Tax Residency in Switzerland

Need for tax residency in business

Tax Residency in Switzerland

It is not always obligatory to be a tax resident of Switzerland in order to conduct business in the country; if forming a joint stock company, there is no requirement for the founders to be either Swiss nationals or resident in Switzerland. With other forms, including a sole proprietor, the business owner is required to be a resident.

Non-resident companies deriving income from Swiss sources may however be subject to withholding taxes and corporate income tax.

Switzerland is not a member of the European Union but has bilateral agreements with the European Union on a number of issues, easing restrictions for citizens of these countries to enter Switzerland to live and work; in effect, residents of the ‘older’ EU –17 and EFTA members (France, Germany, Austria, Italy, Spain, Portugal, UK, Ireland, Denmark, Sweden, Finland, Belgium, Netherlands, Luxembourg, Greece, Cyprus, Malta, Norway, Iceland and Liechtenstein) are treated in the same way as Swiss citizens for the purposes of working, and no permit is required for stays of less than 90 days, although registration is still required for such workers. After that period, such nationals must obtain a residence permit, if they want to continue their working residence in Switzerland.

Citizens of the remaining, newer, EU member states face certain restrictions (quotas, controls on entry, and the prioritisation of Swiss nationals in the event of a conflict over a position), but these are set to be removed, by May 2011 in the majority of cases, and by June 2014 for the remaining countries.

Non-EU/EFTA residents

 Non-EU/EFTA resident persons wishing to work in Switzerland must obtain a work permit from the applicable cantonal migration office. Employers are generally responsible for obtaining permits for their employees. A self-employed individual must obtain his or her own permit. Permits may be issued to cover short, medium or permanent stays in the country.

The different types of permits are as follows:

  • L permit Designed to cover temporary positions and stays in Switzerland.
  • B permit For foreigners remaining in Switzerland for a specific purpose over a longer period of time (whether employed or not).
  • C permit For permanent residents (those who have received a permanent residence permit after living in Switzerland for five or ten years).
  • G permit Intended for cross-border commuters.
  • F permit For foreigners who have been granted provisional permission to stay in Switzerland; issued by the cantonal authorities based on approval by the Federal Office for Migration.
  • N permit For asylum seekers.
  • Ci permit For the employed spouses and children of members of foreign consulates or intergovernmental organizations.
  • S permit For people in need of protection.

Anyone who works or carries on a business in Switzerland or lives in Switzerland for more than 180 days in any one calendar year is classified as resident for tax purposes.

For corporate income tax purposes a company is deemed resident in Switzerland if it is either incorporated in Switzerland or effectively managed from there. Thus a UK-registered company whose effective seat of management is in Switzerland is a Swiss resident company for corporate income tax purposes.

Resident companies pay tax in Switzerland on their worldwide income, whereas non-resident companies generally pay only on their Swiss-sourced income, meaning that they are likely to be subject to Swiss corporate tax if they are involved in a business based in Switzerland, have a permanent base there, and/or own real estate. The Swiss branch of a foreign company pays the same rates of corporate income tax on profits, income and capital gains as would be paid by a Swiss-resident corporate entity, as it is deemed to be a permanent establishment. Profits remitted abroad by the branch are not subject to any withholding tax in Switzerland, however.

This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .

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