Tax laws in Switzerland are quite different from the laws in other countries.
Expatriate entrepreneurs need to not only know these laws but also how to apply Swiss taxes to grow their corporation while playing on the right side of the law.
You need Swiss representation
According to the code of obligations, all Swiss companies must be represented by at least one Swiss citizen. Additionally, at least one member of the board of directors or a manager must be from Switzerland. For expatriate entrepreneurs, this means that you need adequate representation from an individual, as well as tax, constitution, and administration representation from a company resident in the country.
Companies such as RISTER Sàrl fiduciary company provides fiscal representation for holding companies and foundations in Switzerland. They also oversee the creation, administration, human resource management and accounting management for companies looking to establish business activities in Switzerland.
Fortunately, in addition to these services, they also provide a nominee director in Switzerland that exceeds all the requirements of the code of obligations. The nominee is also well qualified to offer advice on corporate insurance, negotiate tax allowance with authorities, as well as handle administrative management.
Tax rates are very favourable
Switzerland imposes the lowest tax burdens in all the countries in Europe with a VAT of 7.7%. Also, if you stay in Switzerland for less than 183 days within any given year, you are entitled to claim a tax exemption. Your taxation is further limited if you’re granted work permits of between 90 and 120 days.
Additionally, you can claim tax refunds on your personal expenses. Like many European countries, Switzerland has a minimum amount of money you must spend at any outlet to qualify for this refund.
However, once you do, you can claim it by making a request through a series of processes that involve collecting a stamp from your country and submitting your purchase receipt and airline/travel ticket at the town hall of your Canton of residence.
Cantonal taxes have a major role to play
For most expatriates, cantonal taxes in Switzerland can be a little confusing because they are different from the various other kinds of taxes levied in Switzerland. Taxes in Switzerland are levied at a confederation, cantonal and a municipal level. Of these three, the cantonal taxes vary the widest, and can often range from 1.8% flat rate in Obwalden to 13% in Zurich, and between 17.85 to 76% in Geneva.
In Switzerland, there are 26 cantons, and each canton is a member state of the Swiss Confederation. Each canton has its own sovereignty independent of even federal laws.
Consequently, each Canton has individual legislatures, executives and even police forces. This is what accounts for the heavy variations in taxes levied in each canton.
Your tax residency status influences your taxes
In Switzerland, you become a tax resident if you establish a tax domicile or a permanent residence. This means that you get a place with the intention of staying there permanently, or for a long period of time. Your status is complete if you spend a minimum of 30 days with employment or 90 days without employment in the residency.
If you own a corporation, it can be resident if its legally registered headquarter is in Switzerland. Your organization would also have to be incorporated in Switzerland. If, however it is incorporated outside the country, it still counts as a tax resident if its place of effective management is in Switzerland.
Obtaining a tax residency status can help you quickly resolve issues about what country you pay your tax to,
You can avoid double taxation
Switzerland operates a classical corporate tax system in which organizations are taxed separately from their owners and shareholders. This often leads to the dreaded double taxation. You can also fall victim to double tax if you generate income in at least two countries, Switzerland included. However, there are measures put in place to protect individuals from paying double tax.
Switzerland has Double Taxation Agreements (DTA) with other countries, and this helps to reduce the barriers surrounding financial and economic transactions across the countries. This makes it easier to sort where you pay your tax, protecting you from double taxation. While the treaties have been signed and enforced in some countries, they are still undergoing diplomatic considerations in others.
In avoiding double taxation, you should also pay attention to your tax residency status because as a resident, you are taxed on your worldwide income and wealth, not just what you earn in Switzerland.
Expats can get tax deductions, but…
To qualify as an expatriate in the strict sense of the term, you need temporary secondment of a senior staff in addition to professional qualifications, sent from a foreign employer to Switzerland.
If your employment is due to a transfer within the group of companies and you are guaranteed employment after your contract ends, you do not qualify as an expatriate. However, if you do qualify, the treatment ends when your assignment is changed into a contract, or after you stay in Switzerland for five years.
Specific tax deductions include costs for housing, travelling, and schooling for children.
In conclusion, Switzerland can be a great place to live as an expat as long as you know and keep the laws. Laws may however be trickier if you intend on starting a company and having employees. Make sure to get your downside covered by getting legal advice and representation if you think it necessary.