SWITZERLAND IS STRENGTHENING ITS POSITION AS HOLDING COMPANY LOCATION

Switzerland is continuously strengthening its position as a location to base an intermediate holding company by way of tax reforms.

Corporate Tax Reform I
The aim of the so-called “Corporate Tax Reform I”, which was implemented in the late nineties, was to boost Switzerland as a competitive international holding location by, among other things, easing the taxation of holding structures and abolishing tax on equity at federal level.

Corporate Tax Reform II
“Corporate Tax Reform II”, which was adopted by the Swiss public on 24 February 2008 and is being implemented, is focused on further improving the tax position of domestic small- and medium-size companies and their shareholders.

The measures of the Corporate Tax Reform II that entered into force on 1 January 2011 include:

  • Introduction of the capital contribution principle, i.e. tax exemption for the distribution to shareholders of paid-in surplus capital (share premium) which was paid in after 31 December 1996;
  • Improvement of the participation exemption; the threshold for participations qualifying for the participation exemption is reduced to 10% or a market value of CHF 1 million (from 20% or CHF 2 million, respectively).

Introduction of the capital contribution principle
One of the significant features of the corporate tax reform II is the introduction of the capital contribution principle, which replaced the nominal value principle.

In accordance with latter principle, until the end of 2010 only the nominal paid-in capital of a Swiss company could be re-paid to the shareholders without Swiss withholding tax and income tax. Repayment of other capital contributions was subject to withholding at company level and income tax at shareholders’ level. Income tax is only applicable in case of Swiss resident shareholders; participation exemption or partial exemption may apply under certain conditions).

As per 1 January 2011, all capital contributions, capital surplus and cash payments to the reserves made by former or current shareholders after 31 December 1996 may be repaid to the shareholders exempt from Swiss withholding tax at the company’s level and income tax at the shareholder’s level. Accordingly, the repayment to shareholders of capital contributions made after 31 December 1996 will be dealt with in the same way as the repayment of nominal paid-in capital.

From 1 January 2011 Swiss companies should account for capital surplus paid-in after 1 January 1997 in their balance sheet ending during 2011 as “capital contribution reserves”, a sub-account of the legal reserves account, and report them to the Swiss tax authorities within 30 days after the shareholders’ meeting wherein the pertinent financial statements are approved. It should be noted that once operating losses are set off against capital contribution reserves, such reserves are lost irrevocably.

The introduction of the capital contribution principle is particularly interesting for foreign shareholders of Swiss legal entities, who benefit from the exemption of withholding tax on repayments of any capital contribution.

Improvement of the participation exemption
Besides the introduction of the capital contribution principle, an important change is the improvement of the participation exemption by way of reduction of the threshold for participations qualifying for the participation exemption to 10% (previously 20%) or a market value of CHF 1 million (previously CHF 2 million).

Swiss holding companies can fully reclaim VAT
Another improvement of Switzerland to base an intermediate holding company is the introduction of provisions in the Value Added Tax Act 2010, which consider the acquisition, holding and sale of investments as a business activity. This Act was introduced in connection with the implementation of the 2010 European VAT Package Switzerland and entered into force on 1 January 2010.

Consequently, Swiss holding companies are now considered to be taxpayers for value added tax (VAT) purposes and thus can, in most cases, fully deduct any Swiss input VAT payable. Compared to other jurisdictions this is a significant advantage.

Corporate Tax Reform III
Finally, in late autumn 2008, the Swiss government announced another major tax reform, the “Corporate Tax Reform III”, with the aim of eliminating unnecessary  tax burdens and to further strengthen Switzerland's position as an attractive business location in an evermore competitive and demanding international environment.

As is clear from the above, Switzerland is reinforcing its position as a location to base an intermediate holding company.


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