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All companies with a registered office or permanent establishment in Switzerland must pay income tax and capital tax. The taxable profit is generally the book profit. The taxable capital is the total equity of the company.
Income tax
The income tax is divided into 3 taxes:
The Federal Direct Tax (FDT);
The Cantonal tax;
The communal tax.
The FDT is 8.5 % on the profit after tax, which corresponds to 7.8 % of the net profit before tax. Each canton determines its tax rate and its cantonal multiplier, and each municipality determines its municipal multiplier. When setting up a company in Switzerland, it is therefore relevant to take into account the cantonal and municipal tax rates.
Following the recent tax reform, the average effective tax rate on profits is around 13% to 14%, although there are still significant cantonal disparities (13% to 14% in Vaud, Neuchâtel, Geneva, Fribourg, 11% to 16% in Valais, more than 20% in Bern and 18% in Zurich). The lowest rate is currently in Lucerne, with 12%. This rate includes the direct federal tax, the municipal tax and the average municipal tax.
The tax rates found in the federal, cantonal or municipal tax laws cannot simply be applied to the annual result of a company. Indeed, there are several modalities to take into account. First of all, it is important to remember that the rates published in all official notices are rates valid on the result after taxes. In order to simplify our communication, we always try to indicate the effective tax rates, applicable on the net result before tax, thus facilitating the international comparison.
Capital tax
The capital tax is levied only at the cantonal and municipal level. As for the tax on profits, the cantonal prime rate is multiplied by cantonal and communal coefficients (or centimes). The basic rate is 0.06% in the canton of Vaud, 0.18% in the canton of Geneva and 0.075% in the canton of Zurich.
In most cantons, e.g. Vaud, Geneva, Bern or Thurgau, the capital tax is set off against the profit tax. This means that as soon as the cantonal and communal tax on profit exceeds the tax on capital, the latter is cancelled. Thus, as soon as the taxable profit exceeds 2% for the canton of Vaud, 7% for the canton of Geneva and 0.6% for the canton of Thurgau, the tax on capital is imputed. It should be noted that the imputation in Geneva will be done progressively in 25% increments to reach a full imputation as of 2025. Most Swiss cantons have already introduced this measure, with a few exceptions.
Secondly, although the RFFA abolished special tax status, including the holding company status, which allowed the taxation of equity capital at a reduced rate, the RFFA leaves the possibility for cantons to provide a reduced rate for long-term loans, participations and patents. In essence, this means that companies whose main activity is to hold participations are taxed at a preferential rate. The rates vary greatly from one canton to another. Thus Geneva, which is one of the least attractive cantons in terms of capital tax for an ordinary company, is in fact one of the most attractive for holding companies.
