Switzerland is formed of 26 cantons (Aargau, Appenzell Inner Rhodes, Appenzell Ausserrhoden, Berne, Basel-Country, Basel-Stadt, Fribourg, Geneva, Glarus, Grisons, Jura Mountains, Lucerne, Neuchâtel, Nidwalden, Obwalden, St. Gallen, Schaffhausen, Solothurn, Schwyz, Thurgau, Ticino, Uri, Vaud, Valais, Zug, Zurich), which are able, under the applicable legislation in Switzerland, to organize their own taxation system.
Thus, each of the Swiss canton has the legal right to collect any tax that does not fall not exclusively in the competence of the Swiss Confederation. That is why the cantonal tax laws and tax rates vary considerably from one canton to another and our team of company formation specialists in Switzerland can offer tax advice on each taxation framework available for corporate entities or for natural persons. Below, we present the cantons with the lowest corporate tax rates:
The canton of Lucerne applies the smallest corporate tax, imposed at the rate of 12,32%. Businessmen who want to open a company in Switzerland, Lucerne should know that the economy of the region is based on several economic activities, the main industries being tourism, agriculture, the public sector and the metal industry.
Another canton with a small corporate tax rate (applicable at the rate of 12,66%) is Nidwalden. The main economic fields in Nidwalden areaviation and mechanical engineering and investors who want to open a company in Switzerland in these sectors will need to comply with the legislative framework available in this region.
The third smallest corporate tax is applied in the Obwalden canton, where the rate is imposed at 12,89% on the company’s income. The canton provides a workforce with a high degree of skills and the top economic fields are represented by tourism and plastic industries.
In Appenzell Ausserrhoden thetax on the corporate income is applicable at the rate of 13,04% and it is important to know that the local workforce is mainly employed in the canton’s main economic sector,which is represented by the services sector. 52,6% of the total workforce is employed in this industry.
5.Appenzell Inner Rhodes
In the canton of Appenzell Inner Rhodes, the local authorities apply an income tax of 14,16% and the top economic fields are represented by agriculture, industry and the service sector. Our team of consultants in company registration in Switzerlandcan offer more details on how to start a business in one of these sectors.
In Zug, the corporate tax rate is established at 14,6%. It is important to mention that Zug is one of the most representative cantons in Switzerland from an economic point of view. Companies operating in Zug are specialized in activities related to the medical technology and electronic components. Another important economic field refers to the financial sector.
Zug is also preferred by many foreign investors who open holding companies here. As a matter of fact, one in four holding companies is registered in Zug.
We remind foreign citizens and investors that once they arrive in Switzerland, they must register with the Federal Tax Administration in order to be able to pay taxes here.
In Uri, the corporate tax rate is of 15,11%. The top fields are represented by the tourism industry, which employs more than 10% of the local workforce, as well as the construction sector. In this sense, we mention that numerous local and international companies have set their business operations in the latter field.
The eighth lowest corporate tax, applicable at the rate of 15,27%, is available in the canton of Schwyz. The canton develops its local economy in sectors that are characteristic to other cantons, such as agriculture or finance. Specific industries available here are the timber industry and the machine-tools field.
In Neuchâtel, the tax on income is applicable at the rate of 15,61%. The canton is very well known for the watch industry, micro-technology and high-tech field. The region attracted over the years numerous companies operating in these sectors. The canton is the home of more than 9,000 companies, out of which a high rate are represented by large, international businesses.
With a corporate tax rate of 15,71%, the canton of Glarus attracted numerous local and foreign companies, and a large part of them are involved in operations related to the manufacturing field. Investors interested in company formation in Switzerland in the field of manufacturing could choose Glarus, as the manufacturing industry is the most developed in this region.
The classification mentioned above provides a useful insight on the smallest taxes applicable to the income of companies, but other Swiss regions could provide meaningful business opportunities, depending on the field of activity in which the investors are interested.Our team of specialists in company registration in Switzerlandcan assist with more information.
Taxation in the canton of Zurich
Zurich is deemed as one of the cantons that levy a high corporate and personal income tax, however, in the past few years, the taxation levels here has decreased substantially compared to Chancy and Avully, which impose the highest cantonal taxes . Zurich is one of the most important cantons in Switzerland from an economic point of view as it is one of the major contributors to the economy.
How to choose a Swiss canton based on taxation
Out of all 26 cantons, 10 offer very advantageous taxation conditions applicable mainly to Swiss residents. When it comes to choosing the best canton based on this aspect, it should be noted that the national taxes levied in them are not the only ones to consider, as the Swiss taxation system is also made of cantonal and municipal or communal taxes which must also be considered when choosing the canton.
Another aspect to take into account is the personal income tax applicable at the level of each of the cantons presented above. When it comes to individuals living in Switzerland, the same three-tier taxation system applies, however, it is important to note a few things, among which:
Swiss residents are taxed on their worldwide incomes, no matter their provenience;
married couples benefit from reduced rates as their incomes are assessed jointly;
single-parent families also benefit from reduced income tax rates;
Swiss residents owning and living in properties here must also add a rental value to the taxable income.
With respect to capital income, the amounts of money generated in Switzerland will be taxed as a gross income. Foreign capital income will be taxed after the taxes levied in the country it was obtained are deducted.
When choosing a Swiss canton to move or start a business in, one should also consider the taxes paid at national level and then make a decision.
From a taxation point of view, the canton of Uri is one of the most advantageous as it applies a flat rate to corporate income and the taxes imposed here are constantly decreasing. Moreover, in this canton a tax relief of 60% is used as a mechanism for the elimination of double taxation. Natural persons living here also benefit from a partial-income procedure which implies the taxation of dividends at a rate of 40%.
Another aspect to consider is that in the last few years, innovation has become an important economic sector in Switzerland and those who invest in research and development activities can benefit from various tax incentives available at both federal and cantonal levels.
If you need assistance in understanding how taxation in Switzerland works, you can rely on our local advisors who can also offer various accounting services.
The Swiss canton with the lowest taxes for companies
Even if Neuchatel is not one of the cantons with the lowest corporate taxes, it levied the lowest rate of only 0.005% on capital income which benefits holding companies. Moreover, companies registered in this canton can offset the corporate income tax from the capital tax, an option that is not available in any of the other cantons.
Taxation is not the only criterion to choose a Swiss canton on. Each canton has its own advantages when it comes to taxation and choosing the right one can be difficult, however, if you want to open a company in Switzerland, our agents can advise on how to make the difference between cantons.
Foreign citizens and companies operating in Switzerland
Foreign citizens and companies operating in Switzerland through branches will be taxed on the income they earn in this country. The same taxes and rates will apply as to Swiss residents, thus the cantonal rates will be the same but only levied on the income generated in Switzerland.
Another aspect when operating or working in Switzerland as a foreign citizen or investor is if one’s country of origin has a double tax treaty with Switzerland. In this case, special tax rates will apply to the personal, corporate and withholding taxes levied in both countries. This means that the cantonal taxes will also be affected by the provisions of these treaties.
Our Swiss company formation representatives can offer more information on the taxation of foreign citizens and companies with activities in this country.
Cost of living in Swiss cantons
The cost of living is not the same everywhere in Switzerland, as for example, housing in the canton of Geneva is very expensive, which is not necessarily the case in the canton of Fribourg or in another similar canton. For many years, Swiss German cantons and even Central Switzerland have been the cantons with the lowest taxes, offering cheaper taxes and Uri was one of the most advantageous region in this sense.
In Switzerland, taxes represent about 11.6% of the average gross household income, being considered a major expense. From this point of view, it can be noticed that in the central and eastern side of the country can be found the cantons with the lowest taxes in Switzerland.
Fiscal sovereignty in Switzerland
Fiscal sovereignty in Switzerland is now shared by the three levels of government: the Confederation, cantons and communes and the boundary is set by the federal constitution, which provides that the cantons may levy a tax that is not applicable at the level of the Confederation.
As a general rule, all cantons in Switzerland impose the same types of taxes applicable to companies. Companies incorporated in Switzerland will become liable for the corporate income tax, applicable to the income obtained through economic activities performed in this country. Non-resident companies can also be liable to the corporate income tax, as long as they develop their activities through a permanent establishment. Swiss businesses are also liable to the following taxes:
•value added tax- Switzerland applies three types of VAT rates, the standard rate being applicable at a percentage of 7,7%, while the lowest VAT rate is of 2,5%;
•excise duty - the tax is applicable for certain categories of goods imported and sold on the local market, such as tobacco products;
•withholding tax – the tax rates vary between 8% to 35% and it is imposed on dividends, profits and other types of incomes;
However, due to the sovereignty of the cantons, the local authorities can set up their own tax rates, with the consequence of regional disparities manifested by several differences in cantonal per capita income and tax burden, which can be doubled or more from one canton to another, drawing up a criteria for the cantons with the lowest taxes in Switzerland.
Income from real estate in Switzerland
Foreign investors should also take into consideration that a non-resident company in Switzerland can become liable for the payment of the corporate income tax in the situation in which it obtains taxable profits from owning a real estate property in this country or if they have obtained a mortgage on the respective property.
When purchasing a real estate property in Switzerland, the transfer tax is generally imposed at a tax rate ranging from 0,8% to 3,3%, depending on the Swiss canton in which the respective estate is located, but there are Swiss regions that no longer apply this tax. Our team of consultants can provide more information regarding the procedure of acquiring property in this country for commercial or residential purposes.
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Swiss VAT, the lowest in Europe
With regards to the VAT regime in Switzerland, it is necessary to know that the country provides the lowest standard rate at a European level. Companies operating in the accommodation sector benefit from a reduced VAT rate, applicable at 3,7%, while the other reduced VAT threshold, of 2,5%, is available for a wide category of goods sold on the local market, such as medicines, foodstuffs, books and newspapers, but certain economic activities – education and medical care, are fully exempted from the payment of the VAT.
Tax competition between Swiss cantons
Someof the Swiss cantons (Zug, Schwyz and Nidwalden) have removed their estate taxes and created favorable tax regulations with the purpose of attracting investors. This led to the establishment of a system of financial equalization, in order to mitigate the differences in financial capacity of cantonal and local authorities, through federal quotas (restitution of part of federal revenues) and grants.
Businessmen are invited to contact our team of consultants in company registration in Switzerland for further information about taxationsystem applicable in each Swiss canton. Our specialists are able to provide professional advice on the taxes that must be paid for both companies and individuals, regardless of the Swiss region in which they are residents. They can also offer professional accounting services through their experienced accountant in Switzerland. They can also recommend you partners in other countries, such as Bulgaria and Iran, who can offer you details about opening a business there.
Paul Gheorghiu is one of our experienced company formation agents. He will help you register your company in Switzerland as fast as possible.
Call us now at +41 41 266 0070 to set up an appointment with our experts in Zug, Switzerland. As a Sig Fiduciaire client, you will beneficiate from the expertise of our local consultants for opening a company in Switzerland.
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