Is Switzerland a Tax Haven?

Swiss banks are renowned for their reliability and are among the most respected worldwide. They have earned this reputation thanks to confidentiality laws. Switzerland has also maintained its popularity as a safe haven for foreign companies and wealthy individuals for many years without violating global standards and commonly accepted rules. But is Switzerland a tax haven nowadays? Our experts will help you figure this out.

switzerland tax haven

In recent years, global standards have been completely revised, and the former anonymity of beneficial owners has been completely eliminated. Despite active resistance, Switzerland was forced to accept the rules of this global game while maintaining its legislative norms regarding confidentiality and low taxes.

Although Switzerland is no longer a place to hide money, it still offers wealthy individuals favorable capital protection and business taxation conditions, despite pressure from the United States and the European Union.

The main reasons for calling Switzerland a tax haven for storing financial assets are:

  • Switzerland is considered one of the best countries for international business structures due to low levels of taxation.
  • The country is known for its stable political situation, strong local currency exchange rate, and network of tax agreements with developed countries.
  • Although laws on confidentiality and the inviolability of private life have been weakened under pressure from the EU and the US, they continue to provide the highest level of protection for bank clients’ interests.
  • Corporate taxes in Switzerland are relatively low. And although Switzerland is inferior to the classic tax-free havens in this regard, Swiss tax rates retain the country’s attractiveness for large world-class corporations aimed at optimizing taxes in Europe.
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Why is Switzerland a tax haven?

Switzerland offers a high standard of living in the heart of Europe. While real estate prices are not considered cheap, they are significantly lower than in many areas of London. The crime rate in the country is low, and the climate in most Swiss cantons is mild.

However, the privilege of being a resident of Switzerland is far from cheap, as the cost of living in the country is relatively high. It is one of the highest in Europe and only affordable for individuals with good financial means.

Lump-sum payment instead of income and property taxes in Switzerland

Another important aspect that sets Switzerland apart from other major European countries and allows to call it a tax haven is its low tax rates.

Contrary to popular belief, Switzerland does not allow foreign individuals to reside and conduct banking operations within its territory without paying Swiss taxes. However, affluent individuals can make a one-time payment from their capital, which is sufficient for the government to recognize their taxes as paid.

This program of a lump-sum tax payment is only available to foreigners who are arriving in the country for the first time and do not hold Swiss citizenship or have an economic connection (business in the country).

This tax rate in Switzerland enables foreigners to achieve two goals at once:

  • obtaining a Swiss residence permit
  • optimizing taxes by paying a single lump-sum payment instead of income and property taxes.

The calculation of the lump-sum tax in Switzerland is based on the following formula:

  • Hypothetical taxpayer expenses in Switzerland are taken as the basis, which is the annual rent multiplied by 7 and then by 1.15.
  •  If the seven-fold annual rent of the taxpayer is less than or equal to CHF 360,000, then an additional 15% is added as a coverage amount for property tax.
  •  If the seven-fold rent or maintenance expenses exceed the base rate of CHF 360,000, then an additional 10% surcharge is applied to cover property tax.

For the HNWIs, this low-tax environment is seen as an unprecedented benefit of living in Switzerland. However, it is essential to note that the lump-sum payment is more suitable for affluent individuals with passive sources of income abroad and cannot be used by foreigners planning to work in tax haven Switzerland.

Explore the opportunity for legal residence in Switzerland by tax agreement.

Favorable tax agreements

Switzerland has a network of bilateral tax agreements with many countries, which contain provisions for reducing or exempting withholding taxes on dividends, interest, and royalties. Such agreements help to avoid double taxation, and taxes paid in one country cannot be levied in another.

Switzerland has also signed free trade agreements with a number of countries, which will benefit foreign entrepreneurs. Thanks to these provisions, you can take advantage of customs duties exemptions, as well as favorable conditions for trade operations and investments.

Banking sector of Switzerland

Swiss financial institutions have a deeply-rooted history of safeguarding the secrets of wealthy clients. Today, Swiss banks have yielded to pressure from the United States and the European Union – the tax haven has signed the FATCA law and a similar agreement with the EU but still maintains a leading position in the financial secrecy index.

In 2023, a series of changes occurred in Switzerland’s banking system and policies, including sanctions, scandals, and the acquisition of one of the largest banks by another (UBS bought Credit Suisse).

However, the protection level for regular clients not on the sanctions list remains unshakable. Even the fact that there is an automatic exchange of information with some countries does not diminish the popularity of Swiss banks on the global stage.

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Stable political environment

Switzerland is known for its stable political situation and neutrality, which has been subject to some disruptions in 2022-2023 due to banking assets and sanctions, but this has not affected the state’s fundamental principles and values. This makes Switzerland an attractive destination for wealthy individuals and companies seeking a secure tax and financial haven for their assets.

Switzerland corporate tax rate 2023

Regarding corporate tax in Switzerland, a company is considered a resident if it is registered in Switzerland or managed from this tax haven (similar rules apply in the UK).

Resident companies must pay taxes on their worldwide income, while non-resident companies only pay taxes on the portion of their income generated from real estate rentals in Switzerland. Swiss corporate tax rate varies from canton to canton and can range from 11.8% to 24%.

Which cantons have the lowest corporate tax rate in Switzerland?

Switzerland is comprised of 26 cantons, sovereign states possessing wide-ranging autonomy, particularly in the area of taxation. Currently, in 21 out of 26 Swiss cantons, tax rates are lower than the OECD-required minimum of 15%. Due to such favorable tax conditions, these cantons have become the most sought-after by foreign corporations in recent decades.

For reference, lower tax rates than those in Switzerland are only offered by classic offshore jurisdictions and tax haven countries.

Switzerland tax rates by canton (lowest to highest):

  • Nidwalden – corporate tax rate of 10.1%
  • Appenzell Ausserrhoden – corporate income tax is levied at a rate of 10.3%
  •  Lucerne – ranks third alongside its neighbor with the same taxation terms for entrepreneurs of 10.3%.

The highest corporate tax rate in Switzerland is levied by Geneva canton – 21.4%.

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Other tax haven countries

A tax haven country is a jurisdiction that offers low or zero tax rates to businesses and private investors. Here is the list of tax-free havens with favorable conditions in 2023:

  • United Arab Emirates (UAE) – currently, there is only one tax for businesses in Dubai, the 5% value-added tax (VAT). In 2023, a 9% tax on profits will appear, but it will only apply to companies conducting business inside the Emirates. Companies registered in free zones will still enjoy zero tax conditions.
  • The Bahamas – no tax is applied on income from foreign sources.
  • Bahrain – no taxes are applied to companies.
  • Bermuda.
  • British Virgin Islands.
  • Guernsey.
  • Jersey.
  • Vanuatu – offers zero tax for international businesses.
  • The Cayman Islands.
  • Monaco – the tax is 0% if the company operates outside the country of incorporation.
  • Saudi Arabia.

Low-tax haven countries for foreign companies are available in Europe, Asia, and other continents. These jurisdictions often have special zones for international entrepreneurs. Examples of such low-tax havens include:

  • Switzerland, where companies can receive significant tax discounts in specific cantons, even if the country adopts the OECD’s proposed 15% unified tax rate for companies earning over EUR 750 million.
  • The United Kingdom also offers advantageous tax rates for offshore companies, including in its central region and dependent territories. Companies can benefit from zero or reduced rates depending on the selected region and type of activity.
  • Andorra – this low-tax haven applies a corporate tax of 10%.
  • The Netherlands offers an offshore zone for holding structures.
  • Some states and territories in the US are also tax havens, with Puerto Rico being the most prominent, followed by Delaware, Nevada, Oregon, and Arkansas.
  • Asian tax havens include China, Hong Kong, and Singapore.
  • Turkey also offers special conditions for companies formed in free zones.

Before selecting a country for company registration, it is essential to study all the nuances related to this subject, including the availability of double taxation treaties and the automatic exchange of information between countries. This will narrow down the search for jurisdictions and prevent mistakes that could result in fines and unplanned financial burdens. Well, the best solution would be to contact experienced professionals who will help you choose the perfect option for your specific goals.

Do you want to take advantage of favorable tax conditions for business in Switzerland? Use our expert assistance for company incorporation in this jurisdiction.

Will Switzerland remain a tax haven in 2023-2024?

For a long time, Switzerland has been considered a tax haven for wealthy individuals and offshore companies. In recent years, the country has somewhat changed its policy and adopted a number of international measures, incorporating them into state laws. These measures include:

  • an agreement on the automatic exchange of tax information
  • stricter rules on the creation and operation of offshore companies
  • transfer of information to the US IRS
  • blocking of some personal accounts on the sanctions list.

Initially, banking regulations did not significantly affect Switzerland’s tax rates, but in light of recent news, tax reform is expected to be introduced in accordance with the requirements and adopted norms of the OECD and G20 countries. This refers to a 15% tax, which cannot be lower than the established limit, as seen today in some Swiss cantons. The OECD and G20 global tax justice proposal involves applying an averaged tax rate (which can be higher but not lower) only to corporations and companies with an annual turnover of EUR 750 million or more.

If this happens in Switzerland, the country will become slightly less attractive to foreign investors, but it will not lose its status as a tax haven by 100%. After all, even a 15% tax is not high compared to other European countries.

Conclusion

Thanks to its favorable tax legislation, Switzerland has become a tax haven for private individuals and foreign corporations. Even the application of global measures to combat offshore activities and secrecy has not significantly undermined Switzerland’s tax policy, economy, and banking sector.

If you are interested in Switzerland and its tax and banking systems, we are glad to offer you a range of professional services:

  •  remote opening of personal bank accounts in Switzerland
  • remote opening of numbered personal bank accounts in Switzerland
  • remote opening of corporate bank accounts for offshore companies in Switzerland (Malta, Cyprus, Singapore, Hong Kong, UK, and all European companies).
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