Corporate Taxes in Switzerland

Switzerland is well-known for its efficient and business-friendly tax system. This has made it an attractive destination for multinational corporations, small businesses, and entrepreneurs alike.

This article provides a comprehensive overview of corporate taxes in Switzerland, covering the key types of taxes businesses encounter. We will also explain how these taxes are calculated, who they apply to, and what can be deducted from taxable income, as well as provide insight into the most tax-friendly cantons in Switzerland and some of the attractive tax incentives which are available to Swiss businesses.

How does corporate tax work in Switzerland?

Switzerland’s tax system operates on three levels: federal, cantonal, and municipal. Each level has its own tax rates and regulations, creating a three-tier model of corporate taxation. The overall tax rate is determined by summing up the tax liability at each level.

This decentralized tax structure allows each canton and municipality to set its own rates within reasonable levels, which can result in varying tax burdens depending on a company’s location within Switzerland.

What are the key aspects of Switzerland’s corporate tax system?

1. Federal corporate income tax: At the federal level, a flat corporate income tax rate of 8.5% applies to net profits (7.83% on profit before tax). However, cantonal and municipal taxes add to this rate, so effective corporate tax rates vary significantly by region.
2. Cantonal and municipal taxes: Each canton and municipality impose its own corporate tax rates in addition to the basic federal tax, which means overall effective tax rates can range from around 11.85% to 21% depending on the company’s location.
3. Limitation of Tax Liability: In Switzerland, legal entities with a registered office or permanent establishment are generally taxed only on profits earned within Switzerland. Income from foreign permanent establishments is typically exempt from taxation. However, profits from foreign sources (e.g., interest or dividends) that are directly transferred to the Swiss entity may be subject to taxation. Thanks to over 80 double taxation agreements (DTAs), the risk of double taxation is significantly reduced.

What corporate taxes do companies in Switzerland have to consider?

Corporate entities in Switzerland are primarily subject to two key types of taxes: profit tax (also known as corporate income tax) on the profits they generate, and capital tax on their equity value. Profit tax is levied at both the federal and cantonal levels, while capital tax is imposed solely at the cantonal level.

Additionally, companies may need to account for other taxes, including VAT, church tax, wealth tax, withholding tax, and more. Let’s take a closer look at each of these:

Profit tax

Corporate income tax, often referred to as “profit tax” in Switzerland, is the primary corporate tax levied on a company’s net profits. It applies to corporate entities such as AGs and GmbHs. The total effective profit tax rate includes federal, cantonal, and municipal tax components, which vary widely by region.

Swiss companies are subject to corporate tax on their worldwide income. However, profits from foreign permanent establishments and real estate are generally exempt from Swiss taxation under the exemption method. Income such as dividends, interest, or royalties transferred to the Swiss entity is, however, subject to taxation in Switzerland.

How is profit tax calculated?

Profit tax in Switzerland is calculated as a percentage of a company’s profits, combining federal, cantonal, and municipal rates. The federal profit tax is a flat 8.5% on net profit, while cantonal rates vary widely, from 11.85% to 21%.

Some cantons apply a fixed rate, while others use a mixed approach that considers the company’s profitability, capital, and reserves. In some cantons, the municipalities have the authority to charge a different tax rate than that set by the cantonal capital, whereas in other cases there is a uniform rate for all municipalities within the canton.

Capital tax

Capital tax is imposed at the cantonal and municipal levels as a percentage of the equity of a company, including share capital, reserves, and retained earnings. While the federal government does not levy a capital tax, all Swiss cantons impose it at varying rates, making it a major tax consideration when choosing a canton to establish a business.

How is capital tax calculated?

Capital tax is usually calculated as a percentage of a company’s net equity value. The capital tax rate ranges significantly depending on the canton, from 0.001% in Obwalden to 0.5% in Neuchâtel. Additionally, some cantons also impose a minimum flat capital tax.

Value Added Tax (VAT)

Value Added Tax (VAT) is a consumption tax that is applied to the value added to goods and services at each stage of their production and distribution.

As of January 1, 2024, the VAT rates are:

• Standard rate: 8.1%
• Reduced rate: 2.6% (applies to essential goods such as food and pharmaceuticals)
• Special rate for accommodation: 3.8% (applies to the hotel industry)

All Swiss businesses with an annual turnover exceeding CHF 100,000 are required to register for VAT. Although VAT does not specifically target corporations, companies are responsible for collecting it on their taxable supplies and remitting it to the Swiss tax authorities.

Other Taxes

Aside from the main corporate taxes, companies in Switzerland may encounter several other taxes, some of which apply indirectly or under specific circumstances.

Wealth tax

Wealth tax applies to the total value of assets owned by individuals which includes sole proprietorships. It is calculated as a percentage of the net worth of a natural person, usually around 0.3 to 0.5 percent. Legal corporate entities are not directly subject to wealth tax, but it can affect the business owners at the personal level.

Church tax

Many cantons levy a “church tax” on companies, which is used to fund the national churches and other religious organizations. In some cantons, the church tax is included in the cantonal taxes. While individuals can opt to leave the church and stop paying church taxes, they are compulsory for corporate entities registered in the canton in which they apply.

Federal withholding tax

Switzerland imposes a withholding tax on certain types of income, such as dividends, interest, and royalties paid to foreign recipients. This tax generally applies at a rate of 35% but can be reduced through tax treaties or exemptions.

Waste tax

Swiss businesses are required to pay a waste tax to cover costs associated with waste disposal and environmental maintenance. This encourage waste reduction, recycling, and environmentally friendly practices. This tax varies by canton and is often based on the volume of waste produced.

Stamp duties

Stamp duties are levied on the issuance and transfer of securities and certain insurance premiums in Switzerland. For example, the issuance of new shares incurs a stamp duty of 1%, applied to the amount in excess of CHF 1 million.        

Customs duties

Companies importing goods into Switzerland must pay customs duties based on the type and volume of goods. The rates vary depending on the product, and there are exemptions for goods imported from certain countries under free trade agreements.

Which Swiss cantons are the most tax-advantageous?

Switzerland offers attractive corporate tax rates across the board compared to EU nations, as well as on a global scale. However, taxes vary significantly between cantons, with some offering substantially lower effective tax rates. Here are a few of the most tax-advantageous cantons for businesses in Switzerland:

• Zug: Zug has the lowest effective corporate tax rate in Switzerland of 11.85% (with some slight variation depending on the municipality). It’s a popular choice for multinational corporations due to its favorable tax climate.
• Lucerne: Lucerne offers an effective corporate tax rate of about 12.2%, making it another attractive option for businesses.
• Nidwalden: Nidwalden also ranks among the lowest in terms of corporate tax with an effective tax rate of around 12%. Additionally, it provides a unique license box regime that offers significant tax relief on certain intellectual property income for qualifying companies
• Appenzell Ausserrhoden (AR): Known for its low tax rates, AR offers a competitive rate of approximately 13%.
• Schwyz: Schwyz has a relatively low effective tax rate, typically around 14%–15%, and is known for its business-friendly regulatory environment.

It’s worth noting that even the canton of Bern, which has the highest effective corporate tax rate in Switzerland of 21%, is on par with the average corporate income tax rate in Europe (of 21.3%) and significantly below the effective corporate tax rate in Germany of around 30%. This sheds light on just how favorable the Swiss tax landscape is overall.

What are tax deductions and how do you claim them?

Tax deductions refer to expenses and losses which can be deducted from your taxable income when calculating your final tax liability. They provide an excellent means of reducing your overall tax burden.

In addition to ordinary business expenses incurred in the production and operational process, the following can also be deducted from taxable income:

• Depreciation on assets: Businesses can claim depreciation subject to certain conditions on tangible and intangible assets, such as machinery and patents, reducing taxable income over time
• Provisions: Provisions for clearly identifiable future obligations (e.g., warranty claims) are tax-deductible. However, general or insufficiently substantiated provisions are typically not recognized for tax purposes.
• Interest expenses: Interest on business loans is deductible, allowing companies to offset their tax liability against financial costs.
• Business losses: Justifiable business losses can be carried forward for up to seven tax periods, which can help reduce tax liability in subsequent years.
• Donations: Donations to charitable organizations are also tax deductible at the federal level provided they are less than 20% of the company’s net profit.

Claiming tax deductions involves submitting a detailed breakdown of eligible expenses as part of the corporate tax return. It’s therefore essential to retain accurate records and consult with tax professionals to maximize available deductions.

What other tax incentives are there for businesses in Switzerland?

Switzerland’s favorable tax environment is made even more attractive by various tax incentives designed to support business growth, innovation, and regional development. These can significantly reduce a company’s tax burden, especially benefitting industries focused on research, technology, and intellectual property.

• Research and development (R&D) tax deductions: Many cantons provide enhanced tax deductions for companies engaging in R&D activities. The cantons have been given extensive freedom in applying these additional deductions, with some offering specific incentives to encourage innovation. This has created attractive tax opportunities for companies involved in scientific or technological development.
• Swiss patent box regime: On 1 January 2020, Switzerland’s patent box regime was introduced at cantonal and communal levels, providing tax relief on income derived from intellectual property, such as patents and similar rights. Under these incentives, income generated from qualifying intellectual property can be taxed at a reduced rate in many cantons, often resulting in tax savings of up to 90% on IP-derived profits. This incentive attracts technology, pharmaceutical, and other IP-intensive industries, reinforcing Switzerland’s position as a hub for innovation.
• Regional investment incentives: Certain Swiss regions provide incentives to companies that contribute to local economic development. For example, some cantons with lower economic development offer tax holidays or reduced tax rates to encourage business activity. These incentives are particularly beneficial for manufacturing, tourism, and other industries that create jobs and contribute to regional growth.

How does Switzerland ensure international tax compliance?

While Switzerland is renowned for its favorable tax environment, it also has a strong commitment to transparency and adherence to international tax compliance standards. As a signatory to several international agreements and frameworks, Switzerland upholds its responsibility to prevent tax evasion and promote fair taxation practices.

• OECD standards and Automatic Exchange of Information (AEOI): Switzerland participates in the Automatic Exchange of Information (AEOI), an initiative by the Organisation for Economic Co-operation and Development (OECD). Through AEOI, Switzerland exchanges financial account information with over 100 countries, ensuring that income earned by foreign residents in Switzerland is reported to the relevant authorities in their home countries.
• Base Erosion and Profit Shifting (BEPS) initiative: Switzerland has implemented measures to combat tax base erosion and profit shifting, aligning its tax practices with OECD standards. BEPS regulations prevent companies from exploiting gaps and mismatches in tax rules to avoid taxation. Switzerland’s adherence to these standards helps maintain fair and transparent tax practices, especially for multinational corporations with complex structures.
• Double Taxation Avoidance Agreements (DTAAs): Switzerland has signed DTAAs with over 80 countries, helping to reduce the risk of double taxation for foreign companies and investors. These agreements clarify tax liabilities across borders, making it easier for international businesses to operate within Switzerland while avoiding duplicate tax obligations in their home countries.

Switzerland’s sound international tax compliance shows its commitment to maintaining a fair business environment while ensuring global tax transparency. These practices reinforce Switzerland’s attractiveness to businesses seeking a reputable, internationally aligned tax jurisdiction.