Tax residence and fiscal domicilei Corporate residence
Companies with either their statutory seat or their place of effective management in Switzerland are considered Swiss tax residents for tax purposes.
A company is considered to have its place of effective management in Switzerland if its economic centre is located in Switzerland.
In determining the economic centre, the tax authorities consider a variety of factors and the presence of multiple connecting factors with Switzerland is sufficient to consider that the place of effective management is in Switzerland. The predominant factor is the place where management is carried out (i.e., the day-to-day actions required to carry out the company's statutory purpose). Secondary factors include the place where fundamental decisions are made and the place where administrative work (e.g., accounting, correspondence) is carried out. A passive company's (e.g., a group financing company) place of effective management is where its strategic decisions (e.g., decisions about refinancing, loans and loan conditions) are made.
The place of effective management for companies created by individuals for asset management purposes is the jurisdiction in which the controlling individual or individuals reside.ii Branch or permanent establishment
Non-resident companies are liable to Swiss corporate income tax and capital tax on income and capital allocated to a Swiss permanent establishment.
For Swiss direct tax purposes, the definition of permanent establishment is similar to the definition in the OECD Model Tax Convention on Income and on Capital (the OECD MC). It is defined as a 'fixed place of business through which the business of an enterprise is wholly or partly carried on' (Article 51, paragraph 2 of the Swiss Federal Income Tax Act of 14 December 1990). Examples include branches, factories, dependent agents with a fixed place of business and construction projects lasting at least 12 months.
Switzerland has an extensive network of DTTs, most of which follow the OECD MC, which provide allocation rules for permanent establishments.
Swiss tax rules stipulate that the direct (objective) method should be used when determining a Swiss permanent establishment's profit. The Swiss permanent establishment's profit is thus based on its books of account and is independent of the entity's total profit.
Switzerland does not levy branch profit tax. Consequently, the remittance of branch profits to a foreign company with its place effective management outside of Switzerland is not subject to Swiss withholding tax.