Comparison of minimum capital tax rates for companies in all 26 cantons

Swiss companies are subject to two types of taxes: taxes on profits and a capital tax on equity. However, some cantons have introduced a flat minimum tax to cover the costs associated with conducting tax audits for each company. This tax is often overlooked, especially in the start-up phase of newly founded companies that are not yet making a profit. In this article, we delve into the world of corporate taxes in Switzerland and in particular the minimum tax that some cantons in Switzerland levy on companies.

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Background on Cantonal Corporate Tax Rates

Switzerland has a federal system of government, which means that each canton has the authority to set its own corporate tax rates. This system creates competition among the cantons to attract businesses by offering low tax rates.

In general, there are two primary types of taxes that apply to businesses in Switzerland: taxes on the profits they generate (i.e., corporate income tax) and a capital tax on their equity value.

One major reason for the capital tax rate levied on a company’s equity is to raise tax revenue by taxing companies regardless of whether they are profitable or not. The tax is also intended to prevent companies from avoiding taxes by investing their profits back into the business instead of distributing them to shareholders. The capital tax rate varies across the 26 cantons, ranging from 0.001% (in Obwalden) to 0.5% (in Neuchâtel). Profit tax rates also differ from canton to canton, with the lowest set at 11.85% (in Zug) and the highest at 21.04% (in Bern).

New companies looking for the most tax-efficient canton to incorporate need to consider both the capital and profit tax, and the most overall tax-friendly canton for them will depend on their situation, and specifically their relative equity value compared to annual profit.

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Flat Minimum Taxes Imposed by Some Cantons

In addition to their standard capital and profit tax rates, many cantons also impose a flat minimum tax which is applied irrespective of a company’s capital value and/or income. It is extremely important for companies to factor in these minimum taxes when projecting their tax liability, especially for those who may wrongly predict that they won’t have any significant tax liability due to being unprofitable or having a low equity value.

Types of Minimum Taxes

There are two types of minimum taxes: a minimum tax on capital only and a general minimum tax on both profits and capital. The former implies that a company will have to pay a flat minimum capital tax if the capital tax based on the usual rate results in a tax value below the minimum set. The latter works similarly, except that the company will only have to pay the flat minimum tax if the total of their capital tax and profit tax based on the usual rates results in a tax value below the minimum set.

Example of minimum capital tax only:

• Suppose Company X is incorporated in Appenzell Innerrohden (AI), which has a standard capital tax rate of 0.05% but sets a flat minimum of CHF 500 (in this case, the minimum set by AI is specifically for capital tax only).
  
  
• Company X has an equity value CHF 750,000. Therefore, the calculation of their capital tax based on the rate of 0.05% would be CHF 375. However, AI sets the flat minimum at CHF 500, so the latter value would be their capital tax liability.
  
  
• Only if Company X has an equity value of CHF 1 million or more would they instead pay the actual value calculated based on the tax rate as opposed to the minimum value imposed.
  
  
• This calculation is unaffected by the profits they earn, which are taxed separately at a rate of 12.66%.

Example of minimum general tax:

• Now let’s look at Company Y which is incorporated in Nidwalden (NW). NW imposes a capital tax rate of 0.01% and a corporate profit tax rate of 11.98%. It sets a general minimum tax of CHF 500 (based on the both capital and profit taxes).
  
  
• Company Y has an equity value of CHF 2 million but does not generate any profit for the year as they have just incorporated. Therefore, the calculation of their capital tax based on the rate of 0.01% would be CHF 200 and their profit tax would be equal to zero. However, NW sets a general flat minimum tax of CHF 500, which would therefore become the value of their total tax liability (profit and capital tax together).
  
  
• If instead, Company Y generated a profit of CHF 5000 for the year, their profit tax would rise to CHF 599 and so their total tax liability would be increased to CHF 799 including the capital tax. This is above the minimum threshold set and so would be the actual amount of tax they would be required to pay.
  
  

We can say from these two examples that the general minimum tax is more advantageous to companies as it is only levied when the company’s profit falls below a certain amount, while the capital minimum tax is only waived if the capital is so high that it results in a higher capital tax rate than the flat minimum set.

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Considerations for GmbHs and AGs

Limited liability companies (GmbH) and joint-stock companies (AG) are the most common types of companies in Switzerland. Both types of companies are subject to minimum capital tax rates. These minimum taxes are exclusively applied to legal corporate entities, not to sole proprietorships for example, which are not seen as legally distinct from their owners and are therefore taxed on a personal basis.

In Switzerland, AGs may also incur additional taxes compared to a GmbH. For example, they are also subject to a capital duty tax (also called a stamp issuance tax), which is a one-time tax on the company’s initial capital. It is important to understand how the relative tax treatment of AGs and GmbHs differ from one another to help inform the decision as to which corporate structure is best for your business. In general, AGs are subject to higher taxes, but they have more flexibility in raising capital through public offerings. GmbHs have lower taxes, but they are restricted in how they can raise capital. There are of course many other important differences between these two entities which are outside the scope of this article.

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Cantons that Impose Flat Minimum Taxes

The following cantons impose a minimum tax on capital:

• Appenzell Innerrhoden (AI)
• Appenzell Ausserrhoden (AR)
• Basel Land (BL)
• Solothurn (SO)
• Thurgau (TG)
• Wallis (VS)
• Zug (ZG)

The following cantons have a general minimum tax (on profit and capital combined):

• Aargau (AG)
• Luzern (LU)
• Graubünden (GR)
• Nidwalden (NW)
• Obwalden (OW)
• Schaffhausen (SH)
• St. Gallen (SG)
• Schwyz (SZ)
• Uri (UR)

Note that in the cantons of Aargau, Graubünden and St. Gallen, no minimum tax is levied in the first five years after founding. This is to help assist startups and new enterprises during their initial years when they are likely to be unprofitable.

The following table summarises the capital tax rate, profit tax rate, and minimum tax, for each of the 26 cantons:

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Other Taxes to Consider

In addition to minimum capital and profit taxes, companies in Switzerland are subject to other taxes, including value-added tax (VAT), municipal tax, church tax, elementary school tax, social security contributions, etc. The rates for these taxes also vary among cantons.

Companies should consider the total tax burden when deciding where to incorporate. Some cantons may have lower capital and profit tax rates but levy more in the way of other taxes. Companies should also consider the costs of complying with local regulations and hiring employees.

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Introduction and implementation of the OECD minimum tax

Starting in 2024, a new global tax standard will take effect with the implementation of the OECD minimum tax. Switzerland, along with roughly 140 other countries, has agreed to this measure. As a result, large multinational corporations will be subject to a minimum tax rate of 15% worldwide. This will require many Swiss-based companies to pay higher taxes in the future since some cantons currently impose taxes lower than 15%. However, smaller businesses will remain unaffected. To implement this change, Switzerland’s constitution will need to be amended, and ultimately, the decision will be up to Swiss voters.

The introduction of the OECD minimum tax will also have implications for Switzerland’s financial sector. Despite the forthcoming tax increase, Swiss banks support the measure as failing to adapt the country’s tax system would allow other nations to subsequently tax Swiss-based companies. This would ultimately result in the companies paying at least 15% in taxes, with the funds flowing into foreign government coffers regardless.

However, this is a separate and continuing topic that is not the subject of this article.

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Conclusion

Companies should consider the tax rates of each canton when deciding where to incorporate in Switzerland. In evaluating their expected tax burden, it is important to be aware of and factor in the flat minimum tax that is levied in many cantons. Companies should also consider the total tax burden, including income tax, VAT, social security contributions, and other subsidiary taxes.

It is always advised to consult with a tax or accounting expert to help you make an informed decision that is optimal to your company’s unique structure and financial position.