Company taxation
Corporate taxation in Switzerland is a complex and delicate subject. The Swiss tax system is known as one of the most competitive and attractive in the world. Legal entities, including corporations, cooperatives, associations, foundations, etc., are recognized as tax subjects in their own right, with a tax capacity distinct from that of their members. They are generally taxed on their profits and capital. The Confederation levies a tax on the profits of legal entities, in accordance with the Federal Act on Direct Federal Taxation (LIFD). The cantons, for their part, levy a tax on the profits and capital of legal entities, in accordance with the Federal Law on the Harmonization of Direct Taxes of the Cantons and Communes (LHID), as well as specific cantonal laws. In Geneva, this is the law on the taxation of legal entities (LIPM). Swiss tax legislation is highly detailed, with a multitude of specific provisions, as well as application and procedural rules. As a result, corporate taxation in Switzerland is a complex subject requiring a thorough understanding of the tax legislation in force.
Income tax
In Switzerland, income tax is a key component of corporate taxation. It is calculated according to the corporate taxation system based on the company’s actual and effective profits. The tax is generally calculated on the basis of taxable profit, and is applicable to all forms of company, including limited liability companies, corporations and limited partnerships. Companies in Switzerland are subject to a series of rules and procedures for declaring and paying income tax. They must follow the tax rules in force, to avoid certain penalties and tax sanctions. Federal corporate income tax is calculated on the company’s total profits, and is divided between the canton and the Confederation. The federal corporate income tax rate is set at 8.5%. However, there are certain deductions, notably for depreciation of assets, investment-related costs and interest paid on loans. Cantonal tax is calculated on taxable profit. It is generally based on the company’s location. Tax rates can vary from 0 to 24%. What’s more, some companies may benefit from advantageous tax arrangements, such as reduced tax rates or tax exemptions. For example, some companies may benefit from a negotiated tax regime enabling them to pay lower income tax than would normally be the case. Finally, Swiss companies are also subject to a municipal tax calculated on the basis of their taxable profits. This tax is divided between the canton and the communes, and can be as high as 5%.
Capital tax
Unlike the Swiss Confederation, the cantons levy a tax on company capital in addition to profits. The latter includes share capital and declared reserves. It is based on the company’s own capital. However, the amount of taxable capital is not the same for all legal entities. However, this type of direct tax is applicable to all forms of company, regardless of their articles of association. These include public limited companies (SA), partnerships limited by shares (SCA) and limited liability companies (Sàrl). The tax rate is calculated on the basis of the market value of the company’s capital, determined from taxable net profits and dividends paid. Tax rates can vary widely depending on the legal form of the company, but also on the canton in which it is located. Thus, the exact amount will be calculated according to the location of the company’s headquarters, its administration or its economic connection. Corporate capital tax is an important tax that affects companies’ net income and their ability to generate profits and dividends. Companies paying dividends to shareholders are subject to corporate capital tax, but dividends are generally subject to a reduced rate. In addition, Switzerland’s corporate tax system is designed to encourage long-term investment and export activities. Companies investing for the long term and exporting their products are exempt from capital tax, thereby stimulating economic growth and encouraging innovation and investment. Capital tax is generally proportional. However, in the cantons of Graubünden and Valais, the scale is slightly progressive (double rate system). Finally, income tax can be offset against capital tax (art. 30 para. 2 LHID), so that the taxpayer only pays the higher of the two taxes.
It is therefore vital that companies understand the different forms of corporate taxation in Switzerland, so that they can take the necessary steps to meet their tax obligations and ensure that they are properly taxed.
