Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Corporate taxpayers are subject to corporate income tax on worldwide income, with the exception of income from foreign immovable property, permanent establishments and business enterprises. Corporate income tax is levied on the net profit.
In principle, the taxable income is the same as the profit listed in statutory financial statements, which is determined on an accrual basis. Generally, all expenses are deductible, provided they are commercially justified. Corrections are allowed when tax law stipulates that a value different from that in the books of account should be used. For instance, if the tax authorities consider depreciations or provisions excessive, they will be reduced or denied.
Companies may record depreciations using either the declining-balance method or the straight-line method, but for tax purposes certain minimum rates must be respected (e.g., for industrial buildings 3–4 per cent using the declining-balance method and 1.5–2 per cent using the straight-line method, for intangibles 40 per cent using the declining-balance method and 20 per cent using the straight-line method).
A provision for one-third of the inventory value is permitted for federal and cantonal tax purposes. Further provisions for liabilities and dubious receivables are allowed if commercially acceptable. The standard amount is 5 per cent for Swiss receivables and 10 per cent for foreign receivables.
If a company concludes a contract with a shareholder or related party, it must be at arm's length. If not, consideration in excess of the arm's-length consideration is reclassified as a constructive dividend. Amounts reclassified as constructive dividends are not considered justified expenses, so they cannot be deducted from the company's taxable profit. Additionally, withholding tax (35 per cent) may be levied on the constructive dividend.Capital and income
As a rule, both income and capital profit are subject to federal, cantonal and communal corporate income taxes.
However, income (e.g., dividends) from and capital gains on qualifying participations benefit from participation relief.
Participation income is eligible for participation relief if the receiving company owns at least 10 per cent of the equity in the distributing company, if the participation is worth at least 1 million Swiss francs (for dividends) or if the receiving company is entitled to at least 10 per cent of the distributing company's profit and reserves. Participation relief is granted for capital gains if one of the above conditions is fulfilled and the participation has been held for at least one year.
Additionally, some cantons levy a separate real estate capital gains tax on gains arising from the sale of real estate in lieu of ordinary cantonal and communal corporate income tax.Losses
Under Swiss tax law, losses may be carried forward for seven years; there are no provisions for carry-back. Losses must be carried forward using the first in, first out (FIFO) method.
Older losses (more than seven years) may be carried forward during a financial restructuring due to insolvency, if carrying forward said losses will allow the company to balance its books of account.
Losses survive changes in ownership. Additionally, in the event of a merger, the losses from both companies may be carried forward, except in the case of tax avoidance or abuse of a right (e.g., merger with a company that has liquidated most or all of its assets).Rates
The federal corporate income tax rate is 8.5 per cent on profit after tax; cantonal and communal corporate income tax rates vary from 5.55 per cent to 23.36 per cent (statutory rates on profits after tax). Since corporate income tax is a deductible expense, the effective rates are between 11.19 per cent and 24.41 per cent (federal, cantonal and communal taxes included).
The current effective rates are: 22.18 per cent in Basle; 24.16 per cent in Geneva; 22.09 per cent in Lausanne (canton of Vaud); 14.60 per cent in Zug; and 21.15 per cent in Zurich (federal, cantonal and communal taxes included).
Many cantons will reduce their corporate income tax rates if the Tax Reform Act enters into force. For instance, the proposed, new effective rates are: 13.04 per cent in Basle; 13.79 per cent in Geneva and Lausanne (Vaud); 12.09 per cent in Zug; and 18.19 per cent in Zurich (federal, cantonal and communal taxes included).Administration
The federal tax authority is the Federal Tax Administration (FTA). The FTA is responsible for federal taxes, including withholding tax. Each canton has its own tax authorities; the cantonal tax authorities are responsible for income tax, including federal income tax.
Taxpayers are required to file an annual tax return during the three months following the close of the business year; extensions may be requested.
Both the tax authorities and the taxpayer participate in the tax assessment process; taxes are assessed based on the tax return submitted by the taxpayer.
The tax authorities are responsible for determining relevant facts and applicable legal provisions. They are allowed to conduct investigations, including inspections of the books of accounts and any supporting documents. The tax authorities determine the taxes due; this decision is communicated to the taxpayer in writing and includes the tax basis, tax rate and taxes due.
Tax assessments can be challenged before the tax authorities (formal complaint). If the dispute is not resolved, the taxpayer can appeal; the matter then goes to court (federal or cantonal, depending on the matter being appealed). The Swiss Federal Supreme Court is the highest Swiss court.
Tax rulings are very common in Switzerland. However, certain types of rulings are now subject to spontaneous exchange under spontaneous exchange of information agreements and in accordance with the BEPS rules.Tax grouping
Swiss tax law does not allow for tax consolidation (except for VAT). Companies that are part of a group are taxed as individual companies, subject to ordinary tax rules.ii Other relevant taxesCapital tax
Capital tax is a direct tax that is levied on companies' net equity (paid-up capital, as well as open reserves and taxed hidden reserves). Capital tax is levied annually and rates vary (0.001–0.525 per cent) between cantons. Some cantons permit corporate income tax to be credited against capital tax, meaning capital tax is levied only if it exceeds the cantonal corporate income tax due. There is no federal capital tax; it is only levied by the cantons.
In the event of thin capitalisation, the part of the loan reclassified as equity is subject to capital tax.Issuance stamp duty
Issuance stamp duty is levied on capital contributions from shareholders to Swiss companies, meaning it is levied on both the initial creation of share capital as well as subsequent increases of share capital and contributions without issuance of new shares. Stamp duty is levied at 1 per cent. The first 1 million Swiss francs in share capital is exempt from stamp duty. Exemptions are also granted following a merger or similar restructuring.Transfer stamp duty
Transfer stamp duty is levied when there is a transfer against consideration of a security subject to stamp duty and the transfer involves a Swiss securities dealer. Securities subject to stamp duty include Swiss and foreign bonds, shares, participation certificates, dividend rights certificates and units in collective investment schemes. A Swiss securities dealer is defined as a bank, securities trader or professional intermediary (individual or legal person) or a company holding over 10 million Swiss francs in taxable securities. Transfer stamp duty is levied at 0.15 per cent for securities issued by Swiss residents and 0.3 per cent for foreign securities.VAT
The ordinary VAT rate is 7.7 per cent. VAT on accommodation is 3.7 per cent and VAT on essential goods is 2.5 per cent.Payroll taxes
A social security contribution of 10.25 per cent is levied on employment income; half is paid by the employer and half is paid by the employee (via withholding). Unemployment insurance is also levied on employment income.
Additionally, employers are required to levy tax at source on salaries paid to employees not resident in Switzerland or to foreign employees without a long-term resident permit.