SWITZERLAND: TYPES OF COMPANY

Switzerland is a 'code' country, and business entities are governed by the Civil Code. As in all civil law jurisdictions, formation and administration of companies tends to be considerably more bureaucratic than in common law jurisdictions. Although the Civil Code is at Federal Level, businesses are domiciled in a particular canton. Each canton maintains a Commercial Register (Registre de Commerce), and the mandatory entries in the Register of subscribers, directors, capital structure etc have strict legal force. The Register is a public document.

The forms of business entity with legal personality are the Stock Corporation and its variants (dealt with below), the Limited Liability Company (Societe a Responsabilite Limite), and the Limited Partnership (Societe en Commandite). These last two are not much used by foreign investors. General Partnerships (Societe en Nom Collectif) and Sole Proprietorships (Raison de Commerce) are also possible.

Switzerland The Stock Corporation

The Stock Corporation ("Societe Anonyme" or "Aktiengesellschaft") is the form almost universally used by foreign investors and has the following characteristics:

A company must have an auditor, and accounts must be filed each year with the Companies Registration Office. Small companies can prepare abbreviated accounts which do not have to include the level of turnover.

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Switzerland The Holding Company

The 'Holding' Company is a Stock Corporation with a particular tax status (see Offshore Legal and Tax Regimes). Holding companies benefit from reductions in corporate income tax and capital gains at federal and cantonal levels, and from a reduction in net worth tax at cantonal level.

The Swiss holding company was a particular target of the OECD's 'unfair tax competition' initiative, and in 2004 an agreement was reached between Switzerland and the OECD whereby information about holding companies would be shared by Switzerland in circumstances where there was prima facie evidence of fraud.

For federal tax purposes a company is defined as a holding company if it holds either a minimum of 20% of the share capital of another corporate entity or if the value of its shareholding in the other corporate entity has a market value of at least 2m Swiss Francs (known as a "participating shareholding"). The reduction in the level of corporate income payable tax depends on the ratio of earnings from "participating shareholding" to total profit generated.

Although the definition of a holding company varies among cantons, broadly speaking a corporate entity is a holding company for cantonal corporate income tax purposes so long as it either:

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Switzerland The Domiciliary Company

Domiciliary Companies are Stock Corporations that are both foreign-controlled and managed from abroad, have a registered office in Switzerland (i.e. at a lawyer's premises) but have neither a physical presence nor staff in Switzerland. They must carry out most if not all of their business abroad and receive only foreign source income . The use of domiciliary companies can result in savings in corporate income tax levied on income and capital gains and net worth tax. See Offshore Legal and Tax Regimes.

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Switzerland The Auxiliary Company

An Auxiliary Company is essentially a Domiciliary Company which in addition may carry out a certain proportion of its business in Switzerland. Auxiliary Companies are possible in only seven cantons, and do not benefit at federal level. Treatment varies according to canton, but in most cases an auxiliary company may have Swiss offices and staff and be in receipt of Swiss income (which is taxed at normal rates). Most income though must be from a foreign source. See Offshore Legal and Tax Regimes.

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Switzerland The Service Company

Service Companies are Stock Corporations whose sole activity is the provision of technical, management, marketing, publicity, financial and administrative assistance to foreign companies which are part of a group of which the service company is a member. Service companies may not in general derive income from third parties (i.e. companies outside their corporate group). Service company status is obtained by way of an advance cantonal tax ruling (there is no benefit at federal level). See Offshore Legal and Tax Regimes.

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Switzerland The Mixed Company

Mixed Companies are Stock Corporations which have the characteristics of both domiciliary companies and holding companies but which do not qualify as either. There is no benefit at federal level, but at cantonal and municipal level there are corporate income tax benefits if the mixed company meets the following conditions:

See Offshore Legal and Tax Regimes.

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Switzerland The Branch

Branch offices, whether of foreign companies, or of Swiss companies in other cantons, must be registered in the Commercial Registry of the canton in which they are located. The branch must have a nominated, Swiss-resident representative.

Branches need not publish their annual financial statements, but branches of foreign corporations constitute 'permanent establishments' from a tax point of view, and will therefore be taxed on local source income both at federal and at cantonal level as if they were resident corporations. There is no withholding tax on transfers of branch profits to its foreign parent.

See Offshore Legal and Tax Regimes.

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