Tax Guide Attractive taxes for businesses and private individuals
2
TAX GUIDE
Impressum Š Economic Promotion Canton of Schaffhausen English translation: Philip Lucas, Preston UK 12th Edition, 2016 (First Edition 2004) Printed in Schaffhausen www.invest-in-schaffhausen.com/publications Details to the international comparison
Welcome to Schaffhausen Dear Reader I am delighted to welcome you to the Canton of Schaffhausen – a vibrant economic area at the heart of Europe! Many innovative companies with international activities have chosen to establish operations in this highly attractive location for businesses. Schaffhausen offers exceptional quality of life, benefits from excellent road and rail links as well as from nearby Zurich international airport and provides one of the most advantageous corporate tax regimes in the world. The Canton of Schaffhausen is especially determined to retain and optimize its tax regime. Our stated aim is to provide you, as a business leader, and your organization with sustainable long-term benefits designed to support your international activity and the future development of your business. The government of the Canton of Schaffhausen has identified additional measures which will take effect alongside implementation of the Corporate Tax Reform III package (Unternehmenssteuerreform III) and which will further boost the attractiveness of the region as a business hub: the principal measure envisaged is the reduction of the effective corporate tax rate to 12-12.5 percent for all companies. The 2016 edition of our Tax Guide provides a comprehensive overview of tax in Switzerland and in the Canton of Schaffhausen in particular. Experts on international tax affairs explain the planned tax measures to increase the international competitiveness of Switzerland as a business location and examine cross-border corporate structures. Our tax calculator is available at www.steuern.sh.ch and enables you to calculate tax liability in a few simple steps. That applies to your corporate taxation as well as to your personal tax. Our Economic Promotion Team and the Taxation Department of the Canton of Schaffhausen would be delighted to hear from you and to answer your questions about locating your business in Schaffhausen and the tax benefits you will enjoy. Department of Finance, Canton of Schaffhausen Rosmarie Widmer Gysel Member of the Governing Council
PREFACE
3
4
CONTENTS
Contents 1 Introduction
7
2 Basic principles of the Swiss tax system
8
2.1 International comparison of the tax burden 2.2 International double taxation agreements
2.2.1 The geographical scope of double taxation agreements 2.2.2 Latest developments 2.2.3 Methods for the prevention of double taxation
2.3 Measures to improve our competitive position on taxation (Corporation Tax Reform III) 2.3.1 Key business functions located in Switzerland 2.3.2 Latest developments 2.3.3 Core content of Corporation Tax Reform III - USR III 2.3.4 Prospects
3 Taxation of businesses in Canton Schaffhausen
8 9
9 10 10
11 11 11 12 12
13
3.1 Impact of the type of legal entity on taxation 3.2 Basic principles for computing taxable profit
13 13
3.3 Ordinary corporations
15
3.4 Minimal and minimum tax
17
3.2.1 Stock valuation 3.2.2 Provision for bad debts 3.2.3 Depreciation 3.2.4 Replacement 3.2.5 Provision for major repairs 3.2.6 Warranty reserve 3.2.7 Provision for research and development 3.2.8 Tax neutral company restructuring 3.2.9 Provision for employer contributions 3.2.10 Tax loss carry forward
14 14 14 14 14 14 14 15 15 15
3.3.1 Basic principles for taxation of a company using the ‘ordinary procedure’ 15 3.3.2 Tax illustration – ‘ordinary corporation’ 15 3.3.3 Participation relief 16 3.4.1 Minimal tax 3.4.2 Minimum tax
4 Special tax regimes
17 17
18
4.1 Holding companies
18
4.2 Domiciliary companies
20
4.3 Mixed companies
21
4.1.1 Requirements 4.1.2 Participations 4.1.3 Scope of business activity in Switzerland 4.1.4 Taxation illustration – holding company 4.2.1 Requirements 4.2.2 Basis of tax calculation 4.2.3 Taxation illustration – domiciliary company 4.3.1 Requirements 4.3.2 Operation of a mixed company 4.3.3 Tax Calculation 4.3.4 Taxation illustration – mixed company
5 Taxation of private individuals in Canton Schaffhausen
18 18 18 19 20 20 21 21 22 22 23
24
5.1 Principles of taxation of individuals 5.2 Income tax
24 24
5.3 Tax on net worth of individuals
26
5.2.1 From gross income to taxable income 5.2.2 Calculation of income tax 5.3.1 From total net worth value to taxable net worth 5.3.2 Calculation of tax on net worth of individuals
24 25 26 26
5
5.4 Halving of tax on dividends and impact on entrepreneurs 5.5 Lump-sum payments from pension savings 5.6 Additional expense allowance for senior post holders
6 Withholding tax, expatriates and cross-border workers
27 28 28
29
6.1 Characteristics and application of withholding tax 6.2 Foreign nationals domiciled in Switzerland
29 29
6.3 Individuals and legal entities not domiciled or resident in Switzerland 6.4 Tariffs 6.5 Cross-border workers 6.6 Foreign officers of legal entities
30 31 31 31
6.2.1 Criteria for expatriate status 6.2.2 Deductable expenses for expatriates
7 Special taxes 7.1 Withholding (anticipatory) tax 7.2 Tax on real estate gains 7.2.1 Characteristics 7.2.2 Calculation of tax
8 Tax on traffic, consumption, goods 8.1 Value Added Tax (VAT) 8.2 Foreign-foreign-transactions 8.3 Special taxes 8.4 Stamp duties 8.5 Inheritance and gift taxes 8.6 Transfer tax 8.7 Taxation on goods and for use of public infrastructure 8.7.1 Motor vehicle tax 8.7.2 Further taxes on goods 8.7.3 Tax on use of public infrastructure
9 The tax authorities 9.1 Approach of the tax authorities 9.2 Tax concessions
29 30
32 32 32 32 32
33 33 34 34 34 34 35 36 36 36 36
37 37 37
10 Switzerland – a tax efficient location for the exploitation of intellectual property rights (IP) 38 10.1 Introduction 10.2 Fundamentals of Swiss IP law 10.3 Fiscal definition of IP 10.4 International tax planning with IP
38 38 39 39
10.5 Tax optimized exploitation of IP within multinational enterprises – Other considerations 10.6 Tax optimized IP exploitation by using a Swiss IP company
40 41
10.7 Impact of the Swiss Corporate Tax Reform III 10.8 Summary and Outlook
44 44
10.4.1 Basic Principles 10.4.2 Tax aspects to be considered for IP planning
10.6.1 Acquisition (migration) of IP by the company in Switzerland 10.6.2 Tax efficient taxation models
39 40
41 42
6 CONTENTS
11 Tax-effective structuring of inbound invest ments to Switzerland with special focus on fiscal opportunities from a US perspective 11.1 Introduction 11.2 Tax planning opportunities for U.S. companies and entrepreneurs
45 45 46
12 Multipliers Canton Schaffhausen
47
13 Your contacts at Economic Promotion
48
14 Important addresses
48
15 Service partners
49
INTRODUCTION 7
1 Introduction Switzerland has long enjoyed a reputation for being a low-taxation economy and the Canton Schaffhausen is one of the 26 federal states which bear witness to this. Our success in attracting more and more individuals to leave countries where their tax-liability may be in excess of 50 percent and relocate themselves and their businesses to Switzerland might lead some people to assume the application of legislation has become negotiable in order to accommodate wealthy taxpayers. This is not the case. The problem of tax avoidance by means of relocation is the result of the overall fiscal framework which exists in certain countries and which contrasts sharply with the very reasonable and fair taxation regime in Switzerland. Furthermore, the wish to relocate to Switzerland, to invest or to conduct business from here is often based on consideration of a much wider range of arguments and benefits, such as: –– Modest taxation levels and the coopera–– Central geographic location tive approach of our fiscal authorities –– Outstanding network of road, –– Excellent industrial relations climate rail and air links –– Liberal employment laws –– World-class infrastructure –– Easy-to-understand structures and –– Communication infrastructure ready access to the authorities –– Political and monetary stability –– Quality of life –– Top-quality education and –– International mindset training system –– Customer-friendly financial sector
WEF-Ranking 2014 – 2015 1 Switzerland 2 Singapore 3 USA 4 Germany 5 Netherlands 6 Japan 7 Hongkong SAR 8 Finland 9 Sweden 10 United Kingdom 11 Norway 12 Denmark 13 Canada 14 Qatar 15 Taiwan 16 New Zealand 17 United Arab. Emirates 18 Malaysia 19 Belgium 20 Luxembourg
The current WEF Competitiveness Report shows that these are the factors considered important by international corporations when assessing the global competitiveness of business locations. Switzerland has been top of the ranking table on a number of occasions and remains in first place. Schaffhausen, the northernmost canton in Switzerland and the main access to Germany, the strongest market in Europe, incorporates all of the benefits listed above, both for individuals and for businesses. In addition, it offers some key and quite unique advantages not found anywhere else in Switzerland. Schaffhausen makes up just one percent of Switzerland – both in terms of population and surface area. An advantage of Switzerland is undoubtedly its small-size, giving you easy and uncomplicated access to the information and agencies you need. Schaffhausen’s small size makes it even easier to settle and do business here – decision-making at the political and administrative level is fast. You can get to Europe’s fifth largest airport, in Zurich, quickly and easily. You will enjoy a first-class standard of living. All of this has made Schaffhausen – with its unique position on the border to Germany – the preferred location for a number of international corporations as well as for German medium-sized enterprises and private individuals.
Source: The Global Competitiveness Report 2015-2016, World Economic Forum
The Canton Schaffhausen offers a raft of tax features which stand comparison both nationally and internationally and which clearly mark out our position as a highly attractive location for both business leaders and their enterprises. The principal components of our tax regime are: –– low rates of corporation tax, –– halving of tax on income from equity investment in business ventures, –– a sustained and on-going trend of reductions in income tax rates, –– no inheritance or gift tax for direct descendants and spouses. Change in GDP 2007 - 2012* Sovereign debt, gross**
Unemployment rate 2012***
Switzerland
3.9 Switzerland
39.5
Switzerland
3.4
USA
3.2 Poland
64.1
Austria
4.4
Germany
2.8 Netherlands
82.5
Japan
4.5
Austria
1.8 Austria
83.1
Netherlands
5.2
France
0.3 Germany
87.6
Germany
5.6
Japan
0.2
93.8
United Kingdom
8.1
Spain
Netherlands -1.5
France
105.1
USA
United Kingdom
United Kingdom
105.3
Poland
10.0
Ireland -4.5
USA
109.8
France
10.5
Spain -5.1
Ireland
123.2
Italy
10.7
Italy -5.6
Portugal
125.6
Ireland
14.9
Portugal -6.1
Italy
127.0
Portugal
15.6
Greece -18.3
Greece
181.3
Greece
24.2
EU27 -1.5
Japan
214.3
Spain
25.0
-1.9
All numbers in percent. * at constant prices ** in relation to gross domestic product *** figures for 2012 are forecasts
Strong growth, lowest level of debt and lowest unemployment: Switzerland is no.1 in Europe Source: Ernst & Young Swiss Attractiveness Survey 2013
8.2
8
BASIC PRINCIPLES OF THE SWISS TAX SYSTEM
2 Basic principles of the Swiss tax system „The strong competition when it comes to tax means attractive rates for businesses and private individuals alike.“
In contrast to most Western countries and those which follow a ‘Western’ approach, Switzerland is characterized by a strongly federalist ethos. Federalism means allowing the individual member provinces or states, in our case the cantons, considerable autonomy. One of the key pillars of this autonomy is the wide-ranging financial sovereignty of the cantons. This applies not only in terms of flexibility regarding expenditure but also – and predominantly – in terms of revenue generation and thereby determination of the canton’s tax regime. In 1990, a tax harmonization law was introduced to provide a framework for the formal harmonization of direct taxation across the cantons. However, there is no material harmonization of taxation and thus Switzerland has no uniform tax burden which applies to private individuals or legal entities equally in all parts of the country. Total tax liability is the sum of taxes levied according to the rates applied at the three levels of administration – the national government, the cantonal authorities and the commune, i.e. the local administration. The high degree of tax-setting sovereignty granted to the cantons and differences in the multiplier then applied by local – communal – authorities generate a number of different tax progression models, with further differentiation between locations resulting from the approach taken to tax allowances. The fierce competition between locations in Switzerland when it comes to tax setting results in a regular stream of tax innovations and, importantly for the tax-payer, to significant variations in tax liability between cantons as well as between communes within the same canton. The difference between tax-havens and locations with less appealing levels of taxation can be in the region of 300 percent or more in extreme cases. Direct taxation is levied by the national i.e. federal government on the income of private individuals and on the profits of legal entities at the same rate across the country. Neither the assets or net worth of private individuals nor the capital of legal entities is taxed by national government, however. In addition to national government, the cantonal authorities, the communes and the main churches have the right to generate income via taxation. In most cases, this is calculated using a multiplier as in the case of taxes levied by the communal authorities.
2.1 International comparison of the tax burden Switzerland has repeatedly been shown to offer the most competitive tax levels among highly developed industrial countries. The tax burdens for legal entities and for private persons are frequently compared in such studies. It is interesting to note that it is not only business corporations which benefit from the relatively modest tax burdens in Switzerland. In fact, the benefits are particularly noticeable for private individuals. In spite of the very positive and widespread recognition accorded to Switzerland in studies carried out by the OECD and other highly-respected organizations, the various publications still tend to present only part of the story regarding tax advantages. Consideration of aggregate values and indications of tax liability need to be subjected to a detailed test of the specific circumstances of each case in order to achieve clarity on the advantages of a particular location. As an example, official statistics tend to show the rate of tax on profits lies in the range of 10-25 percent, depending on the canton in which the business is located. However, utilization of Schaffhausen’s more efficient tax planning model can reduce tax liability to a level of below 10 percent, making it an attractive proposition by any international standard. Naturally, corporations also base their choice of location on criteria such as quality of the living and working environment. Switzerland’s high income levels, combined with modest taxation rates for employees and other private individuals are further convincing arguments in Switzerland’s favor.
41.2
9
34.9
40
24.8
24.8
Oslo
23.3
Luxembourg
23.1
21.9
Beijing
21.4
Amsterdam
22.4
21.1
18.9
18.9
Stockholm
Genf
18.8
Budapest
20.8
18.6
Bratislava
London
18.3
Wallis
19.6
18.1
Waadt
Basel-Stadt
17.9
Basel-Landschaft
Copenhagen
17.5
17.0
Helsinki
16.7
Warsawa
17.2
16.2
Ticino
Zürich
15.6
14.4
Prague
13.8
St.Gallen
15.1
13.6
Dublin
Singapore
13.2
Glarus
Schaffhausen
13.0
13.0
12.0
Thurgau
11.9
Zug
Graubünden
11.7
10.3
Uri
10.3
Luzern
10.9
10.1
Appenzell (AR)
10
Schwyz
9.9
Hongkong
Nidwalden
15
Obwalden
20
Bern
25
Milano
27.0
30.0
30
29.3
35
5
New York
Paris
Madrid
Munich
Bruxelles
Vienna
Ljubljana
0
HK NW AR LU OW SZ UR ZG GR TG GL SH IE SG SL SGP CZ TI PL BE ZH FI BL VD VS SK HU SE BS DK UK GE NL AT IT CN LUX NOBEL DE ES FR US
BAK Taxation Index 2015 for companies: Effective average tax rate in %
The Centre for European Economic Research (ZEW) in Mannheim, Germany together with Basel Economics (BAK) in Switzerland, came to the following conclusion in its report on corporate taxation in different nations: Switzerland is a low-taxation country in every aspect – both in comparison with other countries in the wider Alpine region as well as with other industrial countries further afield. Only Hong Kong has a lower tax rate than the above Swiss Cantons including Canton Schaffhausen, which leads the field among the top international locations.
2.2 International double taxation agreements 12 (4)
2.2.1
Emphasis on sustainability
Emphasis on social responsibility
Market size
High purchasing power
Research and development potential
Quality and diversity of workforce
Political stability
Stable market environment
Corporate tax
4 (3)
12 (8)
15 (10)
18 (14)
19 (20)
30 (48)
33 (43)
34 (29)
Source: BAK/ZEW, April 2016
Switzerland as a business location: particular strengths Quelle: EY’s attractiveness survey Setting standards: Switzerland as a business location 2014 (Figures in percent, two mentions possible; n=200)
The geographical scope of double taxation agreements1
In view of the global reach of the Swiss economy, the geographical coverage of Swiss double taxation agreements has continually grown. The primary purpose of the agreements is to set out the scope of tax jurisdiction relating to revenues generated in the territory of each of the signatories and thereby to avoid multiple taxation of the same income. International cooperation on taxation has increased in importance considerably as a result of the globalization of financial markets and the financial crisis. Switzerland is pursuing the aim of increasing cooperation between authorities on matters of taxation and is integrating Article 26 of the OECD Model Convention into new treaties and into revisions to existing treaties. The Model Convention embodies the following principles: –– Exchange of information in individual cases and where a specific and justified case is made –– Maintenance of procedural protections –– Limitation of administrative assistance to individual cases –– Fair transitional solutions –– Limitation of the taxes covered by the agreement –– Subsidiarity principle in accordance with the OECD Model Convention –– Willingness to eliminate discrimination The efforts are aimed at improving the whole network of treaties in both qualitative and quantitative terms. Currently, Switzerland has 91 double taxation agreements with the following countries: 1 Source: EFD, April 2015
10 BASIC PRINCIPLES OF THE SWISS TAX SYSTEM
International double taxation agreements Albania Argentina Armenia Australia Austria Azerbaijan Bangladesh Belarus Bulgaria Canada Chile China Chinese Taipei Colombia Croatia Cyprus Czech Republic Denmark*
Ecuador Egypt Estonia Finland France Georgia Germany Ghana Greece Hongkong Hungary Iceland India Indonesia Iran Ireland Israel Italy
Ivory Coast Jamaica Japan Kazakhstan Korea (South) Kuwait Kyrgyzstan Latvia Liechtenstein Lithuania Luxembourg Macedonia Malaysia Malta Mexico Moldavia Mongolia Montenegro
Morocco Netherlands New Zealand Norway Pakistan Peru Philippines Poland Portugal Qatar Romania Russia Serbia Singapore Slovakia Slovenia South Africa Spain
Sri Lanka Sweden Tajikistan Thailand Trinidad and Tobago Tunisia Turkey Turkmenistan Ukraine United Arab Emirates United Kingdom** Uruguay USA Uzbekistan Venezuela Vietnam
* Including the expansion on the Faeroe Islands. ** United Kingdom: Great Britain, Antigua, Barbados, St. Christopher, Nevis and Anguilla, Dominica, Gambia, Virgin Islands, St. Lucia, Malawi, Montserrat, Zambia and St. Vincent Source: www.sif.admin.ch, April 2016
New agreements based on the OECD Model tax Convention have been signed with Albania, Belgium, Ghana, Italy and Oman but have yet to come into effect. Additionally, new agreements have been initialed with Costa Rica, Columbia, North Korea, Pakistan, Ukraine and Zimbabwe. Switzerland has also signed Tax Information Exchange Agreements (TIEAs), which govern the sharing of information, with: Andorra, Belize, Brazil, Grenada, Greenland, Guernsey, Jersey, The Isle of Man, San Marino, The Seychelles. An up-to-date overview of Double Taxation Agreements is available in English on the website of the State Secretariat for International Financial Matters: www.sif.admin.ch.
2.2.2
Latest developments
2.2.3
Methods for the prevention of double taxation
Several double taxation treaties amended to include the OECD guidelines have been approved by federal councillors and have come into force. Others have been signed or drafted and more will follow. One regulation was adopted in October 2010 in order to ensure a suitable legal framework was in place in time to deal with any instances of administrative assistance being sought. Amongst other stipulations, this covers preliminary examination of requests for administrative assistance, the provision of information in cases of administrative assistance, the rights of individuals in such cases, including the right to complain, and the exclusion of administrative assistance from cases of stolen bank records. This regulation will, in due course, be replaced by a law on administrative assistance in tax matters and govern administrative assistance in respect of other agreements which envisage the exchange of information relevant to tax matters. This includes, for example, the agreement on the taxation of interest receipts.
There are two principal methods for the elimination of double taxation, namely the exemption method and the credit method. Under the exemption method, the country of residence exempts from taxation those items of income and/or capital allocated to the source country. Exempted items may nevertheless be taken into account for the purpose of determining the appropriate rate at which any remaining income is to be taxed. Under the credit method, tax is payable on income or assets in both countries. However, the country of residence must credit the tax paid in the source country against its own tax. The current withholding tax rates between the partners of the double taxation agreements are available on www.estv.admin.ch.
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2.3 Measures to improve our competitive position on taxation (Corporation Tax Reform III) The arrival of the digital economy has increased businesses’ mobility. International competition in the field of corporate taxation is becoming more dynamic and more aggressive. When a business is looking for a new location, a favourable tax regime is top of the list of selection criteria. Those who don’t pass this test, exit the race at an early stage. Other factors such as quality of life, infrastructure and the overall business environment are important criteria but they often come into play only when the fiscal environment offers a company clear benefits.
2.3.1
Key business functions located in Switzerland
Switzerland and Schaffhausen lead the field when it comes to taxation. As a business location, our area is particularly attractive for holdings, domiciliary and mixed corporations since these structures benefit from attractive tax arrangements. The reason for the advantages accorded these types of company is that companies which generate their revenues primarily outside Switzerland place few demands on Swiss infrastructure and, in consequence, are not required to submit all of their profits to taxation in Switzerland. This exemption applies exclusively to cantonal and municipal taxation, however; tax is due in full at the Federal Government level. All corporations with international business activities and which generate the majority of their turnover abroad but maintain certain transferable core functions in Switzerland are able to benefit from these tax planning models. This includes corporate services such as international wholesale trading, corporate finance, collection of licencing fees and royalties, management of participations or the operation of a corporate headquarters. Detailed information on the taxation of these entities is set out in Chapter 4 «Special tax regimes». The combination of special tax arrangements for these types of entity, the availability of highly-skilled staff and the other benefits it has to offer as a business location make Switzerland an extremely attractive location for this type of easily transferable business activity. Over recent years, Schaffhausen has developed into a hub for such business functions. A number of foreign and domestic businesses have set up regional or international headquarters, creating many jobs locally. The hub in Schaffhausen often serves as the base from which activities in Europe, the Middle East or Africa are directed.
2.3.2
Latest developments
Corporate taxation has become a particular focus of international political interest. Intensive discussions are taking place in major forums including the OECD, the EU and the G20. The OECD action plan on BEPS (Base Erosion and Profit Shifting) which has gained the support of the G20 confirms this trend. In essence, national governments are keen to counter the exploitation of weaknesses in the international tax system by multinational corporations. A principal concern is how mobile capital is moved in order to reduce or avoid taxation. These developments are having an impact on international views of Switzerland’s historically low levels of corporate taxation. Responding to these developments, Switzerland has indicated its willingness to abolish some of the special tax models which have drawn criticism. In developing the measures known as Corporation Tax Reform III – Unternehmenssteuerreform (USR) III – the Federal Government and the cantons have joined forces to come up with a forward-looking package which complies with the OECD’s international standards. These «Measures to improve our competitive position on taxation» have three primary objectives: –– Strengthening Switzerland’s competitiveness by applying tax measures which are accepted by the international community –– Retaining the presence of companies already established in Switzerland –– Providing long-term legislative stability as a basis for corporate planning for all businesses in Switzerland and, by doing so, strengthening the appeal of Switzerland as a business location
12 BASIC PRINCIPLES OF THE SWISS TAX SYSTEM
2.3.3
Core content of Corporation Tax Reform III – USR III
In order to strengthen the country’s attractiveness as a business location, the USR III package of reforms contains a number of tax reduction measures. The Canton of Schaffhausen supports the planned measures. The core approaches are set out below: Patent box at cantonal level A patent box is a tax instrument designed to support businesses’ investment in innovation. Income from patents and similar IP rights receives preferential tax treatment. It is likely that the maximum relief for patent box revenues will be 90 percent at cantonal level. The models under discussion all reflect internationally accepted OECD approaches. Optionally, cantons may introduce an input incentive for R&D in the form of increased relief on R&D expenditure. This measure is designed to provide further stimulus for domestic R&D activity. Notional Interest Deduction – NID The taxation of profits classically allows the deduction of interest payments to a third party as a business expense which reduces the amount on which tax will be paid. When NID is used, in addition to deducting interest payments, notional interest on the company’s equity can also be deducted. This achieves parity of treatment between a company’s equity and third party capital (without taking into consideration the tax burden of the owner of the capital). Notional Interest Deduction can be applied to corporations including the in-country operating units of foreign-owned companies as well as to sole-trader and partnership entities. The purpose of this arrangement is in particular to ensure that Switzerland can offer a competitive alternative in the field of corporate financing. Disclosure of hidden reserves (Step-up Method) The proposed legislation includes comprehensive measures relating to the treatment of hidden reserves and self-generated goodwill. It is envisaged that disclosure of hidden reserves shall commence when an entity becomes subject to a tax regime e.g. when a company relocates to Switzerland or when assets or company functions are transferred to Switzerland from abroad. The hidden reserves in a tax-related balance sheet can be carried forward in subsequent years and off set in line with the standard rates of relief, with a limit of 10 years likely to be applied. Conversely, when exiting a tax regime, final settlement includes consideration of hidden reserves and appreciation in the value of assets. Changes to profits tax rates at cantonal level Whilst joint measures are being taken at national and cantonal level, each canton enjoys sovereignty in setting – or reducing – the level of its profits tax, irrespective of Corporation Tax Reform III. The Governing Council of the Canton of Schaffhausen has set a target to reduce the effective tax liability for all businesses to 12 – 12.5 percent. This step will be taken as part of the implementation of the Corporation Tax Reform III package. Removal of the tax on share issues At present, the Federal Government levies a tax of 1 percent on the issue of shares. A number of exceptions exist, including restructuring. The Federal Council and Parliament have both repeatedly emphasised their wish for this tax to be abolished. However, it is not considered a priority.
2.3.4
Prospects
Switzerland intends to continue to offer competitive corporation tax rates into the future. Any adjustments of the tax system need to observe international standards in order to guarantee long-term legislative stability to enable companies in Switzerland to plan their development. As a result of its advantageous overall capabilities, Switzerland finds itself in a robust starting position and can tackle the envisaged reform from a position of strength. The package of measures to strengthen Switzerland’s competitive position on tax will be passed in the Federal Parliament during the course of 2016. Unless the Swiss people calls for a referendum on the issue, the new national arrangements will probably take effect from 2019 at the earliest. The Canton of Schaffhausen is keen to adopt the necessary reform measures flexibly and as early as possible within the overall national framework.
TAXATION OF BUSINESSES IN CANTON SCHAFFHAUSEN 13
3 Taxation of businesses in Canton Schaffhausen 3.1 Impact of the type of legal entity on taxation2
„Thanks to the simple taxation system, you have more time to devote to your company.“
Switzerland has two types of legal entity. On the one hand there are corporations such as joint-stock companies, limited liability companies, limited partnerships and associations (designated AG, GmbH, Kommandit-AG, and Genossenschaft). On the other hand, and more prevalent among smaller and medium size companies, are sole proprietorships, cooperatives and partnerships in which no distinction is made between business and personal assets. The legal form of the business entity has significant impact on its taxation. Comparison of the tax applied to the two main types of business must also take account of how the owners of the business are taxed as individuals. In the case of sole proprietorships and partnerships, income from the business (profits, salary or interest on owners’ loans to the company) is subject to income tax along with any income derived from other sources. See section on income tax. The equity of the business is added to the individual’s other assets and subject to tax on net worth. See respective section tax on net worth for individuals. The profits and assets of the business are, therefore, taxed only once. Example: Sole proprietor Mr. Gates earns a profit of CHF 100,000.– from his business and has other income totalling CHF 10,000.–. The equity invested in the company is CHF 400,000.–. In addition, the entrepreneur also has private assets of CHF 50,000.–. For tax calculation purposes, the profits are added to income from other sources, amounting to a total of CHF 110,000.–. Similarly, the equity and other private assets are aggregated, totaling CHF 450,000.–. These totals form the basis for the computation of income tax and net worth tax respectively. In the case of corporations, these companies pay profits tax on profits generated by the business and capital tax on the equity (though this is levied only at cantonal and communal level). If the owners of the company are private individuals resident in Switzerland, resident in Switzerland, these must declare their equity as net worth and pay income tax on any capital gains. In consequence, the equity invested in corporations and dividends resulting therefrom are taxed twice. Example: Impot AG achieves profits of CHF 100,000.– and has equity of CHF 400,000.–. All shares belong to the owner of the business, Mr. Gates, and their market value is the net asset value. In addition to receiving dividend payments from Impot AG, Mr. Gates receives income from other sources to a value of CHF 10,000.– and has other assets worth CHF 50,000.–. Impot AG pays profits tax on profits and capital tax on the capital of the business. When Mr. Gates receives the distributed profit of CHF 100,000.–, this is added to his other income of CHF 10,000.– and subjected to income tax. (see section on halving tax on income from equity investment in business ventures below). In similar fashion, his assets and the company’s assets are aggregated (amounting to CHF 450,000.–) as the basis for calculation of his net worth tax liability. In spite of this double taxation, it cannot be inferred that the establishment of a business as a corporation is always disadvantageous. Considerations need to be weighed on a case-bycase basis and the relationship between shareholder and business entity taken into account. It should also be noted that the introduction of the halving of tax on income from equity investment in business ventures, introduced 01.01.2004, in Canton Schaffhausen, and since 01.01.2009 a 40 percent reduction on federal income tax have, together, led to a major reduction in the tax burden for entrepreneurs and private individuals who invest in the equity of business ventures. In the following sections, the focus is solely on corporations, since sole proprietorships and general partnerships are relatively rare in the field of inward investment.
3.2 Basic principles for computing taxable profit Tax on profits is calculated on performance in the respective business year. Tax on capital is calculated on values at the end of the tax period, the business year. Taxable profits are the balance of operating surplus and any tax adjustments. 2 Source: E.Höhn, R. Waldburger; Steuerrecht, Bd 1;9., revised and extended edition; published by Paul Haupt; Berne, 2001; p. 402 ff.
14 TAXATION OF BUSINESSES IN CANTON SCHAFFHAUSEN
Corporations resident in Switzerland and without facilities abroad are taxed on worldwide profits, excepting that part which is realized via real estate holdings abroad. Corporations resident in Switzerland with facilities abroad are taxed according to the proportion of profits achieved in Switzerland to overall worldwide profits. Corporations which are not resident in Switzerland i.e. which do not maintain facilities or branches there are taxed only on their profits from on-going activity there. A business is considered resident if its legal domicile is Switzerland or if it maintains business operations there. The following sections provide an overview of the factors for computing taxable profit.
3.2.1
Stock valuation
3.2.2
Provision for bad debts
3.2.3
Depreciation
Inventory is valued according to the principle of lower value i.e. the valuation is based on the lower of cost or market value. A flat-rate provision equivalent to one third of the value of inventory is allowed for a reduction in value.
A flat-rate provision equivalent to 5 percent of payments outstanding in the domestic market and 10 percent in the case of payments receivable from abroad can be made. This flat-rate takes into account all risks of losses arising from the pursuit of claims and which are not manifest at the time of valuation. Exchange rate risks in respect of payments owed by foreign sources are acknowledged by the 5 percent higher provision. In addition to these flat-rate adjustments, provisions may also be made for individual cases where circumstances justify it.
Depreciation rates Canton Schaffhausen Commercial premises excl. land 4% incl. land 3% Industrial premises excl. land 8% incl. land 7% Plant and equipment 30-40% Fixtures 25% Motor vehicles 40% IT-equipment 40%
The adjacent rates are used under the reducing-balance method. The rates are reduced by half if the straight-line method is used. If a purchase (fixtures, machinery, vehicles) is entered directly into the profit and loss account or booked as an asset and depreciated at 100 percent, the one-off depreciation procedure may be applied. For taxation purposes a one-off depreciation allowance of 85 percent for machines and furnishings and 90 percent for vehicles. IT installations, tools and equipment can be claimed. The retained value of the assets subject to the one-off depreciation procedure is CHF 1. This procedure can only be applied to new purchases and subsequent adjustments are not permitted. Example: One-off depreciation procedure Purchase of machinery CHF 100,000.– Depreciation charged to profit and loss account CHF 99,999.– Amount not available for taxation allowances CHF 15,000.– The effective depreciation for the purposes of calculating profits tax is therefore CHF 84,999.– The one-off depreciation procedure may therefore be utilized to reduce taxable profits particularly in years where there are higher than normal levels of profitability.
3.2.4
Replacement
3.2.5
Provision for major repairs
3.2.6
Warranty reserve
3.2.7
Provision for research and development
When assets such as plant and equipment are replaced by other assets which perform an operational role, the current hidden reserves can be transferred to the replacement. As long as the purchase of the replacement item does not take place in the same year, a provision can be made within the hidden reserves and used to depreciate the replacement item within 5 years.
Under certain circumstances, provisions for repairs to particular assets are permitted in addition to depreciation. However, it is important that no flat-rate amount for maintenance is claimed and that only the actual expenses for major repairs are recorded against reserves. One percent of the taxable value of an asset is allowed as an annual provision, but the total provision may not exceed 10 percent of the taxable value.
A flat-rate provision of 2 percent of annual sales to which warranties apply is allowed. Revenues generated from the sale of goods, provision of services or processing and delivery of orders and contracts are excluded.
Provision for future scientific or technical research and development can be included in the profit and loss statement to a ceiling of 10 percent of net profits or CHF 1 m.
15
3.2.8
Tax neutral company restructuring
3.2.9
Provision for employer contributions
Swiss tax law provides a flexible and attractive framework for many forms of corporate restructuring such as mergers, conversions of an AG into a GmbH, splits or spin-offs into several new companies, ownership swaps and the transfer of business assets within group companies. The fundamental principle is that restructuring operations are tax-neutral as long as the transfer of assets and liabilities is effected at book values for tax purposes and the tax base remains in Switzerland
Employer contribution reserves are pre-payments for ordinary contributions in respect of their personnel and which will become due at a future date. A reserve equivalent to five years’ contributions is permitted without detailed explanation being required. In order to prevent the provision being misused, the funds must be transferred to the respective agency. It is not sufficient to record the contributions as a provision in the accounts. In practice, the provision is permitted as long as the funds are transferred to the agency within 6 months of the end of the accounting year.
3.2.10 Tax loss carry forward
Losses can be carried forward for up to 7 years, provided they have not been offset against taxable profits in the preceding years. Where circumstances justify it in individual cases, profit adjustments beyond the general procedure above can be considered. Early contact with the tax authorities is advised to discuss the particular circumstances of each case.
3.3 Ordinary corporations 3.3.1
Basic principles for taxation of a company using the ‘ordinary procedure’
The most common forms of legal entity taxed as ‘ordinary companies’ are joint-stock and limited liability companies (designated GmbH and AG). A cooperative (Genossenschaft) is treated in the same way. The exceptions – the so-called ‘privileged corporations’, for tax purposes – are dealt with in subsequent sections. The legal entity is the tax-payer, whilst the object of taxation is, at federal level, profits and at cantonal and communal level both profits and capital. At federal level, the profit tax rate is currently 8.5 percent of profits after tax (NB tax itself is a taxable deduction from profit – see below). Cantonal and communal taxes are calculated using a common tariff of 5 percent, to which the individually-set cantonal and communal multipliers are then applied. The result is the total profit tax liability. Tax on capital is based on the tariff applied to capital – 0.1 percent – adjusted by the multiplier factor used to determine final tax liability due to the cantonal and communal authorities. Throughout Switzerland, taxes are viewed as a business expense and are, therefore, deductible. Taxable profit, as is the case with taxable capital, is calculated on the basis of profit, or capital, after tax. In Canton Schaffhausen, the result is an actual total tax liability of approximately 14.5-16.5 percent, rather than 19 percent of profits before tax, the result of adding the federal tax (set at 8.5 percent) and cantonal and communal tax (set at 10.5 percent).
3.3.2
Tax illustration – ‘ordinary corporation’
The following examples for 2016 illustrate the tax computation for a corporation in the town of Schaffhausen which does not enjoy special status for tax purposes – the so-called ‘privileged corporations’ – and does not have significant holdings in other business entities. The pre-tax profits are distributed in full. The calculation would be as follows:
16 TAXATION OF BUSINESSES IN CANTON SCHAFFHAUSEN
Tax illustration ‘ordinarily taxed’ corporation Assumptions
In CHF
Profits (before tax) 500,000 Capital (before tax) 500,000 Distributed profit 500,000 Calculation of federal tax Profits (before tax) 500,000 Federal tax liability 35,621 Calculation of cantonal- and communal tax Capital (after tax and distribution of profits) 419,070 Basic capital tax 419 Profits (after tax) 419,070 Basic profit tax 20,953 Total basic tax 21,372 * Multiplier (Canton SH 115%, Commune SH 97%) 212% Cantonal- and communal tax liability 45,309 Summary of total tax burden Federal tax 35,621 Cantonal and communal tax 45,309 Total tax liability in %
80,930 16,19%
Source: Tax calculator Canton of Schaffhausen, 2016
As can be seen, tax liability in the above illustrations is in the range 14.5-16.5 percent including capital tax, depending on the commune, since the communal multiplier varies from commune to commune.
3.3.3
Participation relief
If the ‘ordinary corporation‘ has a share – equivalent to at least 10 percent of the share capital of the participation or to a market value of CHF 1 m. – in another business, in addition to its other activities, it may benefit from relief, in which case a reduced rate of capital tax is applied to the equity invested in the participation. Relief also applies to dividends paid out if the recipient company has at least 10 percent of the share capital of the other company or if this share is valued at CHF 1 m. or more. The tax on profit is reduced in proportion to after-tax profits from these participations to overall profits. The costs of financing the participation as well as either a flat fee for management and administration equivalent to 5 percent, or the effective costs accounted for, can be deducted from the derived profits. Capital invested in the participation is taxed at 0.05 percent rather than the usual 0.1 percent. With effect from 01.01.2001, participation relief can also be applied to capital gains resulting from the sale of significant holdings, i.e. for holdings of more than 10 percent, as long as these have been held for at least one year.
17
3.4 Minimal and minimum tax 3.4.1
Minimal tax
Legal entities pay a minimal tax on real estate holdings in the canton instead of profits tax and capital tax, if this levy exceeds the value of the others. The basic rate of minimal tax is 0.075 percent of the value of the real estate holding. Newly formed legal entities are not subject to minimal tax in the first four years of operation as long as the new business is not the result of a transfer of business, and as long as the property primarily serves as premises for the business.
3.4.2
Minimum tax
If basic tax, either calculated via the ordinary process or via the minimal tax process outlined above totals less than CHF 200.– (or less than CHF 100.– in the case of cooperatives), a minimum tax of CHF 200.– (or CHF 100.– in the case of cooperatives) is levied. The cantonal and communal multipliers are then applied to this figure (e.g. Schaffhausen 2015: (115 percent + 97 percent)*CHF 200.– = i.e. a total tax liability of CHF 424.–). Holdings, domiciliary and mixed companies are not subject to the minimal tax. In any case their minimal basic tax on capital is CHF 100.–. The cantonal and communal multipliers are then applied to this figure as illustrated in the example above.
18 SPECIAL TAX REGIMES
4 Special tax regimes Taxes are an important cost factor. Swiss tax law provides many ways of cutting these costs. At cantonal level in particular the following tax regimes exist and result in attractive tax-rates in comparison to other jurisdictions around the world: –– Holding company –– Mixed company –– Domiciliary company These tax-planning models remain available until the package of measures known as Corporation Tax Reform III is implemented in some years‘ time.
4.1 Holding companies 4.1.1
Requirements
4.1.2
Participations
Tax legislation for holding companies serves to reduce the multiple taxation of dividend payments, generated via financial participation in affiliated companies. Without this relief, the profits of the companies involved would be subject to at least threefold taxation. A holding company is a joint-stock company, limited liability company or cooperative (designated AG, GmbH or Genossenschaft) whose main purpose is the management of participations in other corporations. The following requirements must be met for the so-called holding privilege to apply: –– the statutory purpose of the business is principally the on-going administration of financial participations in other corporations or cooperatives; –– at least 2/3 of the assets are long-term participations (including diversified holdings). Valuation may be at cost or market-value; –– alternatively, 2/3 of income must be derived from dividends.
Participation includes all types of shares (ordinary shares, participation certificates, shares in limited liability companies and cooperatives) and long-term loans to subsidiary companies. Foreign participations are judged according to Section 20, Paragraph 2 of the law on holding companies. Shares in the equity of a US Limited Liability Company (LLC) which may be considered an independent legal entity, depending on the state in which it is domiciled, also qualify, since these are viewed as equivalent to a Swiss limited liability company (GmbH). Shares in sole proprietorships or partnerships do not qualify as participations, however. The same applies to debentures, bonds, internal loans, hybrid financing instruments as well as shares in Swiss or foreign investment funds and associated management companies.
4.1.3
Scope of business activity in Switzerland
A further criterion which must be met in order to qualify for privileged taxation is that the holding company must not pursue any in-country industrial or commercial activity e.g. as producer of goods or services with the intention of generating income. Activities which do not disqualify from the holding privilege, however, include: –– Activities relating to the management of participations –– Corporate management –– Operation of financial and accounts functions –– Support services and consultancy for the corporation –– Strategic development The management of intellectual property rights is only allowed as a subordinate activity if it is marginal in comparison to activities relating to the holding and is limited to passive income. Should the conditions for the holding privilege no longer be met in the short-term, the cantonal tax authorities will agree a deadline by which full compliance must be restored. In the interim, the holding privilege will be maintained, however.
19
Foreign ‘parent’ holding Swiss subholding established to manage participants.
Swiss Holding
Subsidiary 1 (100% holding)
Subsidiary 2 (80% holding)
Subsidiary 2 (50% holding)
Diverse holdings
Illustration of a possible holding company structure Source: Economic Promotion Canton of Schaffhausen
4.1.4
Taxation illustration – holding company
The holding privilege exempts corporations from cantonal and communal taxation of profits. Whilst this does not apply at federal level, holding companies can benefit from the same relief as ordinarily taxed corporations – the so-called ‘participation deduction’ – on dividends from subsidiaries in which they have a significant holding. Capital is only taxed – at a considerably reduced rate – at cantonal and communal level, not at federal level.
Tax illustration – holding company Assumptions
In CHF
Profits (before tax) 5,000,000 Capital (before tax and distribution of profits) 100,000,000 Gross return from participations (dividends) 4,500,000 Calculation of federal tax Profits (after tax) 4,938,076 Basic tax 419,736 ./. Participation deduction acc. Art. 69 DBG 86.572% Federal tax liability 56,362 Calculation of cantonal and communal tax Capital (before tax and distribution of profits) 104,938,076 Total basic tax 2,624 * Multiplier (Canton SH 115%1, Commune SH 97%) 212% Cantonal and communal tax liability Summary of total tax burden Federal tax Cantonal and communal
5,562 56,362 5,562
Total tax liability
61,924
Source: Tax calculator Canton of Schaffhausen, based on a holding company located in Schaffhausen, 2016
The tax liability of the corporation in the illustration above is just CHF 61,924.–. If 100 percent of profits were derived from participations, the federal tax liability would be further reduced by claiming the participation relief. The total tax liability including capital taxes would thus amount to less than CHF 25,000.–.
20 SPECIAL TAX REGIMES
4.2 Domiciliary companies 4.2.1
Requirements
Article 79 of the tax law describes domiciliary companies as corporations – joint-stock companies, limited liability companies and limited partnerships (designated AG, GmbH, and Kommandit-AG), cooperatives and other legal entities – which have administrative operations in Switzerland but which do not pursue business activity in the domestic market. Foreign corporations can also claim taxation as a domiciliary company for their permanent establishments or branches in Switzerland, subject to certain conditions. Pure domiciliary companies are not allowed to employ staff or maintain infrastructure, e.g. offices, in Switzerland. They may have holdings in affiliated companies, however, as long as this represents only a subordinate business activity. Management activity is primarily considered to be the administration of the corporation’s own assets. Permitted support and consultancy services may include the management of intangible rights, the transfer of know-how, invoicing and collection services, as long as these are carried out without staff and without offices in Switzerland and as long as the company does not derive revenue from in-country activities. The criteria of management and administration in Switzerland with business activity abroad are also met in cases where operations are performed in line with instructions from abroad but without relevance to the Swiss marketplace e.g. trading operations in which both purchase and sale take place abroad. By contrast, production activities, trade, the supply of services, acting as a trustee, acquisitions, the purchase and brokerage of companies are all considered as business operations and therefore disqualify from the domiciliary company privilege.
4.2.2
Basis of tax calculation
For domiciliary companies, taxable profit is calculated separately for domestic and foreign income and expenditure. No profits tax is levied on domestic or foreign participations or capital gains or profits from revaluations. Participation is defined as a 10 percent share of the equity of another corporation. For capital gains purposes, the participation must have been held for at least one year. Administration and management charges and the costs of financing, as well as any losses, are deducted from income. Calculation of the cost of financing is based on the proportion of book-value of the holdings or the book-value of overall assets. An overall loss from holdings in affiliated companies cannot be offset against profits from Swiss or foreign sources. Other income derived from Switzerland Other sources of income derived from Switzerland include those arising from the management activity in Switzerland, investment income and capital gains from debtors in Switzerland, as long as these are not attributable to the company’s participations. For example: –– Investment income (interest charges paid by Swiss debtors, dividends and capital gains) from Swiss sources –– Fees paid by Swiss companies for the performance of support services –– Trustee’s fees –– Income from intangible rights (license and trade mark fees) from Swiss sources –– Revenues such as interest and royalties covered by double taxation agreements but for which taxation in Switzerland is required –– Revenues from real estate holdings in Switzerland. Expenditure relating to these revenues is deducted and the balance is taxed according to the ordinary process. Other income derived from sources abroad Other income from sources abroad includes revenues from foreign-source business activity and receipts from foreign debtors. Net profit generated abroad is taxed in proportion to the significance of the management activity in Switzerland. Domiciliary companies which maintain neither personnel nor infrastructure, i.e. offices, in Switzerland are not taxed on foreign-source income.
21
4.2.3
Taxation illustration – domiciliary company
Schaffhausen offers a very attractive tax regime for corporations which qualify for taxation as a domiciliary company. The following illustration is based on a pure domiciliary company which has neither staff nor offices in Switzerland. As a result, taxation on profits at cantonal and communal level is limited to Swiss-source in-come. The example given is also based on the observation of real case-studies of corporations which have already relocated to Schaffhausen and assumes no real estate holding and no significant participation in affiliated companies, which would trigger the ‚participation deduction’. Overall, a domiciliary company faces an effective tax burden of approximately 8 percent, which represents an extremely low rate, by any international comparison. Since taxes themselves are treated as business expenses, the illustration requires further iteration, which has been left out of the above overview in the interest of simplicity.
Tax illustration – domiciliary company Assumptions
In CHF
Profit (before tax) 10,000,000 from foreign sources 9,900,000 from swiss sources 100,000 Capital (before tax and profit distribution) 1,000,000 Distributed profit 9,000,000 Calculation of federal tax liability Profit (before tax) 10,000,000 Federal tax liability Calculation of cantonal and communal tax liability Capital (before tax and profit distribution) Basic tax on capital Profit of which CHF 9,900,000.– at 0% of which CHF 100,000.– at 100% Taxable profit (before tax) Basic tax on profits Total basic tax * Multiplier (Canton SH 115%, Commune SH 97%)
782,629 1,207,399 100 10,000‘000 0 100,000 100,000 4,604 4,704 212%
Cantonal and communal tax liability Summary of total tax burden Federal tax Cantonal and communal tax
9,972 782,629 9,972
Total tax liability
792,601
Source: Tax calculator Canton of Schaffhausen for City of Schaffhausen, 2016
4.3 Mixed companies 4.3.1
Requirements
Article 79 of the tax law defines a mixed company as a corporation (joint-stock, limited liability company or limited partnership, designated AG, GmbH or Kommandit-AG,) whose business activity is primarily related to business abroad and for whom business conducted in Switzerland is of a secondary nature. Foreign corporations can claim taxation as a mixed company for their branches in Switzerland, as long as the above criteria are met. By contrast with domiciliary companies, which do not pursue business activity in Switzerland, mixed companies may conduct business in Switzerland. However, the business activity must relate to operations outside Switzerland. Manufacturing activities in Switzerland are not permitted.
22 SPECIAL TAX REGIMES
4.3.2
Operation of a mixed company
Taxation as a mixed company is primarily an option for international active companies. To qualify as a mixed company, the organization’s business activity must be performed predominantly outside Switzerland. The qualifying threshold is 80 percent of gross revenues generated and 80 percent of expenditure incurred, whether directly or via third parties, are outside Switzerland. If these criteria are met, foreign earnings are taxed in proportion to the volume of domestic business activity generally at a rate of 10-20 percent at cantonal level. Swiss-source income is taxed at the ordinary rate. The proceeds from participations such as capital and revaluation gains are tax-free. At federal level, the ordinary process is utilized, though the so-called ‘participation deduction’, outlined previously, can be claimed.
France
Market for goods (Sale agencies)
Germany
Producer of goods (group company)
flow of goods
Partial flow of capital flow of capital
flow of goods
Switzerland
Mixed Company (international purchasing and sales organization)
Market for goods (Sale agencies)
flow of capital
Example of operation of a mixed company Source: Economic Promotion Canton of Schaffhausen
4.3.3
Tax Calculation
For mixed companies, taxable profit is calculated separately for domestic and foreign income and expenditure. Firstly, the taxable profit of the corporation is established. Net income from participations is tax free and is thus excluded. Net losses from participations can only be offset against net income from the same. Then, Swiss-source income derived from real estate, other Swisssource income and income governed by double-taxation agreements which is taxable at cantonal level is also excluded. The result (operating profit) shows the share of profits attributable to the domestic turnover and that derived from foreign sources. Mixed companies are not subject to profits tax on income from Swiss-based or foreign participations, nor on capital or revaluation gains. To qualify as a participation, the holding must be at least 10 percent of the equity of the other company or have a market-value of CHF 1 m. For capital gains purposes, the participation sold must have been owned by the corporation for at least one year. Management and financing costs, as well as capital losses, are deducted from income. Financing costs are allocated in proportion of the book-value of the participation to the book-value of total assets. An overall loss resulting from participations cannot be offset against profits from Swiss or foreign sources. Other income derived from Switzerland Other sources of income derived from Switzerland include those arising from the management activity in Switzerland, investment income and capital gains from debtors in Switzerland, as long as these are not attributable to the company’s participations. For example:
23
–– Investment income (interest charges paid by Swiss debtors, dividends and capital gains) from Swiss sources –– Fees paid by Swiss companies for the performance of support services –– Trustee’s fees –– Income from intangible rights (license and trade mark fees) from Swiss sources –– Revenues such as interest and royalties covered by double taxation agreements but for which taxation in Switzerland is required –– Revenues from real estate holdings in Switzerland Expenditure relating to these revenues is deducted. The cost of financing is allocated in proportion to the book-value of the respective assets to the book-value of overall assets. Domestic-source income is taxed using the ‘ordinary process’. Other income derived from sources abroad Taxable profits in Switzerland are calculated separately for domestic and foreign income and expenditure. Firstly, the overall taxable net profit of the corporation is established. Profits from Swiss-source activity is excluded. This is subject to taxation in Switzerland. The income from participations, which is tax-free, is also excluded. Net losses from participations cannot be offset against profits from Swiss or foreign sources. The resulting profit from foreign sources is taxed in proportion to the scale of activity in Switzerland (taxable quota of non-domestic activity). This reflects the scale of the corporation’s operations in Switzerland and the degree of economic relevance to Switzerland of the foreign income. The tax rate for foreign-source income is usually 10-20 percent.
4.3.4
Taxation illustration – mixed company
The illustration which follows is based on the purchasing company of an international corporation which sources material for the group in the whole EMEA region (Europe, Middle East and Africa). The material is purchased in various countries and delivered to group facilities throughout Europe. As a result, only a small proportion of the goods directly affects Switzerland and thus the requirements for taxation as a mixed company are met.
Tax illustration – mixed company Assumptions
In CHF
Profits (before tax) 10,000,000 of which, foreign-source 9,900,000 of which, swiss-source 100,000 Capital (before tax and profits distribution) 10,000,000 distributed profit 9,000,000 Calculation of federal tax Profits (before tax) 10,000,000 Federal tax liability 775,114 Calculation of cantonal and communal tax Capital (after tax and profits distribution) 10,118,989 Basic capital tax 253 Profits (before tax) 10,000,000 of which CHF 9,900,000.– at 10% (foreign-source) 990,000 of which CHF 100,000.– at 100% (swiss-source) 100,000 Taxable profits (before tax) 1,090,000 Basic profits tax 49,699 Total basic tax 49,951 * Multiplier (Canton SH 115%, Commune SH 97%) 212% Cantonal and communal tax liability Summary of total liability Federal tax Cantonal and communal tax
105,897
Total tax liability
881,011
Source: Tax calculator Canton of Schaffhausen for City of Schaffhausen, 2016
775,114 105,897
24 TAXATION OF PRIVATE INDIVIDUALS IN CANTON SCHAFFHAUSEN
5 Taxation of private individuals in Canton Schaffhausen 5.1 Principles of taxation of individuals
„The wide range of personal allowances means your individual circumstances will be well catered for.“
Private individuals resident or temporarily resident in Switzerland are subject to taxation at the 3 administrative levels – national/federal, cantonal and communal. The basis for calculation of income tax is total worldwide income; revenues derived from foreign property holdings and investment in immovable property is only used to determine the applicable tax-rate. Tax on net worth is calculated on the same basis. An individual is subject to taxation if their legal domicile is in Switzerland or they are temporarily resident there for 30 days and in gainful employment, or for 90 days or more without pursuing gainful employment. The taxation period begins on the day of arrival in Switzerland. Tax liability in Switzerland is determined by the individual’s domicile, for tax purposes, on the 31st December of the respective year. Direct taxation for individuals is levied at set intervals. The tax period is the calendar year. Taxes for the current year are provisionally due during the year but are settled in full in the following year.
5.2 Income tax Income tax is payable to the national i.e. federal, cantonal and local i.e. communal authorities. Tax is levied on total income, without differentiation between the individual sources of income. Individuals have to declare their income derived from employment and self-employment, any compensatory or secondary income as well as income derived from movable and immovable assets. In Canton Schaffhausen, married couples are taxed according to the principle of family taxation. This means that the income of the couple in a joint household is aggregated and any income earned by juniors is added to the income of the guardians. The exception to this ruling is any income of juniors derived from gainful employment, which is taxed separately.
5.2.1
From gross income to taxable income
Expenditure incurred in the course of earning income can be deducted from gross income and offset at federal, cantonal and communal level. Qualifying expenses include: –– Travel costs between home and place of work –– Subsistence costs –– A flat-rate allowance for direct costs related to one’s vocational or professional activity –– Costs of continual professional development and training –– Costs incurred through working away from home during the week –– Expenses relating to secondary jobs or occupations Furthermore, expenditure on items such as interest payments on mortgages, an allowance for households in which both parties are in gainful employment, administration and management fees for securities and investments, donations to charitable causes and political institutions can also be offset against tax. Additionally, contributions to welfare provision such as AHV/IV/EO (compulsory pension and surviving dependants insurance, incapacity insurance and unemployment insurance) as well as payments into personal and company pension plans and the so-called Pillar 3a retirement savings plan and a flat-rate deductible for insurance schemes, e.g. health insurance and other mandatory insurance contributions, can be offset against tax. This last category includes various social deductions, which are outlined in the following table.
25
Social deductions in Canton Schaffhausen Social deductions in CHF
Canton Schaffhausen
Allowance per child 8,400 Allowance for other dependants 1,300 Married couples allowance -- Allowance for second income 800 Other reliefs Single persons: max. 4,700 (pensioners) max. 2,350 (all others) Married persons: max. 9,400 (pensioners) max. 4,700 (all others) Childcare allowance Effective costs max. 9,400
National Government 6,500 6,500 2,600 50% of the lower income, min. 8,100, max. 13,400 --
-10,100
Source: Tax Law Center Canton of Schaffhausen, 2016
Tax liability is calculated following the process outlined above which moves from gross to taxable income.
5.2.2
Calculation of income tax
In spite of a common basis for federal and cantonal taxation, variations in taxable income can arise due to differences in the structure and level of allowances. There are two basic tariffs at federal level for married couples and singles. On cantonal level – there is only one tariff – married couples benefit from a splitting factor (1.9) which reduces their tax burden remarkably. Federal tax follows a progression which extends in linear fashion once the threshold of CHF 896,000.– (married tariff) or CHF 755,300.– (single tariff) has been reached. In Canton Schaffhausen the tax rate follows a similar progression up to an income level of CHF 210,100.–. Beyond that, the tax rate is linear. Example: Mr. Levy is a salaried employee of a company in Neuhausen and receives a gross salary of CHF 85,000.–, from which 4 percent are deducted as contributions to pension provision. He is single, protestant, and lives in Neuhausen, by the Rhine Falls. The following tax illustration is based on minimal deductions:
Example calculation income tax In CHF
Canton Schaffhausen
National Government
Gross income 85,000 Deductions/Allowances 13,694
85,000 13,894
Taxable income Tax rate
71,300 6.785%
71,100 1.482%
Basic tax liability Cantonal taxation 115% Communal taxation 98% Church tax prot. 13% Personal tax
4,838 5,564 4,741 629 60
1,054
Total tax due
12,048
Source: Tax calculator Canton of Schaffhausen, 2016
The respective tax-rate is applied to the taxable income. This results in the basic tax sum. Cantonal tax liability is calculated by applying the multiplier for Canton Schaffhausen and the multiplier for the respective commune i.e. local authority district in which the taxpayer is resident. Finally, a flat personal tax of CHF 60.– is added, of which half is paid to the canton and half to the communal administration. Families are taxed at even more modest rates than a single person household, outlined above, and benefit from additional allowances which can be brought to bear and lead to a significant reduction in total tax liability.
26 TAXATION OF PRIVATE INDIVIDUALS IN CANTON SCHAFFHAUSEN
Total tax liability in local authority districts in Canton Schaffhausen Residence
50,000 100,000 150,000 250,000 500,000 1,000,000
Schaffhausen Neunkirch Stein am Rhein Stetten
246 246 242 215
6’237 16’232 6’238 16’232 6’142 16’010 5’230 13’880
47’692 134’933 47’693 134’934 47’133 133’471 41’781 119’479
293’388 293’388 290’369 261’479
Source: Tax calculator Canton of Schaffhausen, 2016, based on a family with 2 children, pension fund contribution 5 percent, incl. federal tax, normal deductions
The examples shown indicate a family’s tax payment will amount to between 0.4 and 29.2 percent of gross income. However, it must be remembered that once a certain income level has been reached, tax liability falls in proportion to increasing income. In almost all cases, further deductions, not included in the rudimentary overview presented above, can be brought to bear, which can lead to additional four-figure savings in tax payable.
5.3 Tax on net worth of individuals In contrast to the federal i.e. national government, all cantons and communes, i.e. local authority districts, levy a tax on the net worth of individuals. As set out previously, the cantons enjoy autonomy in matters of taxation and design their own tax regimes. This results in considerable variations and innovations in the approach taken by the different cantons and in effect constitutes a ‘tax marketplace’ within Switzerland. In general, tax is applied to the total net worth of the individual. This includes all of the assets and rights which the taxpayer owns or benefits from. Taxable assets include movable assets such as securities, bank deposits, motor vehicles, and immovable objects such as real estate, life assurance and retirement pension schemes as well as assets invested in a business.
5.3.1
From total net worth value to taxable net worth
The basis of assessment for tax is net worth i.e. the gross net worth of the taxpayer after deduction of total debt. Various flat-rate social allowances can be applied to reduce liability. These are currently: –– Married couples CHF 100,000.– –– Other taxpayers CHF 50,000.– –– Additionally, for each dependent child CHF 30,000.– Taking into account all debts (primarily mortgage payments for one’s home) and the social deductions listed above, the taxable net worth is frequently no longer subject to tax or taxed at only very low rates.
5.3.2
Calculation of tax on net worth of individuals
The calculation is based on three factors: –– Taxable assets, –– Tariff, –– Multiplier applied by canton and commune i.e. local authority district.
In Canton Schaffhausen, the tax rates applied are progressive up to qualifying net worth of CHF 1 m. and linear where qualifying assets exceed CHF 1 m.
27
Tax on assets in the local authority district of Stetten
Example: Mr. Fox has a family with 3 children and lives in his own home on the southerly slope of a hill in the commune of Stetten from where he enjoys views of the Alps and proximity to the town of Schaffhausen. His detached house and other taxable assets have a gross value of CHF 1.2 m. Mr. Fox has financed his house purchase via a capital down payment and a mortgage of CHF 700,000.–. This results in a tax liability for 2016 as set out in the table on the left side:
5.4 Halving of tax on dividends and impact on entrepreneurs
In CHF
Gross assets 1,200,000 Mortgage 700,000 Net assets 500,000 Social & child Allowances 190,000 Taxable assets 310,000 Tax rate 0.1354% Basis for cantonal tax 420 Cantonal tax Multiplier 115% 483 Local authority District multiplier 62% 260 Church tax multiplier 11% 46 Personal tax 60 Total tax due
849
Source: Tax calculator Canton of Schaffhausen, 2016
The profits of a legal entity are frequently subject to multiple taxation before they reach the owner of the business. The levying of taxes on both profits and dividends represents a twofold imposition of tax on business activity. This tends to result in a very conservative approach to the use of dividends among small and medium sized businesses. Canton Schaffhausen is one of the few cantons which has reduced this double burden on business owners and private individuals with significant holdings in business ventures. The effect of this measure is a considerable reduction in tax liability for the beneficiaries and recognizes the important contribution of those who create wealth in our economy. Dividend payments and the tax value of the share holding are taken into account. A significant holding at cantonal and communal level occurs when the taxpayer owns at least 10 percent of the equity. If these criteria are met, dividends received are taxed at only half of the rate applied to the taxable income. As of 01.01.2009 partial relief of tax on dividends has been introduced at federal level. Only 60 percent (private property) or 50 percent (business property) of dividends and related income are subject to tax if a minimum of 10 percent of a company’s equity is owned by the respective tax payer. Example: Mr. Smiley is sole shareholder of his joint-stock company (designated AG) which produces tranquilizers. Mr. Smiley owns all the equity in the business. The tax value is CHF 20 m. Mr. Smiley also pays himself a salary of CHF 500‘000.–, from which CHF 25’000.– are deducted as contributions to pension provision and a dividend worth CHF 1 m. Mr. Smiley is married and has 2 children and lives in Schaffhausen (5 percent pension fund contributions, protestants). His tax liability is calculated as follows:
Example halving of tax on dividens In CHF
Income
Allowances Tax rate based on Total taxable Taxable at normal rates Tax rate Basic tax Taxable at preferential rate Tax rate Basic tax
Asset
78,094 160,000 1,421,900 19,840,000 1,421,900 19,840,000 421,900 9.900% 0.230% 41,768 1,000,000 4.950% 49,500
Total basic tax Total basic cantonal tax Cantonal tax (multiplier) Communal tax (multiplier) Church tax (multiplier) Flat rate personal tax Total cantonal and communal tax due
91,268 115% 97% 13%
45,632 136,900 157,435 132,793 17,797 60
308,085
Source: Tax calculator Canton of Schaffhausen for the town of Schaffhausen, 2016 (excl. federal tax of CHF 117’006)
The total tax sum of about CHF 425,091.– (consisting of federal tax of CHF 117,006.–, and cantonal and communal tax of CHF 308,085.–) covering both gross income and net worth amounts to less than 28 percent, including mandatory social insurance payments and pension fund contributions of around CHF 25,000.–. Deductions and allowances outlined in the section ‘From gross income to taxable income’ would reduce tax liability by a further five-figure amount.
28
TAXATION OF PRIVATE INDIVIDUALS IN CANTON SCHAFFHAUSEN
337’118
290’082
267’360
Income tax 2016
The introduction of this halving of taxation on dividend payments clearly differentiates Schaffhausen from other European countries and also gives it a clear lead among the cantons which are part of the Greater Zurich Area as an attractive tax domicile for successful entrepreneurs and private individuals with significant holdings in the equity of business ventures.
5.5 Lump-sum payments from pension savings
Zürich 2016
Thurgau 2016
Schaffhausen 2016
Tax burden in CHF
The handling of lump-sum payments from pension schemes and the so-called Pillar 3a funds represents a further area of considerable tax advantage for residents of Canton Schaffhausen. Contributions to these two savings schemes are not taxed. Tax is levied when funds are drawn from these sources.
Tax comparison for entrepreneurs (cantonal & communal taxes) Assumptions: CHF 2 m. taxable income, of which CHF 1.6 m. from dividends; Residency in the principal town, cantonal and communal taxes at married person‘s rate, protestant (excl. federal tax of CHF 156,401).
The purpose of these schemes is provision of a pension. As a result, the accumulated value of the schemes can only be paid out under certain conditions. The criteria are either that the legal minimum age of 60 (men) respectively 59 (women) has been reached, or that the funds are to be used to purchase one’s own home. If either of these conditions is met, the funds, frequently amounting to six- or seven-figure sums, can be paid out. In Canton Schaffhausen, these are subject to very modest levels of taxation. Tax liability is calculated on the amount paid out and an allowance equal to 80 percent of the ordinary income tax liability on that amount. Example: In retirement, Mr. Senior, who is married and protestant, draws the full amount of the pension fund he has accumulated during his years of employment – CHF 850,000.–. This, together with payments from AHV (the compulsory pension and surviving dependants insurance fund into which Mr. Senior had paid) and his other savings are to finance his retirement. The tax liability on CHF 850,000.– is just CHF 57,280.– for Mr. Senior, who lives in the town of Schaffhausen itself. The pension arrangements for senior executives can result in very large payouts, which, in turn, can be significantly affected by the different tax rates applied to these by different cantons (see table below ).
Source: Cantonal tax calculators 2016
It is recognized that senior post holders (to some extent also non-senior post holders) will incur expenses relating to their role in representing their organization, acquiring clients and developing business relationships. It is accepted that it may be difficult or impossible to provide receipts for all expenses incurred. To simplify this process, an annual flat-rate allowance for senior post holders has been agreed. The allowance covers all individual items of expenditure which do not exceed CHF 50.–. Each item or transaction is considered separately. As a result, senior post holders taking advantage of a flat-rate allowance cannot claim relief on minor expenses of less than CHF 50.– per item or transaction.
52’600
41’976
Tax burden in CHF
107’003
Lump-sum payments from pension funds 2016
5.6 Additional expense allowance for senior post holders
Source: Cantonal tax calculators, 2016
Zürich 2016
The level at which the allowance is set depends on the role and salary of the post holder and is agreed on an individual basis with the Cantonal Tax Administration (Kantonale Steuerverwaltung).
Thurgau 2016
Assumptions: CHF 1 m. paid out; Residency in the principal town, cantonal and local authority tax-rate for married couples, no church tax (excl. federal tax of CHF 23,000)
Schaffhausen 2016
Comparison of the taxation (cantonal an local authority taxes)
The following are the main types of expenditure considered to be minor expenses for the purposes of the flat-rate allowance: –– Hospitality for business partners at a restaurant or at home (excl. catering service) –– Presents for a host, e.g. flowers, alcohol –– Snacks (the costs for lunch and dinner whilst on business trips can be offset against tax, however) –– Tips and gratuities –– Post and telephone charges, business calls made from a home or personal phone –– Hospitality or gifts to staff –– Subscriptions to business associations or clubs –– Additional expenditure incurred for or with clients, without a receipt –– Minor expenditure incurred in relation to meetings or appointments –– Tram, bus, taxi, car-parking charges –– Local business trips in own vehicle (within a radius of 30km) –– Charges for porters, cloakroom services, garment laundry or cleaning
WITHHOLDING TAX, EXPATRIATES AND CROSS-BORDER WORKERS 29
6 Withholding tax, expatriates and cross-border workers3 6.1 Characteristics and application of withholding tax
„Cross-border workers and expatriates benefit from special arrangements.“
Withholding tax applies to two significant categories of taxpayers. On the one hand, it applies to individuals who do not possess a Type C Residence Permit but who are living in Canton Schaffhausen or are living in the canton and in paid employment there. It also applies to employees who are not resident in Switzerland and who are working for an employer in the canton for only a limited period, or as a weekend-commuter or as a cross-border worker. Legal entities with no tax domicile in Canton Schaffhausen may also be subject to withholding tax. Tax deducted at source, which is collected by the employer or other recipient of the taxable services provided by the individual, replaces the taxes levied via the ordinary procedure at federal, cantonal and communal level and may also cover church and fire-brigade tax. The tax is generally calculated on the basis of gross income and the rate applied depends on the type of taxable service provided. The terms of international double taxation agreements between Switzerland and other countries may stipulate changes to the process outlined above, however.
6.2 Foreign nationals domiciled in Switzerland All foreign employees domiciled in Switzerland but not in possession of a residence permit are subject to with-holding tax. This taxation at source is calculated on gross income, including any subsidiary income and payment in kind, or sources of income and benefits such as subsistence allowances paid by health, accident or unemployment insurance etc. The tariff provides for flat-rate allowances for professional expenses, insurance premiums and family expenses. Taxation at source is not subject to further process or adjustment unless the taxable services provided exceed the current threshold of CHF 120,000.–, in which case a final tax assessment is carried out using the ordinary procedure. Tax deducted at source is then credited against the final tax liability calculated via the ordinary procedure. Married couples living together, if one of these is a Swiss national, are exempted from withholding tax and are subject to taxation using the ordinary procedure.
6.2.1
Criteria for expatriate status
Executive level and specialist staff who are deployed to an assignment in Switzerland on a temporary basis are able to claim tax-relief on expenditure incurred, subject to certain conditions. Each of the following criteria must be met: –– The period of deployment to Switzerland must not exceed 5 years –– Salary payments must reflect age, experience and personal circumstances e.g. family dependents –– Proof of retention of a residential property in the employee’s country of origin (i.e. the country from which they were assigned to the role in Switzerland by their employer) The entitlement to treatment as an expatriate for tax purposes ceases when temporary employment is replaced or super ceded by a permanent position.
3 Source: SSK, Withholding Tax, 2009, pp. 1-48 (Chapters 1-3)
30 WITHHOLDING TAX, EXPATRIATES AND CROSS-BORDER WORKERS
6.2.2
Deductable expenses for expatriates
The following expenses incurred by expatriates may be offset against tax: –– Removal costs to and from Switzerland at the start and end of the period of deployment to Switzerland. Similarly, the travel costs of the expatriate and their family at the start and end of the period –– Reasonable accommodation costs incurred in Switzerland. However, proof must be provided that a permanent residence abroad is still being maintained –– The costs of school-age children attending a foreign-language private school, where local state-funded schools cannot offer suitable educational provision Instead of identifying the specific removal and accommodation costs referred to above, (sections 1 + 2, subsection 1), a flat-rate allowance of CHF 1,500.– per month can be claimed. In addition, tax-relief can be claimed for the costs of school-age children attending a foreign-language private school, where local state-funded schools cannot offer suitable educational provision. School age is taken to be up to 18 years of age or completion of the high school phase Items on which tax-relief can be claimed include: –– School fees –– Transport and associated costs for the children These costs must be itemized and evidence provided. Tax relief may also be claimed on work-related expenditure incurred by the employee, which is not refunded by the employer or which is paid as a lump-sum. In the case of a lump-sum allowance, this must be added to the gross salary calculation. Reimbursement of work-related expenses must be recorded in the employee‘s salary-slip.
6.3 Individuals and legal entities not domiciled or resident in Switzerland These taxpayers are domiciled abroad and are therefore only subject to limited tax liability in Switzerland. Only the part of their income derived from Swiss sources is liable to tax. This tax deduction at source is not solely limited to foreign nationals, but may also be applied to Swiss nationals resident abroad or legal entities abroad. This taxation applies in particular to: –– Non-resident employees (regardless of their nationality) who pursue gainful employment in Switzerland –– Non-resident employees with international transport companies who perform work for an employer with a head office or branch in Switzerland –– Non-resident artists, athletes or consultants for income from their personal activity in Switzerland –– Non-resident beneficiaries of social payments who receive pensions, payments and other financial support from Swiss private or public welfare institutions –– Non-resident members of the management or supervisory board of a company who receive royalties, attendance allowances, fixed remuneration or similar compensation from Swiss companies or from foreign businesses with branches in Switzerland –– Non-resident creditors or beneficiaries of claims which are secured by mortgages or pledges on real estate in Switzerland
31
6.4 Tariffs Withholding tax includes all direct taxes such as federal, cantonal and communal taxes, church tax and the flat-rate personal tax. All expenses incurred, as well as social allowances, especially allowances for children, are taken into account when the tax burden is calculated. There is a range of tariffs and tax levels. The following tariffs apply to foreign employees who are domiciled in Switzerland but who do not have a residence permit: Tariff A for single people Tariff B for married persons who are sole earners Tariff C for married couples where both are in gainful employment and one spouse works abroad Tariff D for taxpayers with subsidiary or second-income jobs or substitute incomes or benefits Tariff H for single-parent families (living with children or needy people) Tariff L for cross-border worker who fulfil Tariff A Tariff M for cross-border worker who fulfil Tariff B Tariff N for cross-border worker who fulfil Tariff C Tariff O for cross-border worker who fulfil Tariff D Tariff P for cross-border worker who fulfil Tariff H
6.5 Cross-border workers Cross-border workers are defined as those living abroad and working in Canton Schaffhausen, commuting from home to work and back each day. They are subject to Tariff G – a flat-rate withholding tax of 4.5 percent. This can be credited against income tax levied abroad. Cross-border worker status ceases to apply if the employee does not return to their domicile abroad on more than 60 working days per year. The partial taxation of cross-border workers’ income from employment at their place of work does not preclude taxation of that income at their place of residence. In the case of crossborder workers resident in Canton Schaffhausen, these are spared double-taxation via a deductible allowance of 20 percent of the income they generate abroad. If the employee does not return to their place of residence on more than 60 days per year for work-related reasons, the full withholding tax is deducted at source. For part-time staff, the arrangement is adapted accordingly.
6.6 Foreign officers of legal entities Remuneration paid to members of the board of management or supervisory board of a legal entity, where the individual is resident abroad, are taxed at 25 percent of the gross income generated. Example: X-AG , which is headquartered in Schaffhausen, pays a member of its supervisory board who is resident in England (GB) a fee which is subject to withholding tax in Canton Schaffhausen: Fee CHF 100,000.– Withholding tax (Ct. Schaffhausen 20 percent, federal tax 5 percent) CHF 25,000.– Board member’s income CHF 75,000.–
32 SPECIAL TAXES
7 Special taxes 7.1 Withholding (anticipatory) tax4
„Simple processes for working out your tax make it easier to tackle.“
Anticipatory tax is applied to the gross earnings of individual sources of income such as proceeds from movables (dividends, interest payments from savings and investments) lottery wins and insurance payouts. Anticipatory tax is a withholding tax (W/H) which is paid by the provider of the income rather than by the recipient. It is paid in anticipation of income tax assessment and settlement and is refunded to taxpayers resident in Switzerland. In essence, anticipatory tax performs two functions: Firstly, it serves as security against failure to disclose the income. If the income is not declared in the income tax assessment, the amount withheld is not refunded and passes to the state. Secondly, it acts as the final tax collection of foreign-domiciled recipients of investment earnings and lottery winnings from Swiss sources. Where a double-taxation agreement exists between Switzerland and the country of residence of the recipient, the W/H tax on dividends will be the tax treaty W/H tax rate provide the paying company files certain documents prior to issuing the dividend. A flat-rate of 35 percent applies.
7.2 Tax on real estate gains 7.2.1
Characteristics
7.2.2
Calculation of tax
The tax on real estate gains applies to profits derived from the sale of property. As such it is predicated on both an increase in value and on the sale of the asset. Tax is levied on the profit achieved at the time of the sale. Associated costs such as administration fees for transferring ownership are deducted. This tax is only levied at cantonal level i.e. not at federal level.
Tax is calculated in line with a progressive tariff based on the size of profit achieved. The longer the property was owned by the vendor, the lower the tax burden, however. Premium rates, in addition to the normal tariff, are applied for very short-term periods of ownership. In Canton Schaffhausen profits of less than CHF 5,000.– are not subject to taxation and the upper limit is set at 50 percent. Example 1: Mr. Long, single, sells the house he has owned for 20 years and, once all costs have been taken into account, achieves a taxable profit of CHF 100,000.–. The normal tariff in this case is 15 percent. Once the multipliers (canton 115 percent, communal e.g. in the town of Neunkirch 99 percent) have been applied, the tax liability is CHF 32,100.–. However, this amount is reduced by the maximum allowance of 60 percent, because of the long tenure of the property by the vendor. The effective tax burden is cut to just CHF 12,840.–. Example 2: Mr. Short, single, purchases 2,000 m2 of building land in Neunkirch for just CHF 400,000.–. Two years later he sells the land and achieves a taxable profit of CHF 200,000.–. The basic tax burden is CHF 30,000.– which, after the cantonal and communal multipliers of 115 percent + 99 percent respectively are applied, rises to CHF 64,200.–. Due to the short period of ownership, a premium rate of 30 percent is payable in addition to the normal tax due, resulting in a final tax liability of CHF 83,460.–.
4 Source: E. Höhn/R. Waldburger, Steuerrecht, 9th edition, published by Paul Haupt Verlag, Berne 2001, p. 517 ff.
TAX ON TRAFFIC, CONSUMPTION, GOODS 33
8 Tax on traffic, consumption, goods „Switzerland has the lowest sales tax rate in Europe.“
8.1 Value Added Tax (VAT)5 Value Added Tax is a tax on general use and consumption. It is levied on all phases of production and distribution as well as on the import of goods, domestic service industries and the procurement of services from companies based abroad. Tax liability originates in the performance of self-employment or a commercial activity, the purpose of which is to generate income if deliveries, services and personal consumption in the domestic market exceed CHF 100,000.– annually. Furthermore, VAT applies to those who procure taxable services in excess of CHF 10,000.– per annum from companies based abroad and who are subject to customs duties for the importation of goods. For the purposes of VAT law, the domestic market is defined as: –– Switzerland –– The German village of Büsingen and the Principality of Liechtenstein –– Campione d’Italia (certain special arrangements apply) –– The Samnaun and Sampuoir valleys (only applies to services) The basis for calculation of the tax on domestic supplies is the agreed sales value. No tax is due if the sales value is not collected. The net VAT (VAT collected minus VAT paid) in remitted to the tax authorities. Since VAT is intended to be borne by the consumer, it is generally passed on via the sales price or as a separate item on the bill. Only those registered for VAT may charge it. The law differentiates between turnover which is exempt and that which is excluded from VAT. No tax is levied on either category, however a distinction is made regarding the pre-tax deduction. The pre-tax deduction is only permitted for all taxes paid on goods and services necessary for the generation of turnover exempt from VAT (genuine exemption – zero rating). However, there is no pre-tax deduction for taxes paid in generating turnover excluded from VAT (false exemption). In particular, the following are tax exempt: –– Export deliveries, as long as the export is documented –– Cross-border transport services –– Services provided to beneficiaries with personal or business domicile abroad The following are excluded from VAT: –– Services provided in the areas of health, social services and care –– Education services, teaching, and services for children and young people –– Cultural activities –– Insurance sales –– Turnover in the areas of money and financial services (excepting the management of assets and debt-collection) –– Transfer and purchase of rights to property as well as its assignment for use –– Gambling, lotteries and other games of chance –– Supply of domestic postage stamps The standard rate of VAT is 8 percent. A special rate of 3.8 percent applies for the hotel and guesthouse sector and certain categories of goods and services are taxed at 2.5 percent. These include: –– Food and drink, except for alcoholic beverages and those served in the hotel or catering sector –– Cattle, poultry, fish –– Seeds, living plants, cut flowers –– Grain –– Fodder and fertilizer –– Medicines –– Newspapers, magazines, books and certain other printed matter –– Services provided by radio and television broadcasters The rates apply for a limited period only, from 1st January 2011 to 31st December 2017.
5 Source: SSK, Die Vorzüge des schweizerischen Steuersystems, edition 2002, p. 17 f.
34 TAX ON TRAFFIC, CONSUMPTION, GOODS
8.2 Foreign-foreign-transactions In Switzerland, the following transactions are subject to VAT: –– The supply of traded goods in the domestic market –– The supply of traded services in the domestic market –– Items for personal consumption –– Procurement of traded services provided by a company based abroad –– Import of traded goods into Switzerland Only goods or services provided or used in Switzerland by a corporation are subject to Swiss VAT legislation. Where the provision of services or flow of goods takes place without a value-enhancing contribution located in Switzerland (as defined above), it is not subject to Swiss VAT legislation. Transactions of this type which have no material connection with Switzerland, so-called foreign-foreign transactions, apply in particular to trading where both procurement and sales are located abroad. In such cases, the transactions are subject to the VAT laws in the respective countries. Business activities affected may include: production, trading, the provision of services, fiduciary services, acquisitions, advertising and the brokerage of business in Switzerland.
8.3 Special taxes Special taxes are levied on certain processes such as the manufacture, supply or import of certain goods. The main taxes within this category are: –– Tax on tobacco –– Tax on beer and alcohol –– Tax on mineral oil –– Tax on motor vehicles
8.4 Stamp duties Tax liability arises if specific legal transactions occur, particularly the issuing and trading of securities i.e. the acquisition and movement of capital. There are 3 categories of transaction: –– Stamp duty levied on the issuing of shares, that levied on the purchase or sale of shares and the duty on insurance premiums. Since stamp duty levied on share issues is the main application relevant to the start-up and operation of a business in Canton Schaffhausen, only this is explored in more detail here –– Stamp duty levied on share issues is currently part of our legislation, but discussion of its removal in order to maintain attractiveness to businesses forms part of the debate around the Corporation Tax Reform III package –– Raising capital via corporations or cooperatives domiciled in Switzerland is subject to stamp duty. The duty on shares issued is 1 percent. Start-ups and increases in the capital of a joint-stock company or a limited liability company via share issue are not taxed until a threshold of CHF 1 m. is reached, however Example: Where a company is founded by the investment of tangible assets with a book value of CHF 100,000.–, no stamp duty is payable so long as the market value of the invested net assets are no greater than their book value. However, if the invested net assets are valued at CHF 1 m. then a flat rate allowance of CHF 300,000.– is deducted and the balance of CHF 50,000.– is taxed at 1 percent resulting in a tax liability of CHF 3,000.–.
8.5 Inheritance and gift taxes Only the cantons are entitled to levy inheritance and gift taxes. The subject of inheritance tax is the transfer of property to the legal heirs and other beneficiaries. Gift tax applies to transfers ‘inter vivos’. Canton Schaffhausen is entitled to levy tax on movables if the deceased was registered there as their last place of residence. Only immovable property in a different canton is taxed where it is situated. Similarly, gift tax on movables is levied by the canton in which the donor is resident, unless the gift is real estate or property outside the canton, in which case the canton in which the object of the gift is located is entitled to raise tax on it. It is the beneficiaries of inheritances or recipients of donations or gifts who are subject to taxation.
35
Inheritance and gift taxes are non-recurring. In the case of inheritances, the market value of the legacy at the time of death is used for tax purposes, but for gift tax the value at the time of transfer of ownership is the determining factor. The basis of tax calculation in both cases is fundamentally the market valuation, however special arrangements apply to shares, real estate and insurance payouts. In Canton Schaffhausen no tax is levied on legacies or gifts made to direct descendants or spouses. Other beneficiaries of legacies are taxed according to the degree of kinship with the deceased. Parents and step-parents can claim an allowance of CHF 30,000, for all other beneficiaries the allowance is CHF 10,000. Where an individual receives gifts or legacies from the same source on more than one occasion, the allowance can only be claimed once. The tax payable is based on the inheritance and a tax rate, as set out in the table below: –– 2 percent for the first 10,000.– CHF –– 3 percent for the next 10,000.– CHF –– 4 percent for the next 20,000.– CHF –– 5 percent for the next 40,000.– CHF –– 6 percent for the next 60,000.– CHF –– 7 percent for the next 90,000.– CHF –– 8 percent for the next 130,000.– CHF –– 9 percent for the next 160,000.– CHF –– 10 percent for the next 180,000.– CHF –– For amounts above 700,000 CHF there is a single tax rate of 8 percent. Tax payable is calculated at 8 percent of the value of the legacy, multiplied by a factor dependent on the relationship: : –– Parents Factor = 1 –– Siblings Factor = 2 –– Nephews & nieces Factor = 3 –– Blood line from grandparents Factor = 4 –– Not related Factor = 5 Inheritance tax is generally calculated on an inventory of the deceased’s estate. Gift tax is calculated on the basis of the tax-declaration filed in Canton Schaffhausen by the beneficiary. Example: After the death of Mr. Potts whose last place of residence was in the town of Schaffhausen, his estate, worth CHF 10 m. is distributed. His widow and two children receive a total of CHF 9 m. which is not subject to tax. His will also leaves CHF 1 m. to a nephew. Due to the degree of kinship, the nephew pays inheritance tax totaling CHF 240,000.– (factor 3) Gift taxes are assessed based on a tax declaration form which has to be delivered to the Cantonal Tax Administration.
8.6 Transfer tax Transfer tax is a legal transfer tax which is levied on any change of ownership of immovable property (and the related rights) which is located in the canton or the commune. The subject of the tax is the transfer of ownership as such. Canton Schaffhausen, unlike most other cantons, does not levy a transfer tax. Instead, it charges a modest fee for the change in registration – calculated at 0.7 percent of the sale price – and an administration charge of approx. CHF 300.–. Example: Mr. Mover builds a new house in Schaffhausen and sells his old house for CHF 850,000.– The Land & Property Registry invoices him for CHF 6,250.–, consisting of the administration charge and 0.7 percent of the sales price.
36 TAX ON TRAFFIC, CONSUMPTION, GOODS
8.7 Taxation on goods and for use of public infrastructure 8.7.1
Motor vehicle tax
All motor vehicles and trailers based in Canton Schaffhausen must be registered there and bear number plates. The licensing of motor vehicles and issuing of registration papers and number plates made out in the name of the owner are carried out by the Canton’s Motor Vehicle Department. Motor vehicle tax is levied annually. The person liable for the tax is the owner of the vehicle whose name is entered on the vehicle registration document and in whose name the number plates have been issued. The amount of tax payable depends on the type of vehicle. In Canton Schaffhausen tax is based on the cubic capacity of the engine. Example: Annual tax for selected private vehicles: 1,200 (1,2 l) CHF 168.– 1,800 cm3 (1.8 l) CHF 240.– 3,000 cm3 (3 l) CHF 384.– 5,000 cm3 (5 l) CHF 624.– The tax rate on motor vehicles in Canton Schaffhausen is relatively low, by comparison with other cantons. The chart shows the relative position of the cantons on motor vehicle taxation.
600 500 400 300 200 100
Bern
Basel-Landschaft
Jura
Graubünden
Waadt
Freiburg
Appenzell A.Rh.
Tessin
Basel-Stadt
St. Gallen
Glarus
Appenzell I.Rh.
Luzern
Zürich
Neuenburg
Schwyz
Obwalden
Uri
Solothurn
Genf
Nidwalden
Zug
Aargau
Thurgau
Wallis
Schaffhausen
0
Index Motor Vehicle Taxation in CHF Comparison of Swiss cantons 2013 Source: Swiss Federal Tax Administration FTA, 2015
8.7.2
Further taxes on goods
8.7.3
Tax on use of public infrastructure
The following taxes are generally insignificant and are therefore not explored in more detail: –– Tax on water craft –– Dog tax –– Tax on hydroelectric power stations
This final category of taxation applies to road users and consists of: –– Tax on road use: every vehicle, up to 3.5 tons, driven on Swiss highways must display a windshield sticker (a so-called vignette), renewed annually, costing CHF 40.–. –– Tax on road transport: This tax is applied to the transport of goods by road and is calculated on the basis of kilometers travelled and total weight of the transport. This is measured using an electronic device supplied free of charge by the customs authorities.
THE TAX AUTHORITIES 37
9 The tax authorities 9.1 Approach of the tax authorities
„The tax authorities in Schaffhausen: a straightforward and reliable partner for you.“
The fiscal administration of Canton Schaffhausen sees itself primarily as a service provider for the taxpayer. The departments responsible for personal taxation and for taxation of legal entities are happy to meet the taxpayer face-to-face to discuss any issues of tax planning and compliance. The cantonal tax authorities are also prepared to issue binding commitments regarding tax liability in advance of a client’s relocation to Schaffhausen in order to offer peace of mind to both investors and private persons alike.
9.2 Tax concessions Tax legislation in Canton Schaffhausen offers a number of opportunities for special arrangements to be made in order to accommodate investors who will be creating new jobs or transferring specialist skills to the area. Needless to say, each case is judged on its own merits. Canton Schaffhausen can offer private individuals and legal entities a tax holiday of up to 10 years, or confer other tax concessions if certain conditions are met. The requirements are: –– the undertaking will have a positive impact on the economy of Schaffhausen; –– either existing jobs will be secured or new ones will be created; –– a clear and sustainable plan underpins the venture: –– the business activity will be directed fully or in large part towards the wider region and beyond. The granting of tax concessions is underpinned by a contract between the beneficiary corporation and the Canton of Schaffhausen. The contract stipulates the conditions to be fulfilled by the corporation and by the canton and sets out the consequences of failure to meet the undertakings entered into.
38 SWITZERLAND – A TAX EFFICIENT LOCATION FOR THE EXPLOITATION OF INTELLECTUAL PROPERTY RIGHTS
10 Switzerland – a tax efficient location for the exploitation of intellectual property rights (IP)6 10.1 Introduction Innovation, creativity and legal certainty combined with a good access to high-skilled working force, a high standard of living as well as low corporate and individual taxes, are generally recognized as being key factors in companies’ choices of international locations, particularly for businesses which have significant IP rights. As Switzerland excels in all of these factors, it has become well-known as an attractive location for the exploitation of IP rights and the exercise of IP related management functions. In the context of the ongoing discussion around management substance requirements Switzerland additionally benefits from its central location within Europe, its excellent infrastructure and access to international schools / universities and, thus, is generally considered advantageous for the relocation of international R&D staff who are directly engaged with the execution of functions to support IP exploitation. As these intangible assets are increasingly recognized as constituting the most valuable assets of multinational enterprises, they are also seen as essential success factors in relation to global competition. By using a tax efficient structure, the value of intangible assets can be substantially increased; and by encouraging further development of these assets, the group’s competitive position can be enhanced provided international applicable standards for the attribution of IP ownership as well as the management and use of intangible assets are being adhered to and relied upon for the planning of an IP structure. The first part of this article highlights the basics of Swiss intellectual property law, and the definition of the term “intellectual property” from a Swiss tax perspective. Next, the main section focuses on international tax planning with intellectual property, and provides an overview of the favorable taxation models which can be applied to the exploitation of intellectual property (hereinafter referred to as “IP”) in Switzerland.
10.2 Fundamentals of Swiss IP law IP is the right to use intangible assets and economic owners of such a legal right may ban others from using them, or explicitly allow others to use them under a license arrangement. For example, the licensor may grant a license (either restricted or unrestricted), which allows a licensee to make use of the IP, in return for a share of the benefits. Licensing is a well-known concept for the exploitation of IP and is used by nearly all multinational enterprises in one way or another. It refers not only to the license of rights to use trademarks, patents and designs, but also to rights in technologies, secret formulas, distribution channels, customer data, processes, methodologies, and other non-public information or intangible assets; i.e. both to registered and unregistered IP. From a legal perspective, IP law forms the legal basis for the protection of IP from illegal acts, such as copyright infringement. As an absolute right it can be enforced against anyone. Swiss IP law covers design, trademark, patent, and copyright in particular. The Swiss Federal Institute of Intellectual Property (“IPI”) is the official authority in charge of registered IP in Switzerland. Its role is to provide Swiss and foreign enterprises with an appropriate, effective, dependable and easy to use system for the protection of IP. In practice, the IPI is the point of contact for its customers regarding industrial protective rights (trademarks, patents and designs) and, to some extent, for corresponding international applications. In addition, the World Intellectual Property Organization (“WIPO”) is based in Switzerland. It is a specialized agency of the United Nations, dedicated to harmonizing international regulations and practice for the protection of IP, on behalf of its 184 member states. In addition, it operates an international system for the registration and protection of IP.
6 Jaqueline Hess, Partner, Daniel Stutzmann Hausmann, Director and Markus Reese, Senior Manager at Deloitte AG Zurich, are the authors of chapter 9. They are acknowledged specialists in the field of planning and implementing tax optimized intellectual property structures for internationally operating groups.
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10.3 Fiscal definition of IP Swiss tax laws do not specifically include a definition of IP, nor of income arising from its use. Instead, Swiss tax practice follows the definition provided by the OECD Model Tax Convention on Income and Capital (“OECD-MC”). Article 12 para. 2 of the OECD-MC describes the term ‘IP’ as the right to use any copyright of literary, artistic or scientific work, including cinematograph films; any patent, trademark, design or model, plan, secret formula or processes; or information concerning industrial, commercial or scientific experience. A wider definition is included in Chapter VI of the OECD transfer pricing guidelines, and has been revised by a working group of the OECD within the scope of the project “Base Erosion and Profit Shifting (BEPS)”. The OECD describes the term “intangible” in the final papers on BEPS Action 8-10” as “something which is not a physical asset or a financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances”. In addition the OECD clearly indicates that for tax / transfer pricing purposes valuable IP assets may potentially be identified irrespective of accounting and tax definitions. Consequently, also the applicable conditions or profit attribution may vary. Most significantly, the classical definition of IP was extended to include “soft” intangibles (e.g. workforce in place, management, etc.). Most importantly, however, are the changes to the governing principles regarding the differentiation between economic and legal ownership of IP. In particular the function of the effective management and the development of IP will be taken into consideration when it comes to the determination of ownership rights so that legal agreements may only constitute the starting point for a tax and an economic analysis as regards the determination of ownership rights. Hence, the establishment of IP management functions as part of an efficient tax and operational arrangement of IP structures is gaining critical importance. Insufficient IP management functions / insufficient IP substance would lead to a risk of non-acceptance of license payments for tax purposes outside Switzerland. It is important to note that the economic IP ownership for tax purposes according to the stipulated OECD guidance may deviate from the underlying legal agreements concluded between the parties being involved in IP ownership in cases where the “real” IP management structure is inconsistent with the contractual terms (i.e. “substance over form”). Given that companies place their operational IP management with the IP Company, the following concepts for tax planning involving IP are considered feasible in future.
10.4 International tax planning with IP 10.4.1 Basic Principles
The general objective of international tax planning with IP is to optimize the use of international variations in tax rates to realize additional value for the group. To do this (at a basic level), companies located in high tax jurisdictions in many situations could be charged with royalties, which are then received by an IP company located in a low tax jurisdiction and which complies with tax and operational requirements, thus reducing the group’s overall tax burden. In this regard, the following general principles should be considered: –– Compensation for the use of IP can either be through royalty payments, or be embedded in the product price (for purposes of this essay, our discussion below focus on the exploitation of IP through licensing in return for royalties); –– The costs of developing, maintaining, financing and exploiting IP should be managed and borne by the company which, based on its legal and/or economic ownership of the IP, benefits from its exploitation. In addition, actual IP management functions as well as further functions, which were defined by the OECD as part of the BEPS initiative7, are to be executed by this company and at its place of business (“substance requirement”); –– A tax efficient structure for the development and exploitation of IP must always be in line with the overall tax strategy of the group, and all group companies forming part of this structure must have adequate functional substance to justify their commercial existence. A new approach (“Nexus-Approach”) is currently being discussed by the OECD. According to this approach, income from patents can only be claimed in the amount of the expenses for R&D accrued in the same country; 7 So-called “DEMPE“ functions: Development, Enhancement, Maintenance, Protection and Exploitation (BEPS – Actions 8 -10).
40 SWITZERLAND – A TAX EFFICIENT LOCATION FOR THE EXPLOITATION OF INTELLECTUAL PROPERTY RIGHTS
–– The Nexus-Approach shall ensure that the profit allocation will be performed with the beneficial owner of the IP. One has to distinguish between the beneficial ownership and the ownership under civil law. In order to be the beneficial owner of the IP, the company has to perform crucial functions in the country, where the IP is located. In the future, ownership in the country under civil law, being contractually ensured, as well as controlling and management functions won’t be sufficient enough for the profit allocation to the civil owner of the IP. Switzerland and the Canton of Schaffhausen in particular, provide a very attractive environment for IP companies. There is an excellent legal framework of regulations for the protection of IP in Switzerland, which can be enforced by internationally experienced IP lawyers; and even in the absence of specific tax incentives or favourable taxation models, the Canton of Schaffhausen offers a low rate of taxation for companies. These facts, together with the availability of qualified staff, support the commercial justification for locating IP in Schaffhausen as well as the framework to prove the required substance.
10.4.2 Tax aspects to be considered for IP planning
Besides the general aim of efficiently utilizing international differences between levels of taxation, there are many other aspects to be considered in international tax planning. In a first step, any potential income tax consequences resulting from a transfer of existing IP to a new IP company / location need to be understood and tax optimized. Further aspects to be taken into account include: foreign withholding taxes levied on royalties (and the non-recoverable withholding tax as per the respective double tax treaties), as well as tax credit opportunities in the country of the recipient that qualifies as the beneficial owner. In addition, tax regulations concerning controlled foreign companies (referred to as “CFC regulations”) and the potential taxation of the royalty income at the level of the group companies controlling the IP Company need to be managed. In implementing a structure, the acceptability of tax deductions for royalty payments by the companies using the IP needs to be ensured, any preceding valuation(s) of the IP should be supported, the correct pricing of the royalties has to be determined (so-called “arm’s length testing”), and the required transfer pricing documentation has to be prepared. As it refers to transfer pricing documentation and defending a tax optimized IP structure, attention should be paid to having the required IP management substance in place. In that respect it is not sufficient to have a “virtual” management team but it needs to be demonstrated that the IP-company has employed qualified working-force and that the IP-company is taking use of controlling and management functions with respect to R&D and the linked budget, strategic decisions, research, quality, Marketing, etc. The OECD further substantiated the substance requirements as part of BEPS Actions 8-10 and puts the focus on the “DEMPE” functions. Furthermore, the OECD clearly states that the economic conditions are to be considered when determining arm’s length profit attribution between related parties, while pure legal arrangements are of less importance if not aligned with the actual business model. Finally, special attention should be paid to the effect of the structure on opportunities to tax efficiently transfer or sell the IP at a later date, in case this becomes of interest in the future. Given all these aspects, Switzerland stands out due to its comprehensive network of double tax treaties leading to non-recoverable withholding tax rates on royalties between 0 percent and 10 percent and a tax credit system for non-recoverable withholding taxes within the scope of the “lump-sum tax credit” leading to a full or partial tax credit. Finally, according to CFC regulations of many countries, the existence of commercial substance as required for an international acceptance of the structure may avoid taxation of the royalty income at the level of the controlling companies.
10.5 Tax optimized exploitation of IP within multinational enterprises – Other considerations While tax optimized exploitation of IP within a group of companies aims to achieve a significant reduction in its effective tax rate, a carefully designed and properly implemented setup of the IP management function can also improve legal certainty for the group’s entire IP portfolio. Structures implemented for the exploitation of IP should not only take into account the taxation of the current income from royalties, but should also consider the repatriation of
41
these earnings to the ultimate parent company – whether as dividends, interest, royalties or in other forms. In addition, it is recommended to analyze operational requirements with a focus on efficient “Innovation Management” processes/ structures and, if necessary, to optimize them through a central management function. The following graph depicts an excerpt of a possible international IP structure (under the assumption that the Swiss IP-company meets the commercial substance requirement):
Research & Development Companies
Transfer of existing IP*
Transfer of existing IP*
Parent Company
Manage contract R&D function
Manufacturing and Distribution Companies
Sub-Holding
IP Company (Switzerland) (employment of IP management team)
Transfer of existing IP*
Supply from / sales to the market
License agreements Royalties
* Transfer based on fair market value assessment (remuneration either in form of exit payment or through licensing model)
Sample of a possible structure for an international exploitation of IP Source: Deloitte Ltd, Jacqueline Hess, Daniel Stutzmann Hausmann and Markus Reese
10.6 Tax optimized IP exploitation by using a Swiss IP company 10.6.1 Acquisition (migration) of IP by the company in Switzerland The transfer to (or the acquisition of) IP by a company in Switzerland can be achieved in various ways. Preferably, the transfer should generally be designed in a way that allows the Swiss IP company to recognize the transferred/acquired IP at its fair market value. In particular, a step-up in the value of the IP to its fair market value can allow for extensive tax-deductible (linear or accelerated) depreciation deductions to be taken at the level of the Swiss IP company, giving a significant reduction of the current tax burden in Switzerland. On a consolidated basis, this can result in at least a partial compensation of the exit tax cost payable in the country of the transferring company. Finally, the taxable income base in Switzerland can then be further reduced through using (pro rata) debt financing to acquire the IP. For purposes of both federal direct tax and Schaffhausen cantonal/communal taxes, a “safe-harbor” depreciation period of five years and a 70 percent “safe-harbor” debt-financing (relative to the fair market value of the IP, with interest calculated using the safe-harbor interest rates published annually by the Swiss Federal Tax Administration) or higher interest expenses provided they are accepted as arm’s length are treated as being compliant with the arm’s length principle. Alternatively, the taxpayer may choose to deviate from these (i.e. both the amortization period and the interest costs for debt financing) if these can be supported based on the actual commercial recoverability of the IP and an appropriate benchmarking analysis respectively. For the legal transfer of the IP, the following two basic options can be applied: –– Sale and Purchase of the IP at fair market value: This option usually results in substantial exit costs for the transferring company; i.e., taxation of the entire capital gain realized by the sale.
42 SWITZERLAND – A TAX EFFICIENT LOCATION FOR THE EXPLOITATION OF INTELLECTUAL PROPERTY RIGHTS
–– Contribution in kind of the IP, based on fair market value: Depending on the applicable tax regulations in the country of residence of the contributing company, a transfer as a contribution in kind may be tax-neutral. In the event that a contribution in kind qualifies as part of a group restructuring, an exemption from Swiss stamp duty (usually charged at 1 percent on any contribution) can also be applied for. Given the impact on the group of minimizing exit costs, several more sophisticated transfer alternatives may be worth considering. Such alternatives, however, often require a prior restructuring, and/or respective rulings in Switzerland as well as in the country of origin of the IP. Since these alternatives can trigger different tax consequences (depending on the tax regulations in the country of residence of the transferring company), a detailed analysis of the particular case at hand must always be conducted in advance.
Value of IP
The options below include a few samples of transfer alternatives which vary in complexity and their possible benefits depending on the applicable foreign tax law. These alternatives are by no means exhaustive:
‘o th ld’ I e P „tr ow co ans ned m fer an rin by g“ y
d ne ow wly P ’ I ne ted ew e ra y ‘n y th rpo pan b co m in -co IP
Time
„Phasing Out“ Process Source: Deloitte Ltd, Jacqueline Hess, Daniel Stutzmann Hausmann and Markus Reese
–– Transfer of IP to a Swiss permanent establishment: This alternative may allow for the possibility of a tax-neutral transfer of the IP. In order to ensure an actual tax advantage, it has to be ensured that any profits of the permanent establishment are exempt from taxation in the entity’s primary country of residence. –– Taking advantage of EU regulations concerning the freedom of establishment and/or cross-border mergers: High exit costs in the country of origin of the IP can potentially be reduced by temporarily relocating to an interim jurisdiction. –– Evaluating potential arbitrage opportunities between the respective civil and tax law. Finally, in the case of very high exit costs, a slower transfer by way of “phasing out” the existing IP could be considered. A phasing out process; i.e., where there is a clear decrease in the value of the „old“ IP, at the same time as an increase in the value of the „new“ IP generated by the Swiss IP company; is particularly suitable for IP that is subject to a rapid decrease in its market value and requires frequent refreshing and active management. Typical examples for such IP are modern technologies and designs as well as so called “marketing intangibles” which are created and maintained mainly through continuous advertisement and comparable measures, but also an active (but depreciating) customer base or other IP related to individual relationships. As part of the phasing out process, the transferring company licenses the „old“ IP (in line with its decreasing value at a declining license fee) to the new IP Company, which in turn grants sub-licenses to the group companies. Meanwhile, the new IP Company builds up the stock of “new” IP, for which it is the legal and economic owner through, for example, a contract research and development (R&D) arrangement. The chart schematically illustrates the phasing out process. Legal certainty as regards the acceptability for tax purposes of any transfer value, and its subsequent depreciation as well as the amount and terms of a potential debt financing can each be obtained by negotiation of a ruling with the relevant tax authorities prior to implementation of the structure. In such ruling context other relevant tax questions (e.g. an exemption of the contribution from Swiss issuance stamp taxes) can also be addressed.
10.6.2 Tax efficient taxation models
Mixed Company tax status The most typical taxation model for the exploitation of IP in Switzerland is known as the “Mixed Company” tax status. What needs to be considered to strengthen the IP model and to allow for future tax audit defense (which is a very critical element when determining the tax benefit of a IP management function) is that IP shall only be transferred to a legal entity, branch or PE that possesses sufficient IP management substance in-line with the OECD requirements. This aspect becomes even more important in light of the discussion around the BEPS initiative and the revision of Ch. VI of the OECD Transfer Pricing Guidelines. This tax status can be applied if the company’s business activity is performed predominantly outside of Switzerland. In practice, this condition is in general assumed to be met if at least 80 percent of the Swiss company’s gross earnings are derived from non-domestic sources, and at least 80 percent of the expenses for its own business activities, goods and/ or services purchased from third parties are incurred abroad. Under exceptional circumstances, expenses may also be incurred in Switzerland, provided that the respective payments are at arm’s length or directly paid to a third party. The following chart is a schematic overview of this taxation model, which has for many years proven to be a successful taxation model for Swiss IP Companies of foreign groups. In the course of OECD’s scheduled revision of chapter VI regarding the Transfer Pricing Guidelines, the functional requirements might change in the future:
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Parent Company
Research and Development Companies
Manufacturing and Distribution Companies
Sub-Holding
Abroad
Abroad
IP Company (Switzerland) Payments for contract R&D ≥ 80% of contribution to performance delivery
Royalties ≥ 80% of gross income
Sample of an IP Company with Mixed Company tax status Source: Deloitte Ltd, Jacqueline Hess, Daniel Stutzmann Hausmann and Markus Reese
If the conditions for the Mixed Company tax status are met, income from foreign sources is usually taxed at cantonal/communal level based on an “allocation quota” of only 10 to 20 percent i.e. 10 to 20 percent of the income is taxed at ordinary rates. Income derived from Swiss sources, however, is fully ordinarily taxed. The same applies to income from real estate in Switzerland. Assuming that the Mixed Company does not license any IP to operating companies in Switzerland and that any royalty income is derived solely from group companies abroad, the resulting total effective tax rate applicable to the IP Company’s net revenue amounts to 8.72 percent. As mentioned above, in the case that IP is transferred to a Swiss company at its fair market value and can subsequently be depreciated tax efficiently, the actual total tax burden in Switzerland can again be reduced substantially. This applies also for the alternative mentioned above, where IP is acquired through (partial) debt financing.
Holding Company An alternative to the Mixed Company tax status is the “Holding Company” status. This tax status, in contrast, allows for the exploitation of IP only within the scope of a subordinated activity. In particular, the statutory purpose of a Holding Company must predominantly consist of the administration of qualifying investments in other corporations and/or cooperatives; i.e., a minimum of two thirds of total assets must consist of participations and/or portfolio shareholdings. In order to assess whether the criteria are met, assets can be valued based on either book value or fair market value. Alternatively, the conditions for the Holding Company status are assumed to be met if at least two thirds of the company’s total income consists of income from equity investments and dividend income from widespread shareholdings. Should these conditions be satisfied, and should the exploitation of IP not exceed the maximum threshold of one third of total assets or income, the company will be fully exempt from Swiss cantonal and communal income taxes. The total tax rate on net income from licensing activities thus amounts to 7.83 percent, and the actual tax burden can again be reduced by depreciation deductions and/or interest costs for debt financing. In this case, the effective income tax burden typically amounts to 1 - 2 percent. Relative to Mixed Company status, Holding Company status is particularly beneficial should the IP Company envisage licensing its IP to group companies also located in Switzerland. The use of a qualifying Swiss holding company is, however, very limited due to the conflict between Swiss tax rules for a holding company (no active business allowed) and the requirements from a transfer pricing perspective (active IP management required).
44 SWITZERLAND – A TAX EFFICIENT LOCATION FOR THE EXPLOITATION OF INTELLECTUAL PROPERTY RIGHTS
10.7 Impact of the Swiss Corporate Tax Reform III In 2012, the Swiss federal council announced the establishment of the Swiss Corporate Tax Reform III (CTR III). On 22 September 2014 the consultation process for the Swiss CTR III has been introduced and has been closed by 31 January 2015. The purpose of the CTR III is the establishment of a tax system being internationally accepted, strengthen Switzerland’s competitiveness and locational attractiveness. It is envisaged to reject the Holding, Mixed and Domiciliary company special tax status on the cantonal level, as well as the Principal company and the Swiss Finance Branch tax status on the federal level. Additional internationally accepted measures to strengthen Switzerland’s locational attractiveness are the following: Implementation of license box, adaptions to capital tax, disclosure of hidden reserves in the event of changing from privileged to ordinary tax status, abolition of stamp issuance tax on equity. Furthermore, on the cantonal level a reduction of the income tax rate is also being intended. The introduction of those measures with respect to the CTR III is expected to come into force only in 2019, the earliest. An intended replacement measure for IP companies is the introduction of a so called IP Box that will allow a reduced taxation of qualifying IP income similar to the regimes existing in various EU countries. The draft on the CTR III pursues a strict definition of intangible property in general. Hence, legal entities, who themselves are the owner or the beneficiary of IP and have been substantially involved in the development of the respective IP, are allowed to pay a reduced tax on income from qualifying IPs, separately from the remaining income. In addition to the introduction of an IP box, it is intended to have a disproportionate tax deduction on R&D expenses. In any case it is anticipated that the Canton Schaffhausen will remain a highly attractive location from a tax perspective and will offer all potential solutions within the boundaries of the corresponding federal tax harmonization law.
Jacqueline Hess Partner | International Tax Member of the Management Board Deloitte AG General Guisan-Quai 38 | P.O. Box 2232 | CH-8022 Zurich | Switzerland Direct: +41 58 279 63 12 | Fax: +41 58 279 66 66 jahess@deloitte.ch | www.deloitte.ch
Daniel Stutzmann Hausmann Director | International Corporate Tax Deloitte AG General Guisan-Quai 38 | P.O. Box 2232 | CH-8022 Zurich | Switzerland Direct: +41 58 279 63 07 | Fax: +41 58 279 66 66 dstutzmann@deloitte.ch | www.deloitte.ch
10.8 Summary and Outlook Due to the excellent legal environment for the protection of IP, and the low taxation of income arising from its exploitation, Switzerland, and the Canton of Schaffhausen in particular, is a perfect location for the establishment of IP companies with the aim of optimizing the group‘s overall tax rate. Provided that the appropriate structure is put in place, taxation as either a Mixed or Holding Company offers additional opportunities for a reduction in the group’s actual tax burden. The above mentioned considerations on IP planning are also relevant, when setting up a so called “Principal structure”, which also helps to achieve an optimized group tax burden on IP income. Some countries are critical of these beneficial taxation models and may limit the tax deductibility of royalty payments by the licensee (e.g. Italy and Austria). Hence, prior to the implementation of the new IP structure, the quantitative effects of a possible limitation of the deductibility of royalty payments in the countries of residence of the group companies licensing the IP have to be analyzed in detail. A comprehensive review should also comprise of potentially applicable CFC regulations in the countries of residence of the controlling companies as well as Swiss unilateral anti-abuse provisions. Furthermore, the current status of the discussions for the amendments of Chapter VI of the OECD Guidelines should be considered pro-actively for relevant tax planning concepts. Moreover, discussing with the broader “IP team” rather than considering tax issues only on a stand-alone basis has often proved to be successful in case of implementation of IP structures. Besides the tax advantages, this multi-disciplinary approach also allows creation of an efficient operational structure. In the majority of cases, thorough tax planning, structuring of the existing and future business model, as well as the establishment of sufficient substance at the level of the IP Company should be sufficient to enable multinational enterprises to face those planned measures in the course of OECD’s BEPS project, as well as the unilateral, specific regulations by different countries, such that the obvious advantages of Switzerland as a location for the tax-optimized exploitation of IP have the desired impact. The CTR III and its planned measures will ensure that Switzerland remains an attractive and competitive location for international companies even in the future.
Markus Reese Senior Manager | Transfer Pricing Deloitte AG General Guisan-Quai 38 | P.O. Box 2232 | CH-8022 Zürich | Switzerland Direkt: +41 58 279 63 06 | Fax: +41 58 279 66 66 mreese@deloitte.ch | www.deloitte.ch
TAX-EFFECTIVE STRUCTURING OF INBOUND INVESTMENTS TO SWITZERLAND 45 WITH SPECIAL FOCUS ON FISCAL OPPORTUNITIES FROM A US PERSPECTIVE
11 Tax-effective structuring of inbound investments to Switzerland with special focus on fiscal opportunities from a US perspective8 11.1 Introduction Switzerland offers a modern, competitive tax system for both individuals and corporations characterized by an innovative tax policy and an enterprise-friendly administration, thus providing foreign investors with a variety of interesting tax planning opportunities and promising tax strategies. The reasonably low overall corporate and individual tax burden combined with the availability of special cantonal tax regimes and tax incentives as well as the generally collaborative relationship between tax authorities and tax-payers are only some of the cornerstones on which Switzerland’s attractiveness for foreign investors is based. Further elementary factors are Switzerland’s well-developed double tax treaty network, the bilateral agreements with the EU and the availability of binding advance tax rulings for almost any aspect of taxation. From a corporate taxpayers’ perspective, the structures that are particularly attractive to and commonly implemented by foreign multinational groups include: –– Holding companies –– Trading companies –– Hub companies –– Shared service centres –– Manufacturing companies –– Research and development centres whereas holding, trading, and hub companies can often take advantage of the cantonal tax regimes available for qualifying holding and mixed trading companies. Against this background, there are many tax-effective structuring opportunities for multinational companies doing business in Europe, using Switzerland as basis for their operations. This does also hold true for US groups which look for a home of their overseas operations and investments. Since U.S. tax laws are complex and their interplay with foreign taxation can be challenging, it is extremely important for U.S. persons to review their respective US tax position in great detail before implementing any foreign tax structure. However, since countless companies and individuals have invested in Switzerland in the past, investors are able to tap into sophisticated long-term experience, expertise and know how in this regard. It is important noting, that Switzerland is currently in the process of drafting the laws for corporate tax reform III. Corporate tax reform III may become effective as early as 1 January 2017 depending on the further progress of the currently on-going parliamentary discussions. The final law package agreed in the parliament may be subject to public vote, which would delay the effective date by one to two years. Once the law package is enacted, it will provide for a two year cantonal implementation phase resulting in an expected effective date for cantonal purposes between 2019 and 2021. Corporate tax reform III will replace the current cantonal tax regimes (and in particular the holding and mixed trading company regime) with new state of the art measures (like for example a patent box, R&D incentives, potentially a notional interest deduction, and others) aligned to the new international OECD and EU tax standards. The corporate tax reform aims to maintain a highly competitive business location Switzerland. Advance tax rulings with respect to the current regimes are fully available until corporate tax reform III becomes effective. Transition rules into the new measures will apply to ensure a tax effective transition. Aligned to corporate tax reform III there is a trend that the general corporate tax rate will be lowered. Various Cantons indicated a reduction in tax rates, resulting in combined federal and cantonal effective income tax rates of approx. 12.5 - 14 percent, including Schaffhausen that intends to reduce its combined effective tax rate to approximately 12.5 percent. 8 Stefan Schmid and Martina Walt of PwC Switzerland, authors of chapter 10. Stefan and Martina are Swiss tax experts dedicated to providing cross-border tax planning solutions between USA-Switzerland. Martina is leading the Swiss Tax Desk at PwC in New York.
46 TAX-EFFECTIVE STRUCTURING OF INBOUND INVESTMENTS TO SWITZERLAND WITH SPECIAL FOCUS ON FISCAL OPPORTUNITIES FROM A US PERSPECTIVE
Switzerland is supporting the OECD Based Erosion and Profit Shifting (BEPS) project and is currently putting respective legislation in place to accommodate country by country reporting. Switzerland has also signed the multilateral agreement regarding the automatic exchange of tax rulings and it is expected that respective legal basis may be in place effective as per 1 January 2018. Considering Switzerland’s central location in Europe, being an independent country (not a Member State of the European Union), providing for an attractive tax system with corporate tax reform III, BEPS aligned measures as well as its operational location advantages, Switzerland and in particular Schaffhausen is a very attractive location for US investments.
11.2 Tax planning opportunities for U.S. companies and entrepreneurs U.S. companies have chosen Switzerland as their preferred location for foreign investment and operations for decades, to a great extent owing to a competitive, stable and businessoriented Swiss tax regime with attractive tax rulings available now and in future and with an excellent double tax treaty network. The main concern from a tax perspective for a U.S. group expanding into a foreign country, such as Switzerland, is to avoid any adverse U.S. tax implications. Ideally, the foreign presence in addition leads to an optimization of the effective overall tax rate. For U.S. groups that consider expanding into Switzerland, it is important to know that advance tax rulings, also called «private letter rulings», are available at cantonal/communal and at federal level which provide for the desired upfront certainty of the Swiss company‘s tax treatment before even establishing the operations in Switzerland. Furthermore, U.S. groups that own controlled foreign corporations (CFCs) are typically interested in limiting or avoiding so-called ’Subpart F income‘ under U.S. tax rules, which is generally associated with passive income, such as interest and royalties. Accordingly, various Swiss tax planning strategies rely on the so-called ’check-the-box‘ election. Based on this election the respective entity and accordingly among others group-internal transactions with this entity – which may otherwise give rise to Subpart F income – are disregarded for U.S. tax purposes. However, many U.S. groups historically operate in Switzerland through a joint-stock corporation (AG or SA), the most common corporate form for large enterprises, which is considered a ‘per se entity’ under respective check-the-box rules and is not an eligible entity for the check-the-box election. In this respect it is worth noting that a Swiss AG can legally convert to a Swiss GmbH in order to be eligible for a check-the-box election. Such conversion is in Switzerland generally tax neutral.
Stefan Schmid PwC | Partner, International Tax Services Office: +41 58 792 4482 | Main: +41 58 792 4400 stefan.schmid@ch.pwc.com PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zürich www.pwc.ch
Martina Walt PwC | Partner on Secondment - Swiss Tax Desk Office: +1 646 471 6138 | Mobile: +1 917 355 0428 martina.m.walt@us.pwc.com PricewaterhouseCoopers LLP 300 Madison Avenue | New York | NY 10017 www.pwc.com/us
There are various tried and tested Swiss structures and operational models that help U.S. groups to maintain a competitive set up in comparison with other operational models. In addition, there are numerous profit repatriation strategies available to ensure withholding tax-free dividend distributions to the United States. Possibilities for withholding tax efficient repatriation of profits have improved considerably over the last decade because Switzerland has since the middle of 2005 access to the EU Parent/Subsidiary and Interest/Royalties Directives, thus allowing for withholding tax neutral profit repatriation to the U.S. via a variety of additional EU countries in which the U.S. group may have operations. Finally, revised Swiss domestic tax law provisions that became effective as per January 1, 2011, provide for the possibility to repatriate funds free of Swiss withholding tax if distributed out of additional paid in capital. It is worth noting that Switzerland is also offering various opportunities for U.S. individuals and owners of small and medium sized enterprises (SME) that plan to invest in Switzerland. However, a word of caution: U.S. citizens and Green card holders need to be mindful of the fact that as individuals they will always be subject to U.S. tax on their world-wide income. U.S. citizens and Green card holders need to be most careful when they enter Switzerland by setting up any form of passive investment structure, such as a holding, finance or IP company. There are various U.S. tax regulations, such as CFC / Subpart F rules or foreign personal holding company (FPHC) and passive foreign investment company (PFIC) rules, which could ultimately result in the respective income being immediately taxed in the U.S. Therefore, it is extremely important that advice be sought from both a Swiss and a U.S. tax perspective to avoid any potentially adverse tax consequences and to optimize a given tax position.
MULTIPLIERS CANTON SCHAFFHAUSEN 47
12 Multipliers Canton Schaffhausen Multipliers 2016 All data in percent.
Municipality Canton Municipality Municipality Individual Tax Corporate Tax Bargen 115 107 Beggingen 115 119 Beringen 115 93 Buch 115 99 Buchberg 115 80 Büttenhardt 115 102 Dörflingen 115 73 Gächlingen 115 112 Hallau 115 112 Hemishofen 115 103 Löhningen 115 82 Lohn 115 99 Merishausen 115 112 Neuhausen 115 98 Neunkirch 115 99 Oberhallau 115 117 Ramsen 115 111 Rüdlingen 115 70 Schaffhausen 115 97 Schleitheim 115 115 Siblingen 115 105 Stein am Rhein 115 95 Stetten 115 62 Thayngen 115 92 Trasadingen 115 117 Wilchingen 115 112 B = Burg Be = Beringen G = Guntmadingen H = Hemmental O = Osterfingen
SH = Schaffhausen St = Stadt T = Thayngen UR = Unterer Reiat W = Wilchingen
Source: Tax Administration Canton Schaffhausen
ev.-prot.
rom.-cath. christ.-cath.
107 11 119 12 93 Be 12/G 10 99 12 67 11 102 11 73 12 112 13 112 10 103 11.5 82 10 99 11 102 11 97 13 89 10 117 12 111 14 65 11 97 SH13/H13 105 10 105 12 95 St 11.5/B 12 50 11 9285 T 10/UR 12 102 12 112 W 9/O 11
14.5 16 16 15 16 14 14 16 16 14 16 14 14.5 16 16 16 15 16 14.5 16 16 14 14.5 14 16 16
12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5
48 YOUR CONTACT AT THE ECONOMIC PROMOTION / IMPORTANT ADDRESSES
13 Your contacts at Economic Promotion Economic Promotion Canton of Schaffhausen Herrenacker 15 CH-8200 Schaffhausen Phone +41 52 674 06 00
Official Chief Representative Canton of Schaffhausen Christoph Schärrer christoph.schaerrer@generis.ch
VP, International Affairs Marcus Cajacob marcus.cajacob@generis.ch
14 Important addresses Swiss Federal Tax Administration FTA (Eidgenössische Steuerverwaltung ESTV): www.estv.admin.ch Tax Administration Canton of Schaffhausen (Steuerverwaltung des Kantons Schaffhausen): www.steuern.sh.ch Tax Calculator: www.steuern.sh.ch > “Steuerrechner” Economic Promotion Canton of Schaffhausen: www.invest-in-schaffhausen.com
Important Links
Income Tax & Tax on Assets/Net Worth Steuerverwaltung Kanton Schaffhausen Abteilung Natürliche Personen Hermann Schlatter J.J. Wepfer-Strasse 6 CH-8200 Schaffhausen Phone +41 52 632 72 46 hermann.schlatter@ktsh.ch
Tax on Motor Vehicles Kanton Schaffhausen Strassenverkehrs- und Schifffahrtsamt Herbert Werner Rosengasse 8 CH-8200 Schaffhausen Phone +41 52 632 76 03 herbert.werner@ktsh.ch
Corporation Tax Steuerverwaltung Kanton Schaffhausen Abteilung Juristische Personen Carolina Melly J.J. Wepfer-Strasse 6 CH-8200 Schaffhausen Phone +41 52 632 72 27 carolina.melly@ktsh.ch
Inheritance & Gift Tax Kanton Schaffhausen Amt für Justiz und Gemeinden Marisa Mastronardi Mühlenstrasse 105 8200 Schaffhausen Phone +41 52 632 74 19 marisa.mastronardi@ktsh.ch
Withholding Tax / Real Estate Gains Tax Steuerverwaltung Kanton Schaffhausen Abteilung Grundstückgewinn- und Quellensteuer Thomas Tenger J.J. Wepfer-Strasse 6 CH-8200 Schaffhausen Phone +41 52 632 75 43 thomas.tenger@ktsh.ch
Value Added Tax Eidgenössische Steuerverwaltung Hauptabteilung Mehrwertsteuer Gabriel Rumo Schwarztorstrasse 50 CH-3003 Bern Phone +41 31 325 76 68 rumo.gabriel@efv.admin.ch
Anticipatory (withholding) Tax Steuerverwaltung Kanton Schaffhausen Abteilung Verrechnungssteuer Tommaso Aversa J.J. Wepfer-Strasse 6 CH-8200 Schaffhausen Phone +41 52 632 75 46 tommaso.aversa@ktsh.ch
Real Estate Registry Fees Kanton Schaffhausen Grundbuchamt Martin Alder Mühlentalstrasse 105 CH-8200 Schaffhausen Phone +41 52 632 74 01 martin.alder@ktsh.ch
Federal Taxation Steuerverwaltung Kanton Schaffhausen Abteilung Steuerbezug nat. + jur. Personen / Direkte Bundessteuer Urs Keller J.J. Wepfer-Strasse 6 CH-8200 Schaffhausen Phone +41 52 632 70 72 urs.keller@ktsh.ch
Company Registrar Kanton Schaffhausen Marcel Dubois Mühlentalstrasse 105 CH-8200 Schaffhausen Phone +41 52 632 70 44 marcel.dubois@ktsh.ch
49
15 Service partners On the following pages you will find service partners regarding company founding procedures as well as private taxation issues. In addition these experts are qualified for supporting you in accounting, distribution of office facilities, comprehensive financial planning, and worldwide optimized tax solutions for global enterprises. International tax experts p. I Tax consultants / Fiduciaries p. II - III
I
INTERNATIONAL TAX EXPERTS
International tax experts Deloitte and Schaffhausen = a smart combination … wherever you come from
How can we help you? Please contact our local tax experts:
Are you a member of the management of a foreign headquartered company looking at tax optimizing your European operations? Or an HR manager seeking to manage the tax affairs of your international assignees?
Reto Savoia Deputy CEO +41 58 279 63 57 rsavoia@deloitte.ch
Deloitte’s skilled professionals can design and assist with the implementation of corporate tax structures as well as reward strategies. Based on our excellent cooperation with the Canton of Schaffhausen and our extensive experience in negotiating optimized tax solutions, we are the right partner for your business.
Jackie Hess Managing Partner, Tax & Legal +41 58 279 63 12 jahess@deloitte.ch
© 2016 Deloitte AG. All rights reserved.
Audit. Tax. Consulting. Financial Advisory.
KPMG‘s German Tax & Legal Center We optimise cross-border structures GermanySwitzerland, deal with restructuring and advise on the acquisition of a company, find tax efficient solutions for companies as well as private individuals and provide support in planning relocations.
Your contact: Heiko Kubaile, Head of GTLC KPMG AG, Badenerstrasse 172, CH-8036 Zürich Telephon +41 58 249 35 10 www.kpmg.ch/gtlc
© 2016 KPMG AG, a Swiss corporation. All rights reserved. The KPMG name and logo are registered trademarks.
www.pwc.ch/tax
FINAL_Rd16_Inserat_KPMG-Tax_GTLC_EN_quer_170x60_2016_sw_140416.indd 1
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Does your tax strategy have a passport? Different countries, different taxes: you need a partner who is not only thoroughly familiar with local legal conditions, but can also assess the tax-related ramifications of international business transactions. As a leading consultancy partner – worldwide and particularly in Switzerland – PwC will help you come to the right decisions in regard to tax matters, from location planning to the best organisation of structures and processes for your taxes. In Neuhausen, New York, and elsewhere. Your contacts: Stefan Schmid, stefan.schmid@ch.pwc.com, Tel. +41 58 792 44 82 Martina Walt, Swiss Tax Desk New York, Tel. +1 646 471 6138 © 2011 PwC. All rights reserved. “PwC” refers to PricewaterhouseCoopers AG, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
TAX CONSULTANTS / FIDUCIARIES
II
Tax consultants / Fiduciaries National and international tax law
Your local experts nationalfür and international Ihre nationales und internationales andforExperten border-crossing settlement projects Steuerrecht und grenzüberschreitende Ansiedlungsprojekte tax law and cross-boarder-transactions
Consulting AG Consulting AG
Vordergasse 3 Usteristrasse 23 our experts: Vordergasse 33 Contact Vordergasse Usteristrasse 23 8200 Schaffhausen 8001 Zürich 8200 Schaffhausen Schaffhausen Andreas Stauffer (li.) 8200 8001 Zürich info@bds.ch Phone 052 36 044Tel215 20633 77 36info@bds.ch Tel 052 633633 3636 36 36 Phone 05277 09 Tel 052 633 36 Tel 044 215 20 www.bds.ch Fax 052 633 36 86 Fax 044 215 20 99 Fax 052 633 36 86 Christian Risch (re.) www.bds.ch Fax 052 633 36 86 Fax 044 215 20 99 info@bds.ch, www.bds.ch Tel 052 633 36 00
contact our expert: Kontaktieren Sie Andreas Stauffer unseren Experten: Phone 052 Stauffer 633 36 09 Andreas Tel 052 633 36 09
Audit Management undTax consulting Auditing Restructuring UnternehmensSteuerberatung Accounting Accounting Wirtschaftsprüfung Restrukturierungs- Succession Nachfolgeservices controlling Consulting Controlling management services planning consulting Unternehmerberatung Controlling Management dienstleistungen
We understand your business and deliver a team you can rely on
Gerry McEvoy | Managing Officer gerry.mcevoy@centralis.ch
Grabenstrasse 15, 8200 Schaffhausen T: +41 52 630 25 70 | M: +41 78 692 88 00 www.centralisgroup.com
• • • • • • • • • • •
M&A Advising der public Beratung transactions authorities Hand öffentlichen
Corporate Secretarial Services Management Services Directors/Part-time Employees Accounting Services Invoicing & Re-invoicing Payroll and HR Activities Furnished Office Accommodation Domiciliation Services Regulatory Filings & Returns Full Administrative Support FINMA Reporting Andreas Thommen | General Manager andreas.thommen@centralis.ch
Worldwide Offices: Cayman Islands · Dubai · France · Hungary · Ireland · Luxembourg · Romania · Switzerland (Geneva, Lucerne, Neuchâtel, Schaffhausen, Zug, Zurich) · The Netherlands · UK · US Desks: Canadian
Tax experience you may count on Mühlentalstrasse 2 Postfach 8201 Schaffhausen Tel +41 (0)52 633 03 03 Fax +41 (0)52 633 03 23 info@kpag.ch, www.kpag.ch
III
TAX CONSULTANTS / FIDUCIARIES
Tax consultants / Fiduciaries Audit | Consulting Accounting | Tax & Legal IT Solutions
Tax advice from an expert in your region As tax specialists, we do our best to reduce your taxes and increase your efficiency. Discover your potential – together with the tax professionals of OBT.
www.obt.ch
OBT AG Stefan Grimm | Rheinweg 9 | 8201 Schaffhausen | Phone +41 52 632 01 50 | Fax +41 52 632 01 55
Park Treuhand AG
For broad advisory services in taxes and business administration Promenadenstrasse 19 8201 Schaffhausen Tel: 052 630 09 80 www.parktreuhand.ch
Park Consulting AG
Walder Wyss Ltd. Zurich, Geneva, Basel, Berne, Lausanne Lugano www.walderwyss.com
The amount of taxes … Ins_Schaffhauser Tax Guide_170x60mm_sw_en.indd 1
… has a decisive impact on corporate earnings – and all business activities have tax implications. We specialise in tax planning for companies, business owners, investors and employees. We support firms in developing tax-efficient structures for their local and international activities. Contact: Martin Busenhart, lic. iur., Certified Tax Expert /Partner Phone +41 58 658 55 80, martin.busenhart@walderwyss.com
16.03.2016 14:22:07
Notes
Canton of Schaffhausen Economic Promotion Herrenacker 15 CH-8200 Schaffhausen Switzerland Phone +41 52 674 03 03 Fax +41 52 674 06 09 www.invest-in-schaffhausen.com Canton of Schaffhausen Tax Administration J.J. Wepfer-Strasse 6 CH-8200 Schaffhausen Switzerland Phone +41 52 632 79 50 Fax +41 52 632 72 98 www.steuern.sh.ch