Taxes in Switzerland – What business owners from abroad need to know

How companies are taxed

Corporate tax rates in Switzerland have decreased since the last reform, in some cases drastically. In about three-quarters of all cantons, corporate profits are taxed at a rate of less than 15 percent. As of January 1, 2024, only large corporations with global sales of more than EUR 750 million will be subject to the OECD top-up tax (minimum tax rate of 15 percent). All other companies continue to benefit from the low tax rates, some of which are below the aforementioned OECD minimum tax rate.

The generally favorable tax environment also applies to natural persons. Tax competition between the cantons is intense, however, forcing cantons to use taxpayers’ money wisely. There are cantons where income is taxed at a maximum of 20 percent and assets at 0.1 percent. Dividend income from qualified participations of more than 10 percent is only subject to a partial tax throughout all of Switzerland.

Pension fund: The second pillar

In Switzerland, entrepreneurs employed by their own company are required to have an occupational pension plan (also known as pillar 2 or a pension fund). These are very important in this country and encourage retirement savings while also being attractive from a tax perspective. Because as long as the retirement assets are in the savings process, they are not subjected to wealth or income tax. At retirement, the assets can be withdrawn as a lump sum at a privileged tax rate.

In addition to the legal minimum, you can also make additional payments into the pension fund up to a certain amount, which are also tax advantaged. This type of pension optimization is particularly suitable for small and medium-sized enterprises (SMEs). Not least because the business owner and majority shareholder can largely determine the amount of the insured salary themselves and thus the savings contributions to be made.

A strong second pillar in the form of a well-funded pension fund enables the entrepreneur to further reduce their cluster risk (their own company) even further. The tax burden can also be optimized through the right ratio between salary and dividend.

Estate planning: Gift and inheritance tax benefits

Moving to Switzerland can also be worthwhile in terms of a future inheritance. Spouses are exempt from gift and inheritance tax throughout Switzerland. Direct descendants are also exempt from this tax in most cantons (with the exception of the cantons Vaud, Neuchâtel and Appenzell Innerrhoden). However, caution is advised in regard to German gift and inheritance tax. Comprehensive advice from a German tax consultant or lawyer is strongly recommended on this matter.

Are there downsides?

There are also some cantons in Switzerland that are rather unattractive from a tax standpoint. These are primarily located in western Switzerland, where income can be taxed at over 40 percent and wealth at up to 1 percent per year. In addition, all earned income in Switzerland (without an upper limit) is subject to high social security contributions of around 10 percent.

Special taxes: Advantages of lump-sum taxation

If you are a foreigner moving to Switzerland for the first time and are not gainfully employed here, you may be able to benefit from what is known as lump-sum taxation (also known as “expenditure-based taxation”). However, this taxation option is generally only worthwhile for assets of around CHF 20 million or more. Five cantons have now abolished this lump-sum taxation (Basel-Stadt, Basel-Landschaft, Zurich, Schaffhausen and Appenzell Ausserrhoden). All other cantons continue to offer this tax option, however.

Conclusion

Relocating to Switzerland offers many opportunities for business owners. Due to the complexity of the issues involved, it is generally a good idea to clarify the tax situation with a tax expert in Germany and Switzerland at an early stage and in a coordinated manner.

Even the smallest undertaking starts with a conversation