The Swiss Holding and the Holding Privilege
“Compared to the year 2000 incorporations of holdings have increased by more than 75%.”
A Swiss holding is not taxed, provided that the participating companies are subject to taxation at their registered address and carry out active business activities.
The Swiss company with tax domicile privilege
A Swiss GmbH, AG or branch of a foreign company is founded if it only has its headquarters in the respective canton, it does not conduct business, but only carries out administrative activities and it does not employ its own staff or does not have its own offices. Thus, the tax domicile privilege is valid, which is only 8.5% federal tax and no cantonal tax.
A holding company, which obtains the privilege of domicile, pays no income taxes at the cantonal level and at the federal level a reduced profit tax of 8.5%. In case the company solely manages investments, it can also assert a contribution deduction at the federal level, which can reduce the tax on profits up to zero (if the net income from the investments corresponds to the net profit).
For investors this means that not only other well-known international holding locations, investment income (dividends, capital gains etc.) are exempted), but also other income, notably interest and royalties make the Swiss holding very attractive.
The holding privilege
At the federal level the holding privilege does not apply, but a so-called participation exemption which can be compared in economic terms to the German corporate tax law standard of § 8 (KStG).
“Not ever company is qualified for the cantonal tax privilege.”
Only corporate entities (eg. AG) or cooperatives, whose statutory purpose (company purpose) is the continuous management of investments and which do not carry out (significant operational) activities and for which the investments (market value) and income from long-term investments amount to a minimum of two thirds of the total assets or income (assets or earnings test), can apply for the holding privilege.
Switzerland as holding location has gotten even more attractive thanks to the double taxation treaty with the European Union of the 1 of July 2005. Taxation in the country of source of dividends, interest and royalties between related companies was abandoned if a minimum stock of 25% of the company has been held since two years.
As a result Switzerland reached a “quasi-participation” with the ZBstA in the Parent-Subsidiary Directive and the Interest/Royalties Directive of the European Union.
Optimum holding location: canton of Zug
In Zug holding companies get tax free earnings. On top of that the equity capital tax is lowered to a minimum. Every fourth holding company in Switzerland gets incorporated in Zug.
Tax on Profit
Direct national tax does not accept the holding privilege. Despite that equity holding activity results in a deduction from taxes. Up to 100-% reduction is granted when the net gainings from equity holdings equal the profit. Deductions may also be granted for capital gains from divestitures.
All tax laws of cantons accept fully tax free holding companies if 2/3 of all assets are from stocks and 2/3 of all gainings result from stocks. Gainings in Switzerland from real estate will be taxed normally.
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