Switzerland

Switzerland is an economically advanced and prosperous nation strategically located within the heart of continental Western Europe. It is bordered on the west by France, on the north by Germany, on the east by Austria and the principality of Liechtenstein, and on the south by Italy.

Swiss neutrality of the Swiss franc (CHF) has been relatively stable compared to that of other currencies. Swiss neutrality and national sovereignty, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland maintained neutrality through both World Wars; is not a member of the European Union or the European Economic Area.

Currently an estimated one-third of all funds held outside their country of origin or sometimes termed offshore funds are kept in Switzerland. In 2001 Swiss banks managed USD 2.6 trillion.

The Bank of International Settlements, an organization that facilitates cooperation among the world's central banks, is headquartered in the city of Basel. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I.

As of May 2006, foreign banks operating in Switzerland manage 870 billion Swiss francs worth of assets The term 'offshore' is not used in Swiss legislation or in describing company forms. However, there are a number of specialised forms of the basic Stock Corporation which offer tax-privileged treatment equivalent to that obtainable in offshore jurisdictions.

The EU Savings Tax Directive has applied in Switzerland as from 1st July, 2005, through a separate agreement reached between the country and the EU, under which Switzerland is levying a withholding tax initially at 15% to returns on savings paid to the citizens of EU Member States, and which in various other ways is less onerous that the original Directive.

Although bank interest and dividends are caught by the Directive, payments made by what are called 'residual agents' including trusts are apparently excluded in the Swiss agreement, which is not the case in Member States. And of course the Directive applies only to individuals who receive payments; companies and other organisational forms do not fall under its aegis.

Tax-privileged operations may take place within the following forms, all of which are variants of the basic Stock Corporation:

Holding Company
Domiciliary Company
Auxiliary Company
Service Company

Stock Corporation
Also known as: Aktiengesellschaft or Societe Anonyme (AG/SA)
The Stock Corporation is almost the universal choice for all foreign investors. All companies have an auditor and a registered office to file accounts annually with the Companies Registration Office. Small companies may file abbreviated accounts without needing to include turnover.

Nominee subscribers and shareholders are permitted and at least 100,000 CHF is the minimum capital required and at least 20% of which must be paid up before incorporation, this must be no less than CHF 50,000. The types of shares permissible include preference shares, voting shares or non voting shares and can be issued at a premium and bearer shares are also permitted.

Holding Companies Emet Offshore Consultants are pleased to be able to offer the facility of holding companies to our clients. The holding company is the preferred option for many businesses that wish to minimise risk, reduce taxation and effectively manage sister companies. There are three types of holding companies:

Asset management holding
The asset management holding purchases shares in other companies that it forecast will make a profitable return. It will actually trade in shares and has no actual personal connection or activity with any of the companies from which it purchases shares. The asset management holding only has interest in increasing profits on share values.

Management holding
The management holding is a mixture of an operational holding and an asset management holding. It mainly holds and manages the shares and assets of its own sister companies but does not conduct business itself. The management holding company is the preferred option for the expanding business that may wish to separate different parts of its business into different sister companies. The holding can provide loans and services to the sister companies and the sister companies can benefit from the existing organisational structure. But a bankruptcy of one of the sister companies will not affect the holding. The profit of the sister companies can be transferred as dividends to the holding which is registered offshore and has no taxation.

Advantages in forming a holding

• Liability may be reduced to just one of the sister companies.
• Bankruptcy claims do not affect the main holding company.
• Dividend payments to the holding company are free from taxation.
• Any earned income derived from the holding company may be reinvested without taxation.
• Sister companies of the original holding company benefit from the organisational structure.
• At federal level a holding company pays a reduced level of corporate income tax on any dividend income received from the subsidiary or the company in which it holds a participating shareholding. The reduction in the level of corporate income tax payable depends on the ratio of earnings from participating shareholding to total profit generated.

Domiciliary Companies
A stock corporation is defined as a domiciliary company if it is both managed and controlled from abroad and has a registered office such as a lawyer's office in Switzerland but has no physical presence or staff in the country. All of their business must be carried out abroad and the company can only receive foreign source income. 

Domiciliary companies are able to make significant savings in the corporate income tax levied on income and capital gains as well as the net worth tax. Domiciliary companies are considered the perfect instrument for administration and tax reduction.

Further features of a domiciliary company

• Domiciliary companies enjoy the following relief from corporate income tax.
• At a cantonal and municipal level the corporate income tax rate may be substantially reduced or even reduced to zero; taxes levied by the cantons are calculated according to a formula which relates the company's paid up share capital and reserves to profit.

The Auxiliary Company

The auxiliary company is essentially an extension of the domiciliary company that may carry out a small portion of their business in Switzerland. These companies are only possible in seven cantons and have no benefits at the federal level. The majority of income must come from a foreign source and the remainder varies between cantons. However it is generally understood that an auxiliary company may have Swiss offices, staff and receive Swiss income taxed at normal rates.

Service Companies
Service companies are companies whose sole activity is the provision of technical, management, marketing, public relations, financial and administrative assistance to foreign companies which are part of a group of which the service company is a member.

Service companies may not in general derive income from third parties such as companies outside their corporate group. Service company status is obtained by way of an advance tax ruling.

At a cantonal and communal level corporate income tax rates will be adjusted depending on the international orientation of the services provided. There are a number of ways of calculating annual taxable profit for cantonal and municipal purposes but generally speaking annual taxable profit will be the equivalent of 8.5% of the payroll or 5%-20% of overheads unless overheads are very low in which case a higher percentage rate will be used.

Switzerland Employment and Residence
There are no special privileges for the employees of non-resident or tax-privileged entities in Switzerland. Entry into Switzerland, residence in Switzerland and the right to work or purchase property in the country are all inextricably interlinked.

Obtaining Residence in Switzerland

The Class B permit
The class B permit is the most commonly issued permit and gives the right to live and work in Switzerland. It is the permit of choice for professional and managerial people, self employed individuals who wish to start their own company in Switzerland or individuals who wish to reside in Switzerland and are wealthy enough to live off their own resources

The Class C permit
The class C permit is a longer-term residency permit which gives the applicant almost the same rights as Swiss citizens and allows the applicant to buy real estate in Switzerland. To obtain a class C permit one must have had a class B permit for between 5 and 10 years depending on country of origin. The class C permit is the last step before applying for Swiss citizenship. It is subject to the same conditions as the class B permit.

The 'Fiscal Deal' Permit
This is a variant of the class B permit and is primarily for wealthy individuals who wish to live in Switzerland off income earned outside Switzerland (e.g. celebrities, international recognized tennis players, Formula 1 race-car drivers) but who have no need or desire to work in the country. To obtain a fiscal deal permit the applicant needs a certified net wealth of at least 2 million Swiss Francs and must be willing to spend at least 180 days a year in the country. The fiscal deal permit allows the applicant to pay considerably less tax than a Swiss national of his income bracket would normally pay since the assessment to tax is not based on the applicant’s real income but rather on a much lower notional amount.

Please contact an Emet Offshore Consultant today for a free consultation on all the advantages and tax features of incorporating in this prestigious financial district at info@emetoffshore.com.