Switzerland (Zug) GmbH

TAXATION

Switzerland is divided into 26 cantons, and each canton has its’ own tax system. In general, in Switzerland there is a three-level tax system:
1. At a federal level – the federal profit tax (3.63% – 9.8%) and taxes to export of the capital (35%);
2. On canton level – the basic profit tax (20% – 35%);
3. Communes assess incomes, basically in percentage terms from canton taxes. Depending on a kind of carried out activity, such as the company (holding, administrative and another) and canton where the company is registered, are applied various rates of taxes to incomes.

The Swiss tax system grants holding companies privileged tax status at the cantonal level, when the following three conditions are met:

1. The company articles must state that the main activity of the company is the long-term management of equity investments.
2. The company must not have any operating business activity in Switzerland. Certain activities are accepted, such as managing the company and its investments, providing services on behalf of the consolidated group, debt financing of subsidiaries, and/or the holding and exploitation of Intellectual Property.
3. In the long term, either the company’s participators must represent 2/3 of the assets in its balance sheet or the income derived from such participators (dividends/capital gains) must represent at least 2/3 of its total income. The shares of corporations, limited-liability companies and cooperatives, as well as certificates of participation are considered as participators.

Providing these conditions are met, the Swiss Holding Company would be exempt from cantonal tax in Zug (other cantons vary) and also would only pay a reduced rate of Capital tax at 2 per mille.

At the Federal level, income is subject to an effective tax rate of 7.83%. However, dividend income derived from and capital gains made on the disposal of qualifying participations are subject to a participation deduction, which generally results in a complete tax exemption.

The Canton of Zug has, with the revised tax law, further improved what were already attractive conditions for legal entities and has strengthened its position as the canton with one of the lowest tax costs. Companies active in the canton of Zug will continue to enjoy the attractive location benefits.

One decisive advantage of Zug as a business location is, that not only does it have low rates of taxation but uncomplicated, unbureaucratic communication between the cantonal tax authorities and the tax-payers.

TAXES ON DIVIDENDS & CAPITAL GAINS

A participation deduction provides relief from taxation on dividends received from qualifying participations. Qualifying participations are:

1. a participation of at least 10% of the equity (capital stock), OR
2. a participation with a market value of at least CHF 1 million.

For dividend income purposes, there is no holding period requirement.

A Swiss holding company is generally required to withhold 35% tax on dividends paid to its shareholders. Tax treaties, however, can reduce or eliminate the withholding tax on distributed dividends and Switzerland has an extensive double tax treaty network of more than 90 double tax treaties. Switzerland also has a bilateral agreement with the EU, giving access to the EU Parent/Subsidiary and Interest/Royalties Directives.

Withholding tax is reduced to zero on dividend distributions if the following conditions are met:
1. The parent company holds at least 25% of the Swiss subsidiary and has held this minimum percent for at least two years.
2. The shareholder company is based in the EU.
3. Both companies are subject to corporate tax and both are limited company structures.

The participation deduction for dividends discussed above is also valid for capital gains on the sale of the qualifying participations. The participation sold has to represent at least 10% of the company’s equity (capital stock) and has to be held for a least one year prior to the sale.

AUDIT AND FINANCIAL RETURNS

All Swiss companies are required to keep accounts and to submit financial statements in accordance with the rules laid down in the Code of Obligations (Art. 957). Elected by the shareholders’ meeting, the auditors can either be an independent person or a company and must be domiciled in Switzerland. The auditors, which should be independent of the company, examine the books and the annual financial statements in order to submit their report at the shareholders’ meeting. Accounts must be filed each year with the Commercial Register.

Holding companies which, by means of majority voting rights or in some other way, exercise control over one or more other companies and which, in addition, meet two of the following criteria – total assets of more than CHF 10 million, turnover of more than CHF 20 million or more than 200 employees – are obliged to prepare consolidated financial statements each year.