What is called a Swiss Holding Company is an organisation whose central purpose is to administer long-term financial investments in associated companies. To be arranged as a Holding Company under the Swiss Tax law, the Company must not undertake any business activities in the nation of Switzerland. The holding status is acknowledged at a cantonal level, but not at the federal level. Various conditions to acquire the holding status differ from one canton to the next.
If the availability of cash reserves for the capital is a problem, a limited liability company can be arranged with as little as CHF (Swiss Franc) 20’000 capital. The GmbH (Limited Liability Company) will have the shareholders published in the Swiss commercial register. Just one shareholder is sufficient for setting up business in Switzerland, even though the Swiss Holding Company is not allowed to conduct any type of business activity in Switzerland, some activities are allowed, such as:
- Foreign business activities including the recognition of intellectual property.
- Group Management Functions (mainly cost plus method for reasons of transfer pricing).
- Asset management: cash and foreign intellectual real estate.
Here are the Major Reasons Why Holding Companies in Switzerland are so popular:
Reduced Tax Payments
Federal corporate income tax rate is 8, 5%, but because of deductible tax payments, a 7. 8% maximum effective rate is imposed. A 1% capital duty is exacted on the issue of shares if its value is above CHF250’000, while on the transfer of shares of resident businesses is a 0.15% rate. Should the holding company hold 20% of the share capital of another legal body, it can then benefit from a reduction of the corporate tax amount at the federal level.
Privileges for Dividends
The double tax treaties which have been signed by Switzerland with the EU and a number of otherterritories, may offer tax privileges for the dividends acquiredwith subsidiaries of Swiss holding companies. Received dividends provide the right to a federal tax reduction by a quantity of dividend income to total net income.
Tax quotas will depend on the canton where the company has been established. Resident businesses are subject to tax on their global income. Taxescan vary from 4% to 25%, depending on the canton. If a business meets the preconditions of a holding company, no income taxes are imposed at the cantonal level.
Capital Tax Advantages
A Swiss holding company will also profit from an advantageous annual capital tax rate of 0.01‰ to 0.2%, which is certainly lower than the capital tax rate of commonly taxed companies.
The canton of Zug, because of its low tax status, location and business friendly climate is seen as the most popular destination for the creation of a Holding Company in Switzerland. Indeed, 1 in every 4 holding companiesin Switzerland are registered in Zug.
Holding companies are utilised for an array of different activities, but remember that professional expert advice should be seriously considered before setting up a Swiss company.