Special features of accounting for a GmbH

One of the most popular business structures in Switzerland is the GmbH, or “Gesellschaft mit beschränkter Haftung,” which translates to “company with limited liability.” In essence, it is the Swiss equivalent of a “Limited Liability Company” (LLC). A GmbH offer many benefits to business owners, including limited liability protection and flexible management structures. However, like any other business, a GmbH must comply with certain legal and accounting requirements.

In this article, we will discuss the special features of accounting of a GmbH. In doing so, we will provide a brief introduction into what accounting is and its importance in the corporate environment in Switzerland. We will then look more closely at the specific accounting and tax reporting requirements which apply to a GmbH. Finally, we discuss the usefulness of outsourcing accounting services and using sophisticated software to aid in filing accounts and reporting tax.

What is a GmbH and what are its unique features?

A GmbH is a type of Swiss company with limited liability, which means that the company’s owners are not personally responsible for the company’s debts or obligations.

The GmbH legal structure is usually preferred by owners with limited access to capital, who prefer a simpler and more affordable incorporation.

The minimum registered capital is CHF 20,000. In contrast, the Swiss “Aktiengesellschaft” (AG) requires a minimum authorised capital of CHF 100,000, of which at least 50% must be paid up. The latter is more similar in nature to a corporation, where there are multiple shareholders and shares are usually publicly traded.

Some of the main distinguishing features of a GmbH include:

• A minimum of only one founding member (shareholder) is required to start the company
• The company liability is limited to the value of the company assets (i.e., managers and shareholders cannot be held personally liable for company obligations)
• The minimum registered capital must be at least CHF 20,000 which is divided into shares. At least 20% of the registered capital must be paid in cash or by contribution in kind before the incorporation can take place
• A GmbH is comprised of the following main corporate bodies: the shareholders, the managing directors, and the auditor
• A GmbH must keep accurate accounting records and prepare annual financial statements in accordance with Swiss accounting standards, as outlined in the Swiss Code of Obligations (CO)
• The name of a Swiss GmbH must include the term “GmbH” or “Sàrl” to indicate its legal form. The name must also be unique and not too similar to any other company name registered in Switzerland.

What is accounting and why is it important?

Accounting is the process of recording, classifying, and summarising financial transactions to provide information that is useful in making business decisions and complies with regulations regarding financial reporting and tax collection.

Accounting is essential for businesses because it helps to track income and expenses, monitor cash flow, and prepare financial statements.

Swiss generally accepted accounting principles (Code of Obligations) set out the legal and accounting requirements for recording and preparing financial statements. All Swiss limited liability companies are required to prepare their financial statements in accordance with the Swiss Code of Obligations.

Components of a financial statement

The three main components of a financial statement are the balance sheet, income statement, and cash flow statement.

The balance sheet provides a snapshot of the company’s financial position (Assets and liabilities) at a specific point in time, while the income statement shows the company’s revenue and expenses over a period of time.

The cash flow statement shows how the company’s cash balances have changed over time

Allocation of income and expenditure

The allocation of revenues and expenses refers to how revenues and expenses are recorded in the company’s accounting system.

According to the principles of double-entry bookkeeping, revenues are recorded when they are earned, regardless of when they are received, while expenses are recorded when they are incurred, regardless of when they are paid.

We will discuss later the cases in which, for example, partnerships can be exempt from this type of timing.

What is auditing?

Auditing is the process of independently examining a company’s financial statements to ensure that they provide a true and fair view of the company’s financial position and performance.

Auditing is essential for ensuring that the financial statements are accurate and comply with accounting standards and regulations.

The Swiss Code of Obligations (CO) outlines which types of corporate entities require a mandatory audit, and the requirements of the auditing process. As we will see later, it is not mandatory for all GmbHs to conduct an external auditing process.

Accounting requirements for a GmbH

Accounting legislation and regulations governing a GmbH

The Swiss CO is the primary source of accounting regulations for GmbHs. The CO requires all GmbHs to maintain proper accounting records that accurately reflect the company’s financial position and performance, and which comply with Swiss accounting standards.

While sole proprietorships and partnerships only need to prepare financial reports if their sales revenue exceeds CHF 500,000 for the financial year, all legal corporate entities (which includes the likes of GmbHs) are required to prepare their financial statements, irrespective of income generated.

How often do accounts need to be prepared?

According to Swiss law, GmbHs must prepare annual financial statements within six months of the end of the fiscal year. The financial statements must include a balance sheet, income statement and notes to the financial statements.

Additionally, the financial statements must be audited by a qualified auditor for those GmbHs who require a mandatory audit.

What Is the Cost of Accounting?

The cost of accounting for a GmbH can vary greatly depending on the complexity of the company’s operations, the annual turnover, and the level of service required.

Small businesses may be able to handle their accounting needs in-house with just a part-time bookkeeper, using affordable accounting software, while larger businesses may require a designated accounting department or the services of a professional accounting firm.

The cost will also depend on the accounting and auditing requirements legally applicable to the company (e.g., whether they qualify for simplified bookkeeping, whether they need to perform a mandatory audit, etc.).

Accounting regulations for partnerships with annual sales of more than CHF 500,000

The Swiss Code of Obligations distinguishes between a partnership with an annual turnover of less than or more than CHF 500,000.

The main difference in accounting rules is that entrepreneurs with an annual turnover of less than CHF 500,000 are granted simplified accounting.

On the one hand, they do not have to prepare annual financial statements with a balance sheet and income statement, but a revenue surplus statement is sufficient. On the other hand, this means that these smaller entrepreneurs can prepare their accounting without time accruals (transitory assets and liabilities).

Time accrual is the accrual of expenses and income at the time they are actually incurred or earned, rather than at the time they are paid or received (for example, rent paid in advance should be accrued in accounting to the month in which it is incurred, rather than at the time it is paid).

Audit requirements

There are three categories of auditing requirements for Swiss companies:

1. ORDINARY AUDIT

All public companies (those listed on the stock exchange) are required to conduct an ordinary audit. In addition, companies who exceed two of the following three thresholds for two consecutive financial years also require an ordinary audit:

1. Total assets of CHF 20 million or greater,
2. annual turnover of CHF 40 million or higher
3. an average of 250 or more full-time employees over the year

An ordinary audit is typically conducted by an external auditor who is independent of the company being audited, and who is registered with the Swiss Federal Audit Oversight Authority (FAOA). It provides an extensive independent assessment of the accuracy, completeness, and transparency of a company’s financial statements. The results of the audit must be filed with the Swiss commercial register.

2. LIMITED AUDIT

Most small and medium sized companies who do not exceed the aforementioned thresholds are subject to a limited audit. Many Swiss GmbHs fall into this category.

A limited audit (also known as a “review”) provides a lower level of assurance than an ordinary audit. It is also conducted by an external auditor who is independent of the company being audited, and who is registered with the FAOA.

However, it involves a less extensive examination of the company’s financial records than an ordinary audit and is therefore less costly and time-consuming.

The company must still maintain documentation related to the audit which may be subject to inspection by the authorities in the event of a special audit or investigation.

3. NO AUDIT

Companies with an average of less than 10 full-time employees over the year are allowed to entirely opt out of undergoing an audit if all the shareholders unanimously agree to this.

Tax considerations

One of the main purposes of maintaining proper accounting procedures is for the accurate declaration of taxable income, and other relevant taxes. The annual financial statements of a GmbH must be submitted to the responsible tax office.

GmbHs must comply with all Swiss tax laws and regulations. The company’s tax liability is calculated based on its taxable income, which is determined by subtracting allowable expenses from its revenue.

Swiss GmbHs are subject to federal, cantonal, and municipal taxes. These tax rates can vary depending on the company’s location and other factors.

Getting help where it’s needed

Do you need to outsource your accounting services?

Companies have the option of having their financial statements prepared by their internal accounting department, or by outsourcing accounting services. Many Swiss GmbHs choose to outsource their accounting services to a professional accounting firm.

Usually only larger corporations with significant turnover are big enough to warrant their own designated internal accounting department. Smaller companies can greatly benefit from outsourcing, as it means they do not have to incur the ongoing time and costs associated with a dedicated department (salaries, office rent, equipment, etc.).

These companies usually don’t generate enough accounting work to warrant hiring their own internal accountant.

Do you need a tax advisor?

Swiss tax laws can be complex, and it may be beneficial for GmbHs to work with a tax advisor who is familiar with Swiss tax laws and regulations.

A tax advisor can help the company minimize its tax liability and ensure compliance with tax laws. They can also help ensure that the accounts have been prepared in accordance with tax reporting requirements.

How can accounting and tax software help?

Accounting and tax software can help GmbHs streamline their accounting and tax processes in an affordable manner. Accounting software can help automate many aspects of the accounting process, such as recording transactions and preparing financial statements.

Tax software can help ensure compliance with Swiss tax laws and regulations and help minimize the company’s tax liability.

That said, the company should never be completely reliant on tax and accounting software as a replacement for professional expertise.

These types of software should be used alongside tax and accounting experts, who can give the final
confirmation that everything has been prepared as per the standards required.