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Business Management
David Merz | Founding Partner
Zurich, November 20, 2024
Starting your own company can be one of the most exciting and rewarding endeavours! However, before diving in headfirst, it’s vital to understand the financial implications, and how to navigate them. In this article, we will explore the various costs associated with starting a company in Switzerland, how different legal forms can affect these costs, and some tax considerations for new businesses. We will also touch on how to plan for future expenses and discuss common ways to finance a new business.
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Selecting the right legal form for your business is one of the most critical decisions you’ll make when starting your company in Switzerland. Each legal structure comes with its own advantages and disadvantages, as well as its own set of cost considerations. It’s essential to consider factors such as legal liability, taxation, funding needs, and long-term growth plans.
The three most common legal forms in Switzerland are sole proprietorship, limited liability company (GmbH), and stock corporation (AG). Each of these forms affects the financial and legal aspects of your business in different ways.
Calculate the costs of setting up your company easily here.
The legal form you choose has a significant impact on the initial and ongoing costs of your business. In this article, we will primarily focus on how the three main types of corporate entities—sole proprietorship, GmbH, and AG—differ in terms of startup costs, administration fees, and other key expenses. For a more in-depth analysis of the differences between these three types of legal forms, read our blog: Comparison of legal forms: How to make the right choice for your company.
The main cost differences arise from the variations in initial capital requirements, registration costs, administration fees, and various other expenses incurred during the early phases of starting a business. We will look at each of these cost categories later, and how they vary for each of the corporate entities mentioned.
A sole proprietorship is the simplest (and default) legal form for a startup where there is a single owner. In this case, the business is not considered a separate legal entity from the owner. As a result, the costs associated with establishing a sole proprietorship are relatively low, as there is no formal incorporation process. There is also no minimum initial capital required for a sole proprietorship, which makes it the preferred choice for smaller businesses with limited access to funding.
A sole proprietorship must consider the following startup costs:
While sole proprietorships are cost-effective to set up, the lack of legal separation between personal and business assets means that the owner is personally liable for any business debts. As such, a GmbH or AG is often the preferred choice for business owners.
A limited liability company (GmbH) is a popular legal form in Switzerland that offers liability protection to its owners, separating their personal assets from the business. However, the complexity of setting up a GmbH, along with the more stringent regulatory requirements, leads to higher associated costs compared to a sole proprietorship.
Initial expenses for setting up a GmbH include:
A stock corporation (AG) is more complex than a GmbH and is often preferred by larger businesses or those aiming to raise capital by issuing shares (although many SMEs also opt for the structure of an AG). Although there are a few additional regulatory and administrative requirements involved in establishing and maintaining an AG, the basic fees for incorporating are similar to that of a GmbH. However, the initial minimum capital requirement is significantly higher, and it’s also typical for other business costs to be greater due to the larger scale of the business.
Initial capital outlays for an AG include:
Ongoing compliance and reporting requirements for AGs can be more demanding and, therefore, potentially more expensive. However, this is highly dependent on the nature of the business, where it is incorporated, its annual turnover, and various other factors.
In addition to these common legal forms, consider exploring other structures such as partnerships or cooperatives, depending on the nature of your business. These forms may offer advantages for specific types of companies but come with their own sets of rules and costs.
We have briefly touched on the types of expenses you may encounter when setting up a new business. This involves various costs that go beyond the legal setup alone. We will now expand on some of these costs and additional categories of expense you should plan for:
Depending on the legal form, you may be legally required to put forward a minimum amount of initial capital to incorporate your company (aka “share capital”). This is not an “expense” in the true sense, as the money stays with the business. However, it still means you need to be able to produce the required funds before you can register your business entity.
Initial capital requirements for the three main types of legal forms are:
The following registration fees apply:
In setting up a company in Switzerland, there are several administrative requirements which come with their associated costs. Some of these include:
It is difficult to accurately quantify these costs, as they can vary substantially based on numerous factors, such as the legal form of the business, its size and scope, the type of business activities, where it is incorporated, and so on. Naturally the costs increase with the size and complexity of the company.
It’s always recommended to work closely with an accounting expert like Nexova AG to get a better understanding of how these costs might affect your business.
Investing in the required technology and software licenses for your startup can be a significant expense depending on your type of business. Examples include:
If you’re planning to launch an eco-friendly business, consider the higher initial costs for sustainable materials, green certifications, and energy-efficient operations. However, there are generally grants and incentives available for businesses that prioritize environmental sustainability in Switzerland. You can learn more about some of these opportunities here.
Certain industries in Switzerland require permits or licenses to operate legally. These costs can vary greatly depending on the industry and canton. Common examples include:
Once your business is up and running, there will be ongoing compliance costs that vary by legal form and industry. These include:
There are various additional costs you may encounter when starting a new business. It would be impossible to list every foreseeable expense, but some of the major costs to be prepared for include:
One cannot put a definite number on these costs. It all comes down to the situation of the individual business, its activities, and objectives.
Taxes are a significant part of running a business in Switzerland and should therefore be carefully considered when deciding on your legal form, choosing the canton in which to setup the company, and planning your future finances. The tax obligations for startups include:
Companies in Switzerland are taxed at the federal, cantonal and communal levels. The federal corporate income tax (CIT), also known as profit tax, is a flat 8.5% on profit after tax (7.83% on profit before tax). Cantonal and communal CITs vary significantly and are added to the federal CIT. The result is that Switzerland’s overall effective corporate tax rates range from 11.9% to 21%. Sole proprietorships are not subject to CIT, and the income is instead taxed as part of the owner’s personal income tax.
All businesses with annual revenue over CHF 100,000 must register for VAT, which is currently 8.1% for standard VAT rated goods and services. There are reduced and special VAT rates of 2.6% and 3.8% for certain essential items and hotel services.
Swiss cantons impose a capital tax as a percentage of a company’s net equity value, including share capital, additional paid-in capital, reserves and retained earnings. This tax varies by canton, ranging from 0.001% (in Obwalden) to 0.5% (in Neuchâtel). Some cantons also impose a minimum flat capital tax.
If your company distributes dividends, you must consider the Swiss withholding tax. This tax is levied at the federal level on certain types of income (primarily dividends, interest, and certain insurance benefits) paid to individuals and companies in Switzerland. The standard tax rate is 35%. The purpose of the withholding tax is to ensure the proper declaration of income. If a double taxation agreement exists, the tax can be partially or fully reclaimed under certain conditions.
In addition to taxes, you must also pay into Switzerland’s social security system, which includes old-age pensions (AHV), disability insurance (IV), and accident insurance. Contributions are mandatory for both employers and employees, and many of the basic contribution rates are standardized across the country.
There are various other taxes that you may need to consider when planning your startup’s future financial obligations. These can include emission tax, church tax, wealth tax (a sole proprietor’s equivalent of capital tax), waste tax, stamp duties, and custom duties.
For more extensive information on the various taxes which apply to businesses in Switzerland, read our blog: Founding a company in Switzerland: what taxes will I have to pay?
When you add up all the costs and capital requirements, you can see that starting a new business in Switzerland is usually not cheap. It’s important to understand and estimate the costs involved, and to then have a clear plan of where you will access the capital needed to cover these costs.
There are several ways to raise the capital needed to cover the costs of starting your business in Switzerland:
Many entrepreneurs use their personal savings to finance the initial costs of starting a company. The benefit is that it provides greater personal control over your business’ direction and avoids taking on debt or giving up equity. However, it’s important to assess whether the amount you have saved is sufficient and if you are willing to personally bear the financial risk.
If you do not have enough money yourself to start your new business, friends and family can provide a convenient source of capital. Friends and family know you personally and may have a better idea of your character, be more confident in your business’ success, and trust you to repay them when it comes time. While this approach can provide an easier initial source of capital, it’s essential to establish clear expectations and agreements to avoid potential strain on personal relationships.
One of the most widely used sources of capital for starting a business is to apply for a loan from a bank or other traditional financial institution. Potential options include specialised small business and startup loans, or traditional bank loans.
That said, it is not always easy to obtain the kind of credit required from these institutions. Swiss banks are known to be cautious about lending to startups due to the higher risks involved. Securing a loan usually requires a strong business plan, collateral, and a good credit history. Even then, the terms may be unfavourable, and you may be subject to high interest rates and restrictions on how the funds can be used.
Due to the difficulties and restrictions of traditional debt financing, funding your business with the help of venture capitalists and/or angel investors can be a great alternative. These individuals or firms provide capital in exchange for equity in the company.
Venture capitalists know they are taking on higher risk when they invest in your company, but they do so if they also see that there is the opportunity for greater returns. One downside is that you give up part of the equity in your company, and possibly a level of control too.
Switzerland offers various support programs for startups. These include government grants, innovation loans, and tax breaks for new businesses. Organizations like Innosuisse provide grants for innovative startups, while cantonal programs may offer tax relief or subsidies.
In our blog From Vision to Funding: How Swiss Startups Attract the Right Investors, you’ll find all the essential information in detail.
The costs of starting a business in Switzerland can vary significantly depending on your industry. Each industry presents unique financial challenges and opportunities, and understanding these costs is essential for planning your startup budget effectively. Some examples of industry-specific cost considerations include:
Tech startups typically have higher initial costs related to software development, but they may have lower physical office expenses, especially if the team works remotely. The primary costs include developing software or applications, purchasing licenses for necessary platforms, and investing in cybersecurity to protect sensitive data. Depending on the nature of the business, cloud storage or data hosting services may also be significant expenses. Additionally, tech startups often require highly skilled employees, such as developers and IT specialists, which can drive up personnel costs.
Retail businesses have significant upfront costs for inventory and setting up a physical store. Finding a suitable location for the physical storefront can be expensive, especially in major cities, where rental prices are higher. Additionally, initial investment in marketing to attract customers, point-of-sale systems, and website development (if e-commerce is also involved) are important considerations. Retailers also need to account for ongoing expenses like re-stocking inventory, which can fluctuate based on supplier agreements and seasonal demand.
Manufacturing businesses tend to have some of the highest startup costs due to the need for specialized machinery and equipment. Other significant costs include securing production space, the cost of compliance with industry-specific regulations such as health and safety standards, ongoing staff training, hiring skilled technicians or engineers, and of course sourcing raw materials and maintaining an efficient supply chain.
Service-oriented businesses such as consulting firms, financial services, or marketing agencies often have lower physical setup costs but may face higher costs in terms of acquiring clients and building a reputation. They may need to invest in professional software, such as CRM systems, and marketing efforts to attract clients. The cost of compliance and licenses can also be expensive In regulated industries like finance or healthcare.
We have just mentioned a few industries where there are specific cost factors to consider. This applies to many other industries too, such as food and beverage, financial services, and more. By carefully considering the specific expenses for your sector, you can better ensure that your business is financially prepared for both the initial setup and ongoing operational costs.
While the initial phases of starting a business are generally the most expensive, they are not the only costs that you need to consider. It is also equally important to plan for future expenses which you will undoubtedly face as you continue to operate and expand your business. We have already mentioned some of these, which include costs such as salaries, taxes, production expenses, insurance, interest in the case of debt, and many more.
As you navigate the startup phase, aim to develop a comprehensive financial plan that includes projected revenues, operating expenses, and potential expansion costs. It’s also essential to be realistic about how much profit you can expect in the initial years of your business while you are gaining traction. Businesses who have contingency funds available and are prepared for financial challenges stand a greater chance to navigate the obstacles and come out successful in the long run.
Coming to grips with the various costs of starting a business in Switzerland can be overwhelming, especially when factoring in legal requirements, industry-specific expenses, and compliance regulations.
At Nexova AG, we specialize in assisting entrepreneurs like you with company formation in Switzerland, ensuring you understand the full scope of financial obligations from the start. Whether you’re setting up a sole proprietorship, GmbH, or AG, our team can guide you through the process, helping you choose the right structure and optimize your startup costs.
With our expertise in Swiss business regulations and accounting, we offer tailored advice on everything from tax obligations and capital requirements to permits and ongoing compliance. We also provide insights into funding options to help you cover initial expenses and ensure long-term financial stability.
Our fees are transparent and competitive, with no hidden costs, so you can focus on launching your business with confidence. Contact Nexova AG today to find out how we can help you turn your business idea into reality in Switzerland.
Answers at a click
For a GmbH, you need a minimum of CHF 20,000 (fully paid up). For an AG, the minimum capital is CHF 100,000, with at least CHF 50,000 paid up.
Yes, programs such as those offered by Innosuisse and certain cantonal grants provide financial support and tax relief for startups, particularly in the tech and innovation sectors.
Swiss businesses are subject to corporate income tax, VAT, capital tax, withholding tax, and social security contributions to name a few.
Depending on your business structure, ongoing costs may include annual filings, auditing, social security contributions, and renewal of business licenses.
Costs vary depending on the industry, type of business, location and the specific activities and scale you plan for your business. For example, start-ups in the technology sector may have high development costs but low office costs, while retail businesses may need to budget for inventory and rental space.
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