Switzerland upholds its reputation as a premier jurisdiction for foreign institutional and private investors who are looking to establish a holding company to further expand their reach and growth potential. It’s a warm and welcoming nation for all types of companies and organizations that wish to gain a strong foothold in the European continent.

Neutrality and Financial Prowess of Switzerland Attracts Investors

It is headquarters to well-respected global organizations, business conglomerates, and financial institutions. The strength of Switzerland lies in its neutral stance in all aspects of transactions and relations with other countries. It is this unique feature of the Switzerland that makes it an appealing domicile for foreign-owned holding companies. 

Apart from large companies, Switzerland is also home to thousands of SMEs (small and medium-sized corporate entities). As of 2021, the country is home to 599,686 SMEs. 

Switzerland is also attracting foreign investors due to its systematic federal state system low inflation rate, stable currency, strong purchasing power of the public, high living standards, and strong political and social landscapes. 

Educated Population and Financial Professionals

Excellent business and financial services

As some of the world’s top-notch banks are situated in Switzerland, the country serves as a progressive community consisting of bankers, international lawyers, insurance providers, financial service providers, accountants, auditors, and and many more. It also boasts a highly educated and multilingual citizenry.

Finally, its strategic location in Central Europe, Switzerland’s operating hours is shared with North American and some Asian countries. 

Strong bilateral agreements with the majority of European countries

While Switzerland opted not to become a European Union Member nation, it enjoys strong bilateral ties with neighboring European countries. Its local economy enjoys hassle-free movement of goods, services, and populace. Apart from the European Free Trade Association (EFTA) and a free trade zone agreement (FTA) with European Union member nations, Switzerland has a network of free trade agreements with a total of 42 partner countries.

Switzerland Holding Company Set Up Process

In 2019, the Swiss Parliament ratified its comprehensive corporate tax reform. Amendements that came into force in 1 January 2021 included the abolition of older cantonal or regional tax privileges for holding companies established within its jurisdiction. 

As of 1 January 2020, holding companies that were primarily established to hold participation rights in Switzerland and non-Swiss subsidiaries will be assessed with corporate income taxes on a cantonal level. Before the tax reform, capital gains and dividends used to be eligible for a participation exemption, which means holding companies only paid corporate income tax and capital tax rate at a rate of 0.1%.

While the holding regime no longer exists in Switzerland, holding companies may still enjoy taxation privileges leading to a combined corporate tax rate of 0%. 

To successfully set up a holding company in Switzerland, foreign entities must meet the following minimum requirements:

• A holding period of one year must be fulfilled for capital gains but is not applicable to dividends
• Holding company total percentage should be at least 10% for capital gains or CHF 1,000,000 or 10% fair market value for dividend income. 

Withholding Tax

• Withholding tax on dividends coming from a holding company in Switzerland among its shareholders are subject to 35% standard rate. 
• Withholding tax rate can be furthered reduced to 0%, 5%, and 15% as delineated by respective double tax treaties with other countries 

Substance Rules

• There are no pre-determined number of employees for larger office spaces for Swiss holding companies. 
• Substance rule states that there is no need for holding companies to hire local Swiss residents.  
• A holding company can be managed by a purely Swiss directors. 

Cantonal Tax Regime 

• Switzerland is unique in that its 26 regions or cantons can impose their own tax rates.
• Holding companies are leveraging from their participation exemption amidst amendments to corporate tax. 
• Highly dependent on the communal and cantonal location of a holding company, the overall tax rates on all levels for corporate income before tax ranges between 12% and 13%. 

Additional Incentives for Holding Companies

• Incentive that comes in the form of a patent box that effectively reduces corporate income tax for qualified patents, also known as R&D super deduction, which allows for 150% deduction of eligible R&D expense sustained in Switzerland.
• Several regions or cantons feature tax incentives for investment expansions and new companies, including tax holidays on cantonal tax rates up to 10 years. 

Switzerland’s Immigration Step Up Regime 

On 1 January 2020, the country has launched an immigration step up regime. Preferential treatments are provided to migrating companies to Switzerland with existing operations. These operations will be reported tax neutral and depreciated to lighten the burden imposed by prevailing income tax rates. 

Damalion has the industry expertise, know-how, and vast global service network that empowers institutional and private investors to establish a smooth and simplified holding company formation experience in Switzerland. Reach out to a Damalion expert today if you wish to learn more. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.