Tax tips for start-ups in Switzerland: everything you need to know

Setting up a business in Switzerland comes with not only numerous opportunities but also many challenges. One of the biggest of these is tax planning. For many new business owners, taxes are one of the most complicated hurdles to overcome, as there are a variety of tax types to consider in Switzerland. Whether you are setting up a sole proprietorship, LLC or PLC, tax considerations play a crucial role in ensuring that your business is financially stable from the start.

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1. Types of Taxes for Companies in Switzerland

In Switzerland, there are various types of taxes that companies have to deal with. These vary depending on the legal form of your company and the amount of profit generated. Here are the main types of taxes you need to be aware of:

1.1. Income tax

The income tax applies to owners of sole proprietorships and partnerships. The company's profit is considered the owner's personal income and taxed together with their private income. This means that your personal tax burden will increase the more successful your company becomes.

1.2. Profit tax

For legal entities (limited liability companies or public limited companies), profit tax applies. This tax is levied on the company's net profit. The advantage here is that the company is considered a separate legal entity and only the company's profit is taxed. An additional tax (personal income tax) is levied on personal wages or dividends distributed by the company.

1.3. Value added tax (VAT)

Value added tax (VAT) is an indirect tax levied on the sale of products and services. As soon as your company generates an annual turnover of more than CHF 100'000, you are obliged to register for VAT. The current standard rate in Switzerland is 8.1%, while for certain  deliveries of goods (such as food or medicines) it is reduced to  2.6%.

1.4. Withholding tax

Withholding tax in Switzerland is 35% and is levied on dividends, interest and certain lottery winnings. It is particularly relevant for companies when they distribute profits to shareholders. This tax is designed to ensure that dividends are properly declared and taxed.

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2. Differences between sole proprietorships, LLCs and PLCs in terms of taxes

The choice of legal form has a significant impact on a company's tax obligations. Here is an overview of the tax differences between the legal forms:

2.1. Sole proprietorship

In the case of a sole proprietorship, the company's profit is taxed together with the owner's private income. This means that you, as the entrepreneur, only have to file one tax return for both your company and your private income.

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2.2. LLC

An LLC is a separate legal entity, and the company's profits are taxed separately from your personal income. As the owner of an LLC, you pay income tax on your salary and profit tax on the company's profits. In addition, a withholding tax is due when dividends are distributed.

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2.3. PLC

The tax treatment of a PLC is similar to that of an LLC. Here, too, the company's profits are taxed separately from your personal income.

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3. Tax optimization for new businesses

One of the most important aspects for companies is tax optimization. There are various ways in which you can reduce your tax burden as an entrepreneur. Here are some tips:

3.1. Deduct business expenses

You can deduct all business-related expenses from your tax bill, which will reduce your tax burden. Deductible expenses include:

• Rent for business premises
• Office supplies
• IT equipment
• Travel costs
• Marketing expenses
• Etc.

It is important to collect all receipts and document them properly so that you can claim all relevant costs when filing your tax return.

3.2. Create provisions

Another way to optimize your tax bill is to set up provisions. These allow companies to set aside funds for future expenses that are not yet due, such as for pending legal disputes. These provisions reduce the company's profit and thus also its tax bill in the current year.

3.3. Separate private and business expenses

It is important that you always keep a clear distinction between private and business expenses. Only business expenses are tax deductible. If you mix private and business expenses, the tax authorities may make adjustments.

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4. Value Added Tax (VAT) in practice

If your company exceeds the turnover limit of CHF 100'000, you must register for VAT. Here are some points to keep in mind:

4.1. VAT accounting

You have to add VAT to all products and services sold. You then pay the sales tax collected to the tax authorities. At the same time, you can deduct the input tax that you have paid on business purchases from the amount to be paid.

4.2. Special rates and exemptions

Certain industries and products are subject to a reduced VAT rate. These include, for example, food (2.6%) and hotel accommodation (3.8%). In addition, there are certain services that are exempt from VAT, such as medical services or educational offers.

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5. Tax obligations for small businesses

Even if your company stays under the CHF 100,000 turnover limit and is therefore not subject to VAT, there are still tax obligations that you must observe. For example, you must:

• Document your income and expenses (bookkeeping)
• Submit an annual tax return

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Conclusion

Tax planning and optimization is a crucial factor for the success of your business in Switzerland. By choosing the right legal form, implementing efficient tax optimization measures and understanding the most important tax regulations, you can ensure that your company has a solid financial footing from the outset. If you require support with tax planning or accounting, our sister company, Findea, will be happy to assist you.

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