Insight
Doing business in Switzerland
May 2022
Cheese, chocolate, and skiing are three things that perhaps come to mind when thinking of Switzerland. While many may only experience these when on holiday, there are others who enjoy them all year. These are the people who work and live in Switzerland, benefiting from high salaries, low taxes, excellent quality of life, and an efficient banking system. Let’s examine these qualities further.
Quality of life
Geographically, Switzerland sits at the heart of the European Union (EU) without being a member. However, Switzerland is a signatory to all major trading and working EU treaties; this means entering Switzerland for an EU citizen is markedly easier than it is for anyone else. Switzerland is also a signatory to most important double-taxation treaties.
Switzerland has four official languages: German, French, Italian, and Romansh. There are two international airports: Zurich and Geneva. Switzerland also hosts the headquarters of many international non-governmental organisations.
Switzerland is naturally multicultural, and its cities possess strong foreign communities. Living in Switzerland it is impossible to feel homesick and children find it easy to adapt as there are many well-respected English and international schools.
Switzerland has a reputation for high prices, but salaries reflect this – in 2021 the average monthly wage for a full-time worker in Zürich was around CHF 6,500, about EUR 6,100. In neighbouring Germany, the average is closer to EUR 4,500. The high salaries on offer in Switzerland attract well-educated and well-trained employees to all parts of the economy, from artisans to academics.
Tax environment
The Swiss taxation system can seem difficult to understand, as there are three level of taxation: communal, cantonal, and federal. Each applies different tax rates and rules. However, the procedure is quite simple: just a single tax return needs to be filed, once a year, for both companies and individuals.
Company taxation
Switzerland offers one of the most competitive tax environments for trading and holding companies. In Geneva, a company can expect to pay corporate taxes of 14%, while in some other cantons this can be even lower.
In Geneva, a company that mainly trades abroad, can report in a foreign currency such as US dollars. There is also a specific tax reduction for holding companies; in some cases, this can reduce the corporate tax to zero.
It is easy to find well-trained employees. Also, opening a start-up company to develop a new product is tax efficient as, since 2020, a tax deduction applies for research and development expenses and patent incomes.
Individual taxation
In Switzerland, individuals pay tax on income and wealth. Tax rates vary from one canton to another such that, for example, someone in Geneva pays different tax to someone in Zurich. In more rural areas, taxes may be lower than in the cities.
Switzerland is a safe haven for investors and shareholders. Even if the investment becomes subject to wealth tax, the tax rate is up to 1% with several deductions available. In some cantons such as Geneva or Vaud, there is a tax deduction known as the tax shield. This limits the final amount of cantonal and communal income and wealth taxes to 60% of the income, with an income that cannot be lower than 1% of global wealth. This deduction will mostly interest those who live off investment income rather than earned income.
Another tax benefit is the exemption of private shareholdings from capital gains tax on disposal. Although some conditions exist, the exemption applies to medium-to-long-term investments held privately not professionally, and not representing a significant source of income. The exemption also applies to cryptocurrency.
A shareholder living in Geneva, who holds more than 10% of shares in a company will only pay tax on 70% of the gross income from those shares, making 30% of the income tax free. Selling the shares will also benefit from the capital gains tax exemption.
Wealthy people moving to Switzerland without needing to work can apply for a specific lump-sum tax, calculated using several elements. This status only applies to non-Swiss people and can be tax-efficient when compared to ordinary taxation. Consulting a Swiss tax adviser is essential.
All things considered, Switzerland has much to offer and is definitely a business destination for anyone to consider.
About the author
Bruno Pinheiro
Geneva, Switzerland
Bruno is a tax consultant within the tax department of Audiconsult SA, Russell Bedford’s Geneva member firm.
He provides tax advice for both corporates and individuals. With a strong sporting mentality, Bruno enjoys channelling the qualities required both on and off the field, while providing the best tax advice and support to his clients.
bpinheiro@audiconsult.ch