The larger your business interests become, the more taxes you need to pay. There are many solutions for investors and business owners who want to reduce their tax liability, including the forming of a Swiss holding company.
What is a Swiss Holding Company?
Some people are not entirely familiar with how these companies operate. Basically, a holding company is an entity that holds long-term investments or stakes in other corporations. Investors often choose to establish a holding company to manage the shares from multiple companies under a single umbrella corporation.
The holding company holds a majority stake in more than one corporation. These companies do not have any business operations other than managing their controlling interest in their subsidiaries.
Holding Companies Help Limit Your Tax Burden
You can establish a holding company in any country. However, Swiss holding companies offer additional tax advantages. Switzerland is one of the most business-friendly countries when it comes to tax responsibilities.
The federal income tax rate for corporations in Switzerland is 8.5%. However, with the tax-deductible payments, holding companies can reduce their tax liability to just 7.8%.
Additional tax benefits apply to companies that own at least 20% of the shares of another legal corporate entity. You may even qualify for exemptions for any dividends that are received through the subsidiaries of your holding company.
Avoid Income Taxes at the Cantonal Level
There are 26 separate cantons in the country of Switzerland. Each canton has its own income tax rate. However, holding companies may be exempt from paying taxes at the cantonal level, as long as they meet certain conditions.
To avoid cantonal income tax, the primary activity of the holding company must be the management of other investments, such as holding shares in other corporations. The holding company must also not have any business operations or activities in Switzerland, other than the forming of the holding company.
The third condition is that holding companies must receive at least 2/3 of their total income from the dividends and capital gains received from their subsidiaries. If you meet these requirements, you avoid the cantonal income tax.
Continue to Enjoy Low Taxes for Years to Come
While these exemptions have helped attract businesses from all over the globe, Switzerland is facing pressure from other countries to review its tax laws.
Some experts believe that Switzerland may abolish the cantonal exemptions. However, many cantons already provide low corporate tax rates, especially the Canton Zug, where 25% of all holding companies in Switzerland are formed.
If you are considering setting up a holding company, you should consult with a company that specialises in company formation. They can review your business details and help select the right canton and type of holding company. Establishing a holding company may offer the solution you need to reduce your tax burden.