INTRODUCTION
Switzerland is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe, where it is bordered by Germany to the north, France to the west, Italy to the south, and Austria and Liechtenstein to the east. The Swiss population is approximately 7.9 million people.
TAXES
Swiss tax rates for companies and individuals are among the lowest anywhere in Europe. Corporate taxes are approx. 16-25%, while individuals are taxed at rates between 5 % and 20%. A careful choice of corporate structure can even push the effective rate of taxation to below 10%. Stable political conditions, a liberal legal framework and the tax competition between the 26 cantons and the 3000 municipalities result in a constant low tax burden. The Swiss tax system is shaped by the country’s federal structure. Companies and individuals are taxed at three different levels in Switzerland:
1) National (federal taxes)
2) Cantonal (state taxes)
3) Communal (county taxes)
The largest portion of taxes is levied by the cantons and municipalities, resulting in intense tax competition at these two levels. Each canton has its own tax laws, which the population can vote on democratically and directly. However, all taxes are collected by a single instance.
Low corporate taxes
Corporate taxes are very low in Switzerland. Federal taxes are charged at a flat rate, while cantonal tax rates vary by location (lowest tax burden in the Canton of Zug) and sometimes by level of capital or profit. Taxes are currently levied in the following ranges:
Direct federal taxes on profits 7.83% (effective rate)
Cantonal tax on profits 4.4-19%
Communal tax on profits 4-16%
Cantonal taxes on capital 0.03-0.3%
Communal taxes on capital 0.04-0.25%
Total tax burden 16-25%
Taxation on after-tax profits (effective taxes)
Direct federal taxes are charged at a regular rate of 8.5%. Because taxes are levied on after-tax profits, this yields an effective tax rate of 7.83%.
Other reductions through company-specific tax models
Tax optimization makes it possible to lower tax rates considerably to below n 10%. Companies may solicit a binding (advance) tax ruling for their effective tax burden from the tax authorities. Tax benefits are granted on a case by case basis, depending on the location and the type of business.
Avoiding double taxation
International double-taxation treaties (DTT) are in place to prevent double taxation. Switzerland has signed double taxation conventions with over 60 states, including nearly all Western industrial nations
Lowest value added tax (sales tax) in Europe
Switzerland has by far the lowest value added tax (VAT) anywhere in Europe. Regular VAT is 7.6%. hotels are taxed at 3.6 %, and necessities/convenience goods at just 2.4 %. Other goods and services, such as medical care and education, are completely exempt from VAT.
TYPES OF COMPANIES
Holding Company
Some of the advantages of opening a holding facility are an advantageous taxation of income, which is reflected in the dividends, and business solutions like, optimizing in a group of companies, promoting a single brand name within a group of companies, financial security and protection from creditors and bankruptcy, the integration into a single structure of companies with different activities, etc.
A holding company is a joint stock company with no commercial activity in Switzerland, with a main goal of acquiring shareholdings in other companies.
Federal, cantonal and communal authorities offer reductions to holding companies in corporate income tax and capital gains. In order to establish a holding company, a company has to hold a minimum of 20% of the share capital of another company or a market value of 2,000,000 CHF of shareholding in another company. This type of corporation pays a reduced corporate income tax, which is determined by the ratio of the net dividend income from shareholding to the total of the profit generated.
One of the privileges offered by cantonal authorities is the exemption from all income taxes, which provides the complete exemption from tax payment on earned dividends, sale profits, interest income and other. For this to be possible the holding company must own at least 2/3 of the corporate assets consisting of shareholding or that at least 2/3 of its income is generated from the shareholding.
Domiciliary companies
A domiciliary company offers different services, which are all mainly administrative due to the fact that these companies serve as a strategically located area for the operations of foreign companies (e.g. headquarters). Through this type of company several activities can be carried out, like purchasing and selling, granting loans, and intellectual property rights profit (e.g., patents).
A domiciliary company is a joint stock company that carries out its activity mainly abroad and is economically depended on another country. This type of company should not have more than 5% of revenue in Switzerland in order to operate. Other regulations are that the company’s source must be foreign, the staff and other presences should be abroad, the company must have a registered office in Switzerland (e.g. at a lawyer’s office), and the company’s management has to be foreign.
Corporate income tax imposed on income and capital gains can be reduced to a minimum through domiciliary companies. Federal authorities do not grant tax advantages on corporate income tax payable on income and gains because the 8.5% imposed is valid for all companies in the Swiss territory. However, cantons do tax income and capital at a reduced rate. Cantonal authorities require the payment of about a 3.0% to a 3.5% which is 15% less than regular cantonal taxation of income to other types of companies. In some circumstances, domiciliary companies may enjoy of a special tax reduction.
Mixed Company
Mixed companies are strategically located facilities for the activities of a group of foreign companies, which help to optimize taxation to the whole of the group. One of the advantages of a mixed company is that international commercial activity is possible, as long as it is not through Switzerland. It is also possible to manage accounts issue license trademarks and patents, to lease and to market, and to carry out operations in European or International headquarters.
A mixed company is a joint stock company with all the above mentioned characteristics of holding and domiciliary companies, but not classifiable as either.
Cantonal and municipal authorities grant corporate income tax to this type of company, which can also turn into a total exemption if the company is controlled and managed by foreigners, if a minimum of 80% of the total income is of a foreign source, and has a registered office with no staff in Switzerland.
Some advantages of establishing a mixed company are the reduction of corporate income tax levied on income and capital gains. Mixed companies have their income and capital taxed at reduced rates through the canton, which is between o to 11% of tax in comparison with regular corporate income tax. They don’t have any tax advantages though the federal authorities but pay 8.5% as all other companies throughout Switzerland.
Service Company
A service company is part of a group of foreign companies to which it provides assistance in different matters. A service company is a joint stock company, which is a member of a group of companies and provides assistance to these in marketing and technical, administrative and scientific matters. This type of company should only obtain income from their corporate group, and never from a third party. In order to establish a service company it is necessary to obtain a special cantonal tax ruling, which nonetheless doesn’t give any benefits regarding federal taxing.
Cantonal and communal authorities offer corporate income tax relief, which depends on the international orientation of the services provided by the companies. A total of 8.5% of the payroll would be the annual taxable profit or a 5% to a 20% of the overheads of the companies. Federal authorities do not offer any tax relief, but levy a 8.5% as is applicable to all regular companies in Switzerland.
Management Company
The management company (either a mixed or domiciliary company) coordinates its activities from a base in Switzerland and does most or all of its business abroad. The company in Switzerland furnishes services to other companies in the group, such as management support, accounting, marketing or HR administration where at least 80% of the earnings and 80% of the expenses are generated abroad All income from abroad is subject to a 7.83% tax at the federal level. At the cantonal level, a very low tax rate applies depending on location, e.g. 2%. All income from Swiss sources is subject to regular taxation. Total effective tax burden varies form 9% to 12%.
Principal Company
Corporate risks, assets and decision-makers are in Switzerland. The principal company takes on coordination and trading functions for an international group of companies in the sense of a principal structure, i.e. “contract manufacturing” and “stripped buy-sell.” Risks and responsibilities are shouldered for activities like procurement, production, sales, logistics, financing, R&D planning, and drawing up marketing strategies. Special tax models are used at the federal and cantonal level. An effective total tax burden various between 5% and 7%.
The Cayman Islands is a British Colony consisting of 3 islands, the Grand Cayman, Cayman Brac and Little Cayman, all lying in the Caribbean south of Miami, Florida. Grand Cayman is the largest of the 3 islands with a population of 50,000.
The Cayman Islands boasts a prosperous economy, supported by the finance and tourism industries. The cost of living is extremely high and over employment exists. Petty crime is rare and the islands are well looked after (described as “a very clean sandbank”) with more than 500 banks operating there.
The Islands are largely self-governing British Crown colony and have traditionally been run by well-educated and forward-thinking Caymanians. There is complete social harmony and the Caymanians share a preference to remain a British territory. Britain is responsible for internal security and defense. The legal system is based on English Common Law and is complemented by local laws. The courts operate under the English system, and the highest appeal is to the Privy Council in London, England.
Types of Companies
There are two principal types of companies suited for offshore operations, which are: The ordinary (non-resident) and the exempt, both types of companies limited by shares.
Structurally, both are the same type of Limited Liability Company. However, the Financial Secretary certifies a non-resident company, as a company, which does not intend to carry on business within the Cayman Islands, An exempt company, instead, has applied for and been granted “exempt” status by the Financial Secretary and cannot carry on business in the Islands either. For both types of company (Exempt and non-resident) bearer shares are not permitted. The exempt company files annually a compliance statement, instead of a detailed annual return. An exempt company can be granted an exemption from future taxes for a period of 20 years, which is renewable. However, it should be noted that there are no taxes in the Cayman Islands, anyway. Exempt companies are not permitted to own land in the Cayman Islands. Recently, specific legislation was enacted which introduced the new concept of an “exempted limited Duration Company”. A limited duration company is a company that has at least 2 subscribers or 2 members; a Memorandum of Association which limits the duration of the company to a period of 30 years or less; and the name of the company includes at its end “Limited Duration Company” or “LDC”.
Highlights Of Cayman Corporations
Confidentiality
The Confidential Relationships (Preservation) Law makes it a criminal offense, punishable by prison and severe fines, to divulge information obtained as a result of violating professional confidence. The law applies, not only to those caught divulging information in Cayman, but also to outsiders seeking to obtain unauthorized information.
There is a mutual legal assistance treaty with the United States. The information exchanged is strictly for prosecuting unlawful criminal activity, and specifically prohibits using the treaty to obtain information related directly or indirectly to taxation. This treaty has served to enhance the quality and reputation of the Cayman Islands offshore sector and has not infringed on the confidentiality requirements of legitimate business interests.
Movement Of Funds
There are no exchange control regulations of any type in the Cayman Islands. There is a local Cayman dollar. However, in practice, the US Dollar circulates freely on the Islands, at a fixed exchange rate of CI$1.00 equals US$1.20. Corporate Requirements
Corporate Requirements
Name: Ordinary (non-resident) must utilize the word Limited or Ltd. in their ending, while exempt companies can use virtually any ending, and do not have to specifically connote in the name that the liability is limited. However, it is the practice to use the common endings that include limited liability, i.e.: Inc., Corp., S.A., A.G., Ltd., etc. No Company may use the word bank, trust, insurance, etc., unless a special license is obtained. Similarly, without the approval of the Registrar, no name that is considered to suggest connection with any public board, local authority, or royal connection is permitted. A corporate name can be confirmed the same day as requested.
Capital / Shares: There is no statutory minimum share capital other than the smallest unit currency in which the capital is authorized. The maximum capital that pays the minimum registration and annual license fee is US$50,000 for ordinary (non-resident) and exempt companies. Exempt companies may issue bearer shares as long as they are fully paid (restricted mobility), while ordinary (non‑resident) companies cannot. For both types of companies registered shares may be issued partly paid.
Shareholders: One shareholder is required and no particular nationality or qualifications is necessary. For an ordinary (non-resident) company, names and addresses of shareholders have to be disclosed to the Registrar upon filing the annual return and the register is available for public inspection. The Registrar is obliged to keep the information confidential.
Directors / Officers: Companies must have at least one director and a secretary which may be corporate and of any nationality. Both types of companies must notify the Registrar of the names and addresses of its directors and officers. However, the Registrar can only make this information available to the Registered Office, which can obtain it in the form of a Certificate of Incumbency.
Registered Office / Agent: It is necessary to have a local qualified Registered Office that also acts as Registered Agent.
Registers: Each company is required to keep the following registers, which are usually kept at the company’s registered office, although the register of mortgages and charges and the register of directors and officers are the only registers required by law to be maintained by the registered office:
a. Register of Directors and Officers
This is required only to contain the names and addresses of the directors and officers, but normally also contain their dates of appointment and removal or resignation.
b. Register of Members
This must contain the names and addresses of the shareholders of the company, the numbers of shares held by each, the distinguishing numbers (if any) of those shares, the amount paid or agreed to be paid on the shares, together with the date on which each person became and ceased to be a shareholder of the company.
c. Register of Mortgages
This must contain details of all mortgages and charges specifically affecting property of the company, including a short description of the property mortgaged or charged, the amount of the charge created and the names of the mortgages or persons entitled to the charge.
Books, Records and Seal: A register containing the record names and addresses of its directors and officers, and should send to the Registrar a copy of such register. Every company is responsible to keep proper books of account with respect to: all sums of money expended by the company and the matters in respect of which the receipt and expenditure takes place; and, all sales and liabilities of the company. A company may have a seal in the Registered Office and a duplicate seal for use overseas.
ANNUAL REQUIREMENTS
An ordinary (non‑resident) company must file an annual return containing details of its shareholders, while an exempt company only needs to file an annual declaration of compliance with the company’s law signed by an officer or director. Annual accounts do not have to be filed, nor do they require appointment of auditors.
An ordinary (non-resident) company must hold at least one Annual General Meeting of Shareholders, which can be held anywhere in the world. Alternates or Proxies usually accomplish this requirement.
