Why You May Wish to Consider Starting a Holding Company in Switzerland
Switzerland is well known as a tax haven not only for businesses but for investors as well. Investors who have shares in other companies can create a holding company in Switzerland in order to manage their assets and reap the tax benefits the country offers. However, there are regulations about starting Swiss holding companies.
What is a Holding Company?
The sole reason for the existence of a holding company is to control another company. The company being controlled could be a corporation, a limited liability company or a limited partnership. Instead of producing goods or services, the holding company may own real estate, patents, trademarks, stocks and other types of assets. Businesses that are 100 percent owned by holding companies are referred to as wholly owned subsidiaries.
Tax Benefits for Swiss Holding Companies
Although there are other countries that offer tax breaks for holding companies, Switzerland has a reputation for providing the best tax breaks for investors and businesses. The country is divided into 26 cantons, which are administrative regions or states in the country.
Each canton can offer its own tax incentives for holding companies and Canton Zug is one of the most popular choices for holding companies. One in four holding companies is located in that state because they offer some of the best tax benefits in the country.
Businesses, which include holding companies in Switzerland, are subject to taxes on both the federal and canton levels. In Canton Zug, holding companies are tax exempt if they can meet three conditions. These conditions are:
- The investment in other companies, or the revenues earned by those companies, must account for two-thirds of a holding company’s assets or and/or their total income.
- One of their investments in a company must account for 10 percent or the company’s total shares must value one million Swiss Francs to qualify.
- The holding company must have been invested for more than one year of
In addition to the canton tax exemption, the holding company would be eligible for a reduction in the capital tax rate and they wouldn’t owe any federal income tax on income or capital gains from the companies in which they are invested. They would be subjected to a federal corporate tax rate of approximately eight and a half percent overall.
Restrictions for Holding Companies
One of the main restrictions on a Swiss holding company is that they are exempt from doing business, meaning they cannot produce goods or provide services. The only business activities allowed for holding companies are:
- Managing their assets, which could include foreign intellectual properties and surplus cash.
- Management functions for the holding company.
- Business activities for foreign companies including the conversion of a loss or gain from intellectual properties into cash.
If you are located in the United Kingdom, holding companies are also subject to reduced tax rates, so you should get advice before opening a holding company in Switzerland. The tax rate difference may not be worth the effort of moving your business there.