Switzerland offers ideal operating conditions for a foreign company. Switzerland has liberal and business-friendly legislation, political and financial stability, and first-class infrastructure, as well as a highly motivated and well-trained workforce.
The country ranks as one of the world’s most important technology locations. Leading domestic companies and well-known foreign companies have chosen Switzerland as their location for research, development and production activities in the following sectors:
- Bio/medical technology
- Information technology
- Pharmaceuticals and chemicals.
The high quality of the Swiss education system guarantees the competence and know-how found in the labour market, and provides a strong incentive for foreign managers and their families to relocate to Switzerland. The quality of research programmes is recognised worldwide. Swiss company law is part of the Swiss Code of Obligations.
The following sections describe some of the commonly used and most widespread forms of business organisation.
TYPES OF COMPANY
SOLE PROPRIETOR (“EINZELUNTERNEHMEN”)
This type of business is carried out by a sole proprietor and has to be registered in the commercial register if it produces at least CHF 100,000 gross income per year. It is not a legal entity (ie the proprietor is personally liable for his/her business without any limitation) and the proprietor is subject to taxation. This form of business organisation is commonly used for smaller enterprises.
SIMPLE PARTNERSHIP (“EINFACHE GESELLSCHAFT”)
A simple partnership is based on a contract of association between two or more partners and is a very loose formation without being a legal entity. Each partner is individually subject to taxation rather than the partnership itself. For business debts, each partner is personally liable with his/her own private assets. A simple partnership cannot be entered into the commercial register. This form of business organisation is often used for activities of short duration or for specific projects only (e.g. consortia or joint ventures).
COMMERCIAL PARTNERSHIP (“KOLLEKTIVGESELLSCHAFT”)
To form a commercial partnership, two or more individuals enter into a contract of association in order to operate an enterprise based on commercial principles. A commercial partnership has a trade name and must be registered in the commercial register. Although it can acquire rights, incur liabilities, take legal action and be sued, the commercial partnership is not in itself a legal entity. Liability for debts is not limited to the capital of the partnership but is extended to the private assets of the partners in the form of joint and several liabilities. This form of business organisation can only be set up by individuals and liability is not limited to the capital of the company.
SWISS BRANCHES OF FOREIGN COMPANIES
Foreign companies may conduct business in Switzerland through a branch. A branch must be registered in the commercial register of the canton where it is located and it may engage in all the same forms of business activity as a corporation. It must conform to Swiss law with regards to bookkeeping and the preparation of financial statements (see Section 7 – Accounting & Reporting).
It must be represented by at least one person who is domiciled in Switzerland. The branch can be sued in Switzerland for claims concerning its own business operations. It is taxable in Switzerland according to the rules of international tax allocation. As Switzerland has numerous double tax treaties with other countries, it is possible to avoid double taxation in most cases.
The tax system corresponds to Switzerland’s federal structure. Tax legislation operates at three levels – the federal, the cantonal and the communal. The federation, the 26 cantons and more than 2,700 communities have the right to levy taxes in accordance with their own laws. To simplify the procedure, direct taxes for all three levels are usually levied by the cantons or by the communities, which means that only one tax return has to be filed for all three levels of direct taxation.
The federation is mainly financed through indirect taxes whilst the cantons and communities are mainly financed through direct taxes. Therefore, cantonal and communal income taxes are of more importance than direct federal tax. As the tax rates vary widely from canton to canton and from community to community, it is important to consider the choice of (business) location as an element of tax planning.