What is the best Canton for founding a company?

Switzerland has long been an attractive destination for entrepreneurs looking to establish their own companies. However, when it comes to founding a company in Switzerland, choosing the right canton is a crucial part of the process. Each canton has its own unique characteristics, pros and cons, and regulations that can significantly impact the success and profitability of your business. In this article, we explore the factors to consider when selecting the right canton for your company and provide insights into the most popular cantons to start a business.

Why found a company in Switzerland?

When it comes to choosing a location to set up a company, Switzerland has it all. Political stability, friendly corporate legislation, fast and easy incorporation, financial privacy, low taxes, ideal geographic location, lack of corruption, reputability, and a highly developed economy and infrastructure, are but a few of the benefits that Switzerland offers for those looking to incorporate a company here. It is no surprise that more wealthy foreign investors and ambitious entrepreneurs are choosing Switzerland as their financial and corporate “home base”.

How to choose the right canton for founding your business?

Switzerland is an all-round ideal location to set up a company, but it is also important to understand the variations between its 26 cantons. Each canton has its own characteristics which impact its desirability as a jurisdiction in which to establish a business.

Some of the factors which should be considered when choosing the right canton for founding a business include taxation, availability of skilled labour, access to suppliers and customers, infrastructure, access to funding, cost of living, and quality of life. Let’s briefly explore the importance of each of these in turn:

• Taxation: Taxation is a crucial consideration for any business, and is often the primary factor in determining where to set up a company. Switzerland’s federal government system reflects in their tax structure, and means that the different cantons can set their own tax rates, incentives, and deductions. It’s important to closely assess the tax regime in each canton you are considering, including the varying rates of corporate income tax (profit tax), capital tax, wealth tax, etc. Low tax rates and advantageous tax incentives can have a significant impact on your company’s overall profitability.
• Availability of skilled labour: Depending on the nature of your business needs, having access to skilled labour in the canton in which you operate can have a major influence on the overall success of your company. Consider the local talent pool and the ability to recruit employees with the necessary expertise and qualifications for your industry.
• Access to suppliers and customers: The proximity to suppliers and customers can affect your operational efficiency and costs. Proximity to the right suppliers will reduce transportation costs and lead times, resulting in more efficient supply chain management. In addition, being close to your target customer base can help to increase sales, improve customer service, and reduce distribution costs.
• Infrastructure: A well-developed infrastructure is essential for conducting business effectively. Look to form your company in a canton with high quality transportation networks, efficient shipping routes, and reliable digital infrastructure.
• Access to funding: Consider the access to sound funding options in each canton. Assess the local banking sector and financial institutions to determine whether they can provide financing solutions which suit your company’s specific requirements. Additionally, look for availability of alternative sources of funding such as venture capital firms, angel investors, and government grants or incentives.
• Cost of living: While certain cantons may provide lower taxes and therefore higher profitability, you should also consider the varying costs of living. Being based in a canton with a higher cost of living can result in higher wage requirements and more expensive production inputs, as well as raise your own personal living expenses.
• Quality of life: Quality of life can influence your employee satisfaction, talent attraction, and retention. Consider factors such as healthcare facilities, educational institutions, recreational activities, safety, and overall liveability. Establishing your company in a canton with a high quality of life can result in increased employee well-being and long-term business sustainability. It will also lead to greater personal satisfaction for you if you decide to reside in the same canton in which you set up your company. 

It is not possible to give a single answer as to which canton is best for your particular situation. Each canton has its own benefits for different types of businesses across various industries. By evaluating each canton closely according to some of the factors listed above and seeing whether it aligns with your needs and objectives, you can come to a decision as to which is right for you.

Due to the complexities involved in a comprehensive evaluation of the many factors at play, it is always best to obtain guidance from an expert in company formation and taxes in Switzerland. For more information on how Nexova AG can help you in this regard, visit our services page here.

What does the data say?

While we cannot say which is the best canton for founding a company for everyone, we can have a look at what the data says about which cantons are usually preferred by businesses:

In terms of sheer numbers, more new businesses are being set up in Zurich each year than any other canton. Out of the approximately 50,000 new companies formed in Switzerland in 2022, more than 9,000 were registered in Zurich. However, these numbers are somewhat misleading in that they do not account for the higher number of inhabitants there.

If we instead look at the number of formations on a per capita basis, the canton of Zug is the clear leader with more than 23 start-ups per 1000 inhabitants in 2022, compared to Zurich’s 6 per 1000. This is unsurprising, as Zug also tops many lists of the most business-friendly cantons in Switzerland. This is definitely supported by the fact that Zug has the lowest average tax rates of all 26 cantons.

Other popular cantons for company formation, which frequently rank highly in terms of their favourable corporate environments, include the likes of Geneva, Basel, and Nidwalden.

Taxation at the cantonal level

Switzerland has a federal system of government which translates to a multi-tiered tax system. As such, individuals and businesses are taxed at three levels: the federal, cantonal, and communal levels. On average, the Federal Treasury receives about 30% of total tax revenue in Switzerland, the cantons collect approximately 40%, and the remaining 30% goes to the individual communes (municipalities).

Competition between Cantons leads to lower tax rates

Each canton has the authority to set its own cantonal corporate tax rates, which thus creates competition among the cantons to attract businesses by offering low tax rates. This results in downward pressure on tax rates across the board which is one of the factors contributing to Switzerland’s overall tax-friendly nature.

There are two primary types of taxes that apply to businesses in Switzerland: taxes on the profits they generate (i.e., corporate income tax, also known as “profit tax”) and a capital tax on their equity value. Both rates vary quite significantly across the 26 cantons, which therefore has a major impact on their relative attractiveness for company incorporation.

Cantons with the most favourable tax environment

It is crucial to examine the tax regimes of the cantons you are considering before coming to a final decision of where to base your company. This includes looking at both their capital tax and profit tax rates, in addition to whether they impose a minimum flat rate for either of these taxes. You should also pay attention to other types of taxes which vary across cantons, such as the individual municipal tax rates, church tax, property tax, social security contributions, etc.  

Cantons with more favourable tax environments include the likes of Zug, Basel, Nidwalden, Obwalden, and Appenzel. It should come as no surprise that cantons with the lowest tax rates, such as Zug, are often the most popular jurisdictions for setting up a company.

Can you relocate your company’s domicile to another Canton?

If you are an existing business owner in Switzerland and you find that your current canton is not providing the desired tax benefits or overall business-friendly environment you are after, it is possible to relocate your company’s domicile to another canton within Switzerland. This may be easier and cheaper than incorporating an entirely new company, depending on the specific situation and type of corporate entity.

There are various reasons to consider a relocation of domicile, as well as some important practical considerations to bear in mind before making the move.

Seeking a more favourable tax environment

Usually, seeking a more favourable tax environment is the primary motive for relocating a company to a different canton. It is a sensible strategic move in which you can immediately reduce your tax burden and therefore increase profitability and optimise efficiency.

That said, it is important to realise that tax is not the only factor which differentiates cantons, and moving to a canton with a lower tax rate may not always result in an overall improvement to your bottom line.

Other reasons to consider relocating

In addition to tax considerations, you should take into account the full range of factors which we previously discussed when deciding which canton is right for your business. To recap, these include important business-related aspects such as the availability of skilled labour, access to suppliers and customers, infrastructure, access to funding, cost of living, and quality of life, among others. Just as these factors are fundamental in any decision as to where to set up a new company, they are equally important when it comes to deciding whether to relocate your domicile.  

Practical considerations

While relocating your company to a new canton can provide many benefits, it is essential to consider the implications of such a move, and the practical issues at play.

Relocating your company involves legal processes, administrative requirements, financial costs, and potential disruptions to your business operations. Furthermore, if you have a strong and trusted employee base in your current location, you need to carefully consider the impact that a move will have on their lives, and whether they would be willing to relocate with the company.

Deciding whether to relocate a company involves a careful analysis of the benefits compared to the practical difficulties. Therefore, it is advisable to seek professional advice before making such a decision.

The bottom line

Overall, Switzerland is an excellent location for founding a company. However, to maximise the benefits, you need to understand the differences between the 26 cantons in terms of their attractiveness for setting up or relocating a business.

Choosing the right canton for founding your company in Switzerland is a crucial decision that can significantly impact your business’s success. It is not possible to unequivocally say which is the best canton in all situations. In evaluating which is most appropriate for you, consider a combination of factors such as taxation, availability of skilled labour, proximity to suppliers and customers, infrastructure, access to funding, cost of living, and quality of life.

Due to the complexities involved in such a decision-making process, it is important to seek professional advice to ensure you make an informed decision based on your specific business needs and objectives.