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Old 11.12.2009, 12:05
Syt Syt is offline
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Re: Techie question regarding location and retained earnings

Hi,

The tax rate variation is sensitive for the income tax rate. Though as you describe the business, the company seems to be eligible for a special tax status, like mix or domiciled company (difference may be significant due to potential amendment of the pure domicile company with the third corporate tax reform). Thus, with this status (to be submitted in written to the tax authority), the effective tax rate will be reduced to approx. 9% in Zug (even 8% with a pure domicile company, but as said...). This effective tax rate won't be much different in other cantons, even in the high tax cantons, as for instance it will be around 11-13% in VD/GE.

Thus, this answers your first question: if you domicile a company at a location, it's better to have the company being effectively managed from this location, as in CH, a company is taxable where its effective place of management is located and not where it's registered. Therefore if you intend to have employee in CH in another canton (which first means that it won't be a pure domicile company...), you should better have the company registered in that canton.

Second, the non distributed profits (=retained earnings) and share capital plus any legal reserves will be subject to the equity tax (capital tax) at the end of the year. The rate may vary from one canton to the other, but domiciled/mixed company are taxed at a lower rate and that shouldn't be significant apart if you have hundreds of millions of retained earnings... In VD for instance, the capital tax rate for a mixed company is at 0.02%...

Edit: do you want to open a branch or a subsidiary? A branch may not be eligible for a special tax status, this have to be discussed with the tax authority. Furthermore, if it is a subsidiary of a US entity, you should pay severe attention to the US rules, in particular to the "check the box" rules to make sure you use the tax planning appropriately. You should also seriously consider the questions around repatriation of cash through dividends, what's the final tax at source on dividends, do you have credit on that, etc. Depending what the home country is, pay also attention to potential CFC rules...

Last edited by Syt; 11.12.2009 at 15:14.
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