Holding Onto Tax Benefits: Why Form A Holding Company In Switzerland

holding company in Switzerland

19 Aug Holding Onto Tax Benefits: Why Form A Holding Company In Switzerland

Many investors are unaware of the benefits they can reap from establishing a Swiss holding company because they are unsure how to approach the concepts and reasons why Switzerland is a fantastic place to organise this specific business. Alternatively, it could be that forming an entity in Switzerland is beyond an investor’s knowledge or expertise and local assistance and advice is required. For those unfamiliar with the business world, even the concept of a holding company might be foreign.

What Is a Holding Company

While many businesses are established to provide a service, solve a problem, or develop a new product, a holding company is not organised for any of these purposes. In fact, by definition it is not allowed to be. A holding company is a business with the singular purpose of controlling and managing the financial assets of another company or corporation. A holding company must own enough of the voting stock in the subsidiary that it controls that company, and usually exists for financial or risk related reasons.

Why Form a Holding Company in Switzerland

Switzerland has long had a reputation as a great place to organise a holding company. The reason many investors and businesses look to establish a holding company in Switzerland is because the tax benefits are better in Switzerland than in other European countries, including the United Kingdom. The tax savings result in more financial flexibility to support a subsidiary, make other investments, or reward investors in the holding company.

The reason the tax laws are so favourable in Switzerland is because the Swiss cantons often exempt or partially exempt holding companies from income tax. A canton is analogous to a state in the United States of America or similar to a county in the United Kingdom. Therefore, holding companies are only required to pay federal income tax in a country where the income tax is minimal compared to other places.

This creates a tax shelter for companies to avoid a second level of taxation that is collected in many other countries. Whether a holding company pays none or only a portion of the income tax on its revenue is determined canton to canton. A company familiar with formation, registration, and administration of Swiss holding companies is best able to advise a business owner or investor on the best place in Switzerland to base a holding company. Although, Canton Zug is extremely popular, with one in every four holding companies based in that part of Switzerland.

How to Qualify for the Tax Benefits

There are a number of conditions that a holding company must meet in order to be entitled to the tax benefits. First, a holding company is not allowed to have other core businesses or purposes to receive the favourable tax benefits in Switzerland. Second, the Swiss holding company is forbidden to conduct business in Switzerland. Third, in most cantons it is necessary that at minimum two-thirds of the holding company’s total assets or revenue comes from a business established outside of Switzerland. These three are just the basics. Specialists in Swiss holding companies can advise international investors and corporate groups on other conditions that must be met.

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