Nobody told you in business school, I bet.
1. Who needs a GmbH or AG?
You can start your business as a Einfache Gesellschaft. No need to spend money for a GmbH or AG. Einfache Gesellschaft allows you to use any business name you like, open a Swiss bank account in the company name (just sign a simple shareholder agreement Gesellschafter-Vertrag) and use the company name for your postal address.
If the financial risk of your business is going beyond 20k CHF you should consider founding a GmbH as the Einfache Gesellschaft doesn’t protect you as an individual from claims against the company.
2. Contracting individuals in Switzerland
Switzerland is a liberal country and contracting somebody for a job or a project is a breeze? I am sure everybody would agree, except the SVA. When it comes to social security, self-employed must prove their independence because SVA wants to protect regular employees from being forced into self-employment by their employer to save social security contributions. Before you sign an agreement with a self-employed individual, you should ask him/her for written confirmation letter from the SVA that proves his/her self-employed status.
Here is what can happen if you don’t: If you contract someone who is not recognized as self-employed and the SVA notices – and they eventually will because SVA have access to tax statements – your company will be subject to fines and back payment. The biggest cost (and pain) for your company however will be the administrative effort involved in figuring out all those contracting engagements years back.
Note that this only applies to contractors based in Switzerland because only those are subject to social security contributions to SVA.
3. VAT – register early
The ESTV (Swiss federal tax office) requires you to sign up for paying VAT for the year in which you surpass CHF 100k in revenue. Beware, don’t just wait for this to happen in the middle of your business year – you haven’t charged VAT on your invoices from earlier in that year. If later in the year you find out that your business will surpass 100k CHF in revenue, you will be forced to retroactively charge your clients the VAT. Decide on the first day of the year whether your company is likely to do more than 100k of revenue in the next 12 months and if yes charge VAT on your invoices from the very first day on.
You might rejoice when you hear that your business doesn’t pay VAT on anything purchased or contracted from outside Switzerland. But nobody has told you about the Bezugssteuer. Make sure you pay Bezugssteuer whenever there is no VAT on the invoice you receive from a company outside of Switzerland, The Bezugssteuer is due even on that Cloud subscription of yours.
5. Dividends & Verrechnungssteuer
Congratulations, your company is doing good and you would like to take out some money of the company. Slow down – ESTV will only accept payments from the company to individuals as dividends if 1) your company declares earnings in its financial statement at the end of the business year 2) some of these earnings are declared to be paid out on a specific date as dividends in the protocol of the shareholder meeting.
We’re not done yet. Dividends are subject to Verrechnungssteuer. Your company is required to pay 35% of the dividend directly to ESTV. Yes that’s right, your shareholders only receive 65% of the dividends. They have to reclaim the rest via their personal tax declaration in the following year. Therefore it is good practise to define the 31.12. of the year as dividend payout date, as the shareholders then can reclaim it in their tax declaration only shortly after. It’s pretty crazy but even so some time will pass until all the money is where it belongs: year 1: financial statement of the company, year 2: dividend payment, year 3: personal tax declaration of the shareholder, year 4: ESTV pays back the Verrechnungssteuer. Four more years! 🤯
What if you (as a shareholding individual) need the money right away? If your company makes a payment to you the ESTV will classify it as salary and you will pay full SVA social contributions and income taxes on it (after the earnings of your company already got taxed). That sure hurts. It’s therefore better to receive this money as a Gesellschafter Kontokorrent loan. The money technically still belongs to the company (and you have to pay due interest for the loan to your company) but you don’t have to declare it as income in your personal tax statement and can offset the loan later against the dividend payment.
There is no incentive anymore to keep the shareholder’s loans up for longer than needed, so in most cases it’s best to settle them as soon as possible. For dividends, Federal income tax is discounted by 40% while the Staats- und Gemeindesteuer in the Canton of Zurich is discounted by 50% in order to reduce double taxation of company earnings.
Disclaimer: This is not legal advice which means you are discouraged to base your decisions on this article. Consult a lawyer.