Dieter Weber and Rudolf Sigg are partners of Tax Partner AG.
Switzerland has one of the most favourable tax regimes of anywhere else in the world – for both individuals and corporations. A good place to sit back and enjoy a fine cigar explains Dieter Weber and Rudolf Sigg
As confirmed in recent polls, Switzerland has a very high standard of living in the international context. Switzerland also offers a range of special and favourable tax rules for both individuals and corporations. This is all part of the special Swiss lifestyle. But what about cigars?
Like the banking tradition, making cigars is a very old Swiss tradition having started in 1838 with a typical family business. Today, two family companies are in the worldwide top ranks of this industry – one of them is the Villiger group. Furthermore, Switzerland is one of the biggest importers and sellers of Cuban cigars. Smokers in Switzerland not only enjoy the wide range of Cuban cigars available but also the moderate prices due to the attractive tax rules in Switzerland making them cheaper than anywhere else in the world.
The favourable Swiss tax situation not only effects smokers, but individuals and corporations looking for attractive tax laws. According to recent publications in Swiss newspapers, the famous Gottschalk family and their family business – the entertainer Thomas Gottschalk, his brother and their media company – moved to the heart of Switzerland. According to Handelszeitung, several corporations have recently moved their international or European headquarters to Switzerland. These include John Deere, Gillette and General Mills. But what motivates famous people like Thomas Gottschalk, Boris Becker and Michael Schuhmacher to live in Switzerland? And why have so many international firms moved their headquarters or production sites to this country? Is it the cheap Cuban cigars, the high standard of living, the high productivity, the absence of strikes, the education possibilities or the high innovation ?
Taxes could be one of the reasons. According to a survey prepared by the Zentrum für Europäische Wirtschaftsforschung ZEW in Mannheim, Germany, Switzerland offers a double advantage: an attractive taxation system not only for individuals but also for corporations. The figures show that individuals require earnings of around €200,000 in Germany, Italy and France to enjoy a net salary after taxes of €100,000. In the cantons of Zug or Schwyz €130,000 are sufficient to reach the same result. A similar picture exists for corporations: the average rate of corporate tax in Switzerland is around 10% to 25%; in France, Germany and the US it is 30% to 40%. However, it is not only the favourable tax rates but also the stable tax regime as a whole that makes an entrepreneur a 'happy' taxpayer. The possibility of advanced rulings with the Federal and Cantonal tax authorities is also an asset for tax payers. Problems can be discussed with the tax authorities and a suitable solution found for both parties.
A very attractive tax regime for individuals is the so called Pauschalbesteuerung, the lump-sum taxation for foreigners. If you are non-Swiss and move to Switzerland without having your productive base in the country, you can apply for the Pauschalbesteuerung. The income tax is calculated on the cost of living in Switzerland and not on the worldwide income. It is accepted that the cost of living is repre-sented by five times the rent paid per annum in Switzerland. To qualify for this individuals must have no direct employment in Switzerland. An advanced tax ruling will be granted from the canton involved.
It is not only the income tax aspects that make Switzerland attractive for individuals. The inheritance tax system is unique in comparison to the rest of the world. Inheritance tax is levied only on the cantonal level (not federal level) and is abolished for spouses and children in most cantons. This makes Switzerland more than attractive for high net worth individuals: no inheritance tax (compared to inheritance taxes ranging from 30% to 50% in countries such as USA, France, UK and Germany) and no gift tax due for spouses and/or children.
Let's not forget the working rich. Attractive tax rates for individuals (15–20%) and for corporations (from 15%) together with the new rules between the European Community and Switzerland regarding free personal transfers make many European family business owners consider lighting up their Cuban cigars in Switzerland. Moving the headquarters of a privately owned business to Switzerland in combination with a new home and new lifestyle can be a very successful option. Before moving to Switzerland the family owner needs to evaluate possible exit taxes in his country. Our experience shows that it often takes considerable time to carefully plan step-by-step– in cooperation with the home country tax adviser - the move of a business and personal residence.
Corporations can benefit from several different Swiss tax rules. There is the holding rule which offers a tax exemption for capital gains on participation and dividends from participations and also the flexibility to carry out other businesses such as financing through the Swiss holding company. Furthermore, a very common and attractive possibility are the so called 'mixed companies'. A Swiss company actively involved in business having at least 80% of its earnings and expenses outside Switzerland can profit from an effective tax rate of between 8% and 12%. The mixed company tax rule is used especially for trading companies and other international companies. There are no restrictions regarding the number of people working in the Swiss company.
It is fair to conclude that Switzerland offers not only a high quality in the standard of living but a range of competitive tax schemes. Important issues can be solved by advanced tax rulings with the Swiss tax authorities. The different cantons have competitive tax rates for the best and most attractive location. And the cigars? Thanks to the tax ruling, the family business owner has always more money in his pocket to smoke a fine cigar so he can enjoy a great lifestyle in the heart of Europe.