Benefitting from an Attractive Tax Regime

Transcription

1 Benefitting from an Attractive Tax Regime Canton of Schwyz Relocation Conference 20 th September 2011 Bernhard Auf der Maur Tax Partner, Swiss certified tax expert CONVISA AG Herrengasse 14, 6430 Schwyz Eichenstrasse 2, 8808 Pfäffikon Tel

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3 Annual hours of work for tax compliance in selected European countries Source: PWC/World Bank (Paying taxes 2011 The global picture)

4 Benchmark Study: Effective tax burden of companies and of highly qualified manpower (2009) Source: BAK BASEL (BAK Basel Economics AG)

5 Benchmark Study: Effective tax burden of companies and of highly qualified manpower (2009) Source: BAK BASEL (BAK Basel Economics AG)

6 Overview Introduction to the tax system in Switzerland Tax system «hard» / «soft» factors Canton of Schwyz Large regional differences in the Canton of Schwyz Corporate taxation Tax rate / Special purpose companies Tax base Imputation of income tax to capital tax Individual taxation Tax rate / Lump sum taxation Tax base Tax privileged dividends Tax planning with pension fund No gift and inheritance tax Summary / Recommendation

7 Tax system in Switzerland Switzerland is a country with a federal structure (3 levels): Bund (federal) 26 Kantone (cantons) Ca Gemeinden (municipalities) Cantons have a significant sovereignty in financial and fiscal matters Limited by the Federal tax harmonisation law Result: tax competition between the cantons (tax rates, valuation principles, specific tax deductions)

8 Tax system in Switzerland Major taxes Federal Cantonal Total tax burden (maximal rates) Individual income tax X X 18.6 % - 45 % Wealth tax X 0.1 % - 1 % Corporate income tax X X 11.5 % % a) Capital tax X 0.0 % % b) VAT X 8 % (2.5 %, 3.8 %) Inheritance / gift tax x 0 55 % Withholding tax x 35% a) tax rate for normal taxed corporations b) 0% possible in case of imputation of income tax to capital tax

9 Taxable income level where highest rates of personal income tax take effect Source: KMPG: Individual income tax and social security rate survey 2010

10 Switzerland: «Hard» international factors Extensive treaty network: currently more than 80 double tax treaties No treaty override by national law Negative effect: restrict the power to tax In general exemption method Credit method on dividends, interest and royalties Bilateral treaty with the EU: Agreement on taxation on savings Withholding taxes of dividends, interest and royalties between associated companies in principle 0%

11 Switzerland: «Hard» national factors Corporate tax Participation income generally exempt Dividends: 10% of equity or market value of at least CHF 1 Mio Capital gains: 10% or CHF 1 Mio of equity and a minimum holding period of one year No subject to tax rules Individual tax Tax free private capital gain Exemption: Real estate tax on gains on sale of real estate

12 Switzerland: «Soft» factors Tax competition: tax adminstrators are customer-oriented Broad rules in tax code: economic approach Ruling policy in tax matters (written answers in short time) Transfer pricing: arm s length principle No specific transfer pricing legislation No particular documentation requirement; Safe haven rules: e.g. thin capitalisation rules Flexible reorganisation rules No CFC-rules, no anti-tax haven rules

13 Switzerland: «Hard» factors Drawbacks Withholding tax of 35% on dividends and interest (excl. intercompany interest) Net wealth tax of 0.1% - 1.0% Capital tax of 0% - 0.7% Solution / tax planning Fully recoverable for Swiss tax residents; attractive dividend taxation Set up of exit structure Tax free capital reserves; pre-immigration tax planning Take up residency in the Finance Valley: 0.1% Set up of pre-immigration trust (tax ruling) Domicile of company in Canton of Schwyz (imputation of income tax to capital tax) Moderate thin capitalisation rules; shareholder loan Distribution of retained earnings Holding company structure

14 Large regional differences in Canton of Schwyz: maximal income tax rates for individuals Wollerau 195% x 3.65 = 7.12 % % % Finance Valley Morschach 365 % x 3.65 = % % %

15 Large regional differences in Canton of Schwyz: corporate tax rate for normal taxed companies Wollerau 203 % x 2.25 = 4.57 % 8.50 % % % (eff.) Finance Valley Morschach 401 % x 2.25 = 9.02 % 8.50 % % % (eff.)

16 Canton of Schwyz: corporate taxation Lowest corporate income tax rate of Switzerland in Wollerau / Freienbach / Feusisberg (Finance Valley) Tax privileged special purpose companies holding companies domiciliary companies mixed companies effective tax rate 7.8% - 9%

17 Canton of Schwyz: corporate taxation Tax base All commercially justified expenses (incl. taxes) are tax deductible General bad debt provision of 10% / 15% for Swiss / international debtors Lump sum guarantee provision; stock provision, pension fund provision etc. Immediate depreciation for movable assets (EDP, company cars, goodwill, etc. )

18 Canton of Schwyz: Corporate taxation Imputation of income tax to capital tax Example: normal taxed corporation in the community of Freienbach Taxable profit (after taxes) 200'000 Taxable net equity 10'000'000 Corporate income tax Cantonal/communal tax (statutory rate) Basic tax rate 2.25% Multiplier of community Freienbach % Total cantonal/communal tax rate (statutory rate) 4.82% Corporate income tax 9'600 Corporate minimal tax (capital tax) Basic tax rate 0.04% Multiplier % Total cantonal/communal tax rate (statutory rate) 0.086% Corporate minimal tax (capital tax) 8'600 Total corporate taxes due 9'600

19 Canton of Schwyz: Individual taxation Lowest income tax rate of Switzerland in Wollerau / Freienbach / Feusisberg Lump sum taxation Individuals who do not engage in gainful activities in Switzerland In principle taxation based on the level of expenditure Control calculation: Swiss-situs assets and Swiss sourced income

20 Canton of Schwyz: Individual taxation Tax base Reminder: tax free private capital gain Generous lump sum social deductions and basic standard deductions for e.g. employment income, real estate maintenance costs Privileged dividend taxation 60% for direct federal taxes 25% for cantonal taxes (other cantons 20% to 70%) Precondition: holding of at least 10% of the share capital (foreign or Swiss companies)

21 Tax priviledged dividend in combination with low corporate and individual income tax rates Shareholder Wollerau Dividends Federal: 60% taxable Canton SZ : 25% taxable 100% Corporation (normally taxed) Wollerau Dividend distribution Tax on privileged dividends Federal tax 6.90 % Cantonal/communal tax 1.78 % Total 8.68 % Remaining dividend after taxes Overall tax burden 19.2 % Thereof Federal tax 13.6 % Profit before tax 1'000'000 Corporate income tax Federal tax 7.51 % Cantonal/communal tax 4.04 % Total % Profit after tax

22 Canton of Schwyz: Individual taxation Tax planning with pension fund contributions Cantonal taxes Direct federal taxes Total Pension fund contributions: fully tax deductible at a maximum rate of 7.1 %* 11.5 % 18.6 % - yield on pension fund assets income tax exempt - pension fund assets net wealth tax exempt Capital payments from pension fund: taxable at a maximum rate of - income tax 3.9 %* 2.3 % 6.2 % - withholding tax (applicable in case of foreign residency) 2.5 % 2.3 % 4.8 %** Canton Schwyz offers the lowest withholding tax rates in Switzerland for capital payments from pension funds! * community of Wollerau ** final tax burden in case of UK residency

23 Canton of Schwyz : No gift and inheritance tax No federal inheritance and gift tax Canton of Schwyz: only canton with no inheritance and gift tax on cantonal / communal level Result: inheritances and gifts are completely tax exempt, for all beneficiaries / heirs

24 Summary / Recommendation Analysis of facts and define long term objectives Drawing of an optimal, taylor-made structure, eventually including exit-structure by combining the various attractive tax regimes in Switzerland (low tax rates, privileged dividends, tax exempt private capital gains, special purpose companies etc. etc.) Clarify possible tax effects in the home country and in Switzerland; eventually obtaining a tax ruling in Switzerland If necessary, implementing part or the whole structure before immigrating to Switzerland Immigration to Switzerland and finalizing the structure; start of operative tax planning

25 Thank you for your attention! Bernhard Auf der Maur Tax Partner, Swiss certified tax expert CONVISA AG Herrengasse 14, 6430 Schwyz Eichenstrasse 2, 8808 Pfäffikon Tel