Setting Up a Branch Office in Switzerland: What You Need to Know

Switzerland is well-known for its stable economy, business-friendly environment, and strategic location in the centre of Europe. These factors make it one of the first choices for companies looking to expand their operations internationally. One of the simplest ways to achieve this is by setting up a branch office in Switzerland. In this article, we will explore what a branch office is, its differences from a subsidiary, the advantages of setting up a branch office in Switzerland, and the practical guidelines for doing so.

What is a branch office?

A branch office is a type of business entity that operates as an extension of its parent company but is in a different location or country. A branch office does not have its own independent legal identity and therefore always remains part of the parent company, subject to its control and direction. The branch office engages in similar activities as the parent company and represents its interests in the foreign market in which the branch is based. Branch offices allow the parent company to access new markets, establish a physical presence, and conduct business locally without needing to incorporate a new legal entity.

Difference between a branch office and a subsidiary

The main difference between a branch office and a subsidiary is that the latter is a distinct legal entity from its parent company. It has its own management and shareholders and is deemed to be a separate entity for legal, tax, and accounting purposes. This is in clear contrast to a branch office which is only a functional extension of the parent company but is not a separate legal entity. This means that the parent company is fully responsible for the branch’s operations, debts, and obligations, whereas this is not necessarily the case for a subsidiary.

It is important to note that while a subsidiary is a separate legal entity, it is still connected to the parent company through some level of ownership and control. The parent company typically holds a significant share of ownership in the subsidiary, usually more than 50% of its shares. This ownership gives the parent company the power to exert control over the subsidiary’s operations and decision-making even though it is legally a separate entity.

Why set up a branch office in Switzerland?

There are many good reasons for companies to consider expanding their operations through a branch office in Switzerland. Switzerland offers a lucrative corporate environment for foreign and domestic companies alike due to the following factors:

• It is strategically located in the heart of Europe which makes it an ideal hub for businesses looking to target the wider European market.
• Switzerland is known for its stable political environment and strong economy, making it a low-risk jurisdiction for international expansion.
• The Swiss government provides supportive policies and incentives for foreign businesses and aims to encourage foreign investment, making it an overall corporate-friendly environment.
• Having a presence in Switzerland adds to a company’s reputation and credibility and is often perceived as a sign of financial strength and reliability.
• Switzerland has a highly skilled and multilingual workforce which can be a major asset for businesses operating in the country.

Who can benefit from a branch office in Switzerland?

A branch office in Switzerland can be beneficial for various types of companies, including:

1. Multinational corporations: Switzerland is an ideal base for large international companies looking to expand their operations in Europe.
2. Technology startups: Switzerland provides a supportive ecosystem for innovative technology startups who are looking to access the European market. It is especially popular among blockchain development companies.
3. Trading companies: Switzerland’s favourable trade regulations and tax policies make it an attractive location for trading companies.
4. Financial institutions: Switzerland is a renowned international financial centre, known for its financial expertise and advantageous offshore banking sector. Foreign banks and financial institutions can use this favourable environment to their advantage while providing services to European clients.
5. Research and Development Centres: Companies can establish R&D centres in Switzerland to utilise its skilled workforce and cutting-edge infrastructure.

Advantages of a branch in Switzerland

Establishing a branch office as a means of expanding a company’s operations to Switzerland offers several key advantages:

1. Cost-effective expansion: Setting up a branch office is less costly and time-consuming than incorporating a subsidiary. A branch also has no minimum share capital requirements.
2. Tax benefits: Branch offices enjoy more favourable tax treatment compared to subsidiaries. Often, the branch of a foreign company is exempt from paying certain taxes in Switzerland, including exemptions on withholding tax when making payments to the parent company.
3. Automatic control: The parent company automatically maintains full control over a branch’s operations compared to a subsidiary which could be vulnerable to hostile takeovers of ownership. This ensures consistency with its overall business strategy and direction.
4. Common brand and reputation: A branch office benefits from the already-established brand reputation of the parent company.
5. Flexibility in operations: Even though a branch office is not a distinct legal entity, companies can still adapt the operations of their branch according to the specific needs of the Swiss market.

Practical guidelines for setting up a branch office in Switzerland

There are clearly many potential benefits to establishing a branch office in Switzerland, but let us now turn to the practicalities of doing so:

Setting up a branch for a foreign company

It is certainly permissible for a foreign company to set up a branch office in Switzerland, and most of our discussion has been taken from this perspective, but it is important to note that the branch is then also subject to Swiss law. In general, Swiss law governs all external legal relationships that the branch enters, but the internal legal relationships (those within the branch and the parent company based abroad) are still based on the foreign law where the parent company is established.

While a branch is not a separate legal entity, it must still be entered into the Swiss commercial register. For this, the branch must have an authorised representative who is a Swiss resident (see our nominee director service). There may also be additional steps for foreign companies before their branch office in Switzerland is approved. These could include obtaining specific business licenses and fulfilling financial requirements to demonstrate the parent company’s financial stability.

Setting up a branch for a domestic company

If the parent company is already registered in Switzerland, setting up a branch in another location is relatively straightforward. The company just needs to inform the Swiss commercial register about the branch’s establishment and provide the necessary documentation.

Registration and documentation requirements

A branch office must be registered with the Swiss commercial register. For this, the company must submit the following corporate documents to the local authorities:

• Proof of the parent company’s registration in its home country, which includes a notarised copy of the parent company’s articles of association as well as an extract from the commercial register of the country where the parent company is registered.
• Proof of the decision to establish a branch in Switzerland. Minutes of the board meeting where the decision was made are usually sufficient.
• Documents stating that the branch office will carry out the same or similar activities to the parent company.
• Appointment of a local representative (individual or legal entity) responsible for the branch’s dealings in Switzerland.

The branch will also have to submit an appropriate trade name which should be the same as the name of the parent company. It should also reflect both the parent company’s primary place of operation and the Swiss region or city where the branch operates.

Is a branch office required to keep accounts?

Article 957 of the Swiss Code of Obligations (CO) stipulates that both individual companies and legal entities (e.g., subsidiaries) with an annual turnover of more than CHF 500,000 are required to keep accounts in accordance with double-entry accounting standards.

However, a branch office is not a distinct legal entity in Switzerland and is therefore not obliged to maintain and file its own accounts. The responsibility of maintaining accounts remains with the parent company, even in the case that it has its headquarters abroad. That said, in practice a branch office usually does independently prepare its own balance sheet and income statement for improved financial control and planning purposes. Clear records are also required for the submitting income tax returns in Switzerland.

What taxes does a branch in Switzerland have to pay?

A branch office in Switzerland is typically subject to Swiss corporate income tax on the profits it generates within Switzerland. Switzerland operates on a three-tier tax system whereby companies are taxed at the national, cantonal, and municipal levels. As such, the parent company should consider these varying tax rates when deciding where to set up its branch in Switzerland.

Switzerland has a wide network of double tax avoidance treaties with over 100 countries, which ensures that the profits earned by the branch are not subjected to double taxation if the parent company is a tax resident of one of these nations. In this case, the profits of the Swiss branch are exempt from paying income tax in the parent company’s home jurisdiction. This is usually the more favourable outcome because Switzerland is known to have favourable corporate tax rates compared to many other developed nations.

A foreign branch office in Switzerland can also benefit from other tax incentives and exemptions, and usually enjoys an overall lower tax obligation compared to a subsidiary.