How are Swiss corporate taxes determined?
In general, Swiss corporate tax is based on net profits. With exception to income from foreign immovable property, business enterprises, and permanent establishments, worldwide income of a Swiss entity is taxed.
Any expenses are deductible if it can be proven that they are needed for the business operations. The taxed income is equal to the profit in the statutory financial statements, these statements are determined on an accrual basis. It allows corrections when the tax laws provide a different value to be used than what is used on financial records. However, if the provisions are deemed excessive, they can be denied or reduced.
Swiss companies have two options for recording depreciations the declining-balance method or the straight-line method. For either type of depreciation, there are certain minimum rates for many categories. One example is that for an industrial building a three to four percent rate if using the declining-balance method, but the straight-line method requires a one and a half to two percent deduction.
It allows one third of the inventory value for both federal and cantonal taxes. There are other provisions set aside for certain liabilities, and it permits only some dubious receivables if they are commercially acceptable.
The standard amounts are five percent for Swiss receivable and ten percent for all other receivables.
If a company concludes a contact with a related party or a stakeholder, it must at arm’s length. If not, it can be reclassified as a constructive dividend.
They do not deduct constructive dividends from taxable profits, and withholding tax is 35% can be levied on a constructive dividend.
Taxes on capital and income
Taxation is applied on income and any capital profits as federal, cantonal, and communal income taxes. Income (dividends) and capital gains can sometimes benefit from participation relief. The relief is only available if they meet certain qualifications.
Participation relief is eligible for the participation if the company owns 10 percent of the equity in the distributing company, and the participation is worth a minimum of 1 million Swiss francs (dividends) or if the receiving company is entitled to 10% of the distributing company’s both profit and reserves. The relief can be granted for any of the above conditions are fulfilled and the participation is at least a year old.
Besides federal taxes some canons also have a separate real estate capital gains tax that come from the sale of real estate instead of other cantonal and communal corporate income tax.
How are Losses Treated in Swiss Taxation?
Swiss corporate tax law allows losses to be forward for up to seven years, but there aren’t any provisions that allow carry-back. The losses can only be carried forward using first in, first out (FIFO) method.
If a company is undergoing financial restructuring than older losses of over seven years can be carried forward. This can only be allowed in cases because of insolvency, where losses have to be carried forward to balance the books of account.
Losses also can carryover with changes in ownership. In the event of a merger, they can carry the losses of both forward. This carry over can not be used to avoid taxes or to defraud or abuse any laws. For example, a carryover on losses cannot occur when one of the companies has liquidated their assets.
How high is the Swiss corporate tax rate?
In short, there is no fix corporate tax rate as such: The corporate income tax rates vary for federal, cantonal, and communal taxes. The federal rate is 8.5% on the profit after tax. Whereas, cantonal and communal income tax rates are from 5.6% to 23.36%. It is important to note that corporate income is a deduction, so the effective rates vary from 11.19% to 24.41% (this includes federal, cantonal, and communal taxes).
The current rates including federal, cantonal, and communal are:
- Basel: 22.18%
- Geneva: 24.16%.
- Lausanne: 22.09%
- Zug: 14.6%
- Zurich: 21.15%
If the Tax Reform Act is enacted many of the Cantons will reduce their corporate income tax rates (federal, cantonal and communal taxes included) which will lower the overall Swiss corporate tax rate. For example, if the Tax Reform act is enacted the Canton rates will be:
- Basel: 13.04%
- Geneva: 13.79%
- Lausanne: 13.79%
- Zug: 12.09%
- Zurich: 18.19%
An overview on Swiss tax procedures
The Federal Tax Administration (FTA) is the federal tax authority and is responsible for federal withholding taxes along with all other federal taxes. However, each canton has their own individual authorities; These authorities are responsible for income taxes, including federal income taxes.
In Switzerland, taxpayers must file their annual tax return within three months of the end of the business year, sometimes extensions can be filed. The taxpayer and the tax authorities are participants in this process. They base taxes on the tax returns that are submitted by the taxpayers.
Any facts and legal provisions are determined by the tax authorities. They may inspect books of accounts and supporting documents along with other investigations related to taxes. The authorities determine the taxes due. The taxes due are sent to the taxpayer in writing with the tax basis, tax rate, and the tax amount due.
Taxpayers can challenge (formal complaint) the taxes due. If the complaint is not settled then the taxpayer may appeal the tax issue then moves on to court. This can be the federal or cantonal court, this is determined by what tax item is being appealed.
In Switzerland, tax rulings are common, but now according to BEPS rules some rulings are subject to spontaneous exchange regulations.
Other important taxes
This is a direct tax based on a company’s net equity. Net equity is the company’s paid- up capital, open reserves and also taxed hidden reserves. This tax is levied once a year, and rates vary between cantons.
Some cantons allow corporate income taxes be credited against the capital tax. This only occurs if the capital taxes exceed the cantonal corporate income taxes due. The capital tax is taxed by the cantons.
Issuance stamp duty
There is an issuance stamp duty at 1% on capital contributions from the shareholders to Swiss companies. The first 1 million Swiss in share capital is exempt from this tax. There are also exemptions during mergers and other specific events. This means the tax is both levied at the creation of the share and on any increases of share and contributions (when new shares aren’t issued).
Transfer stamp duty
Transfer stamp duty is 0.15% issued by Swiss residents and 0.3% for any other securities this tax occurs when a transfer against consideration of a security subject to stamp duty. This transfer must include a Swiss securities dealer. A Swiss securities dealer can be defined as a bank, a company holding over 1 million Swiss francs in taxable securities, a securities trader, or a professional intermediary.
Swiss and foreign bonds, shares, participation certificates, dividend rights certificates and units in collective investment schemes may all be subject to transfer stamp duties.
Daniba assists you with preparing your Swiss corporate tax and filing the tax return with the tax administration. Contact us today!