, since the input tax deduction is lost without VAT registration, voluntary registration usually makes sense.