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-   -   Techie question regarding location and retained earnings (https://www.englishforum.ch/finance-banking-taxation/69740-techie-question-regarding-location-retained-earnings.html)

topolino 11.12.2009 00:55

Techie question regarding location and retained earnings
 
I am considering opening the European branch of my company in Switzerland. It looks like it's going to be a domiciliary company since the business is worldwide (consulting, event planning).

A few things that have me confused... (well, lots more but the two relevant to this post :-)

1) I am aware of the tax variations according to canton but say I establish the company in Zug. Does the business have to operate from Zug (i.e. office has to be there...) ?

2) Also at the end of the year how are retained earnings/monies NOT distributed but reinvested in the company typically taxed?

Thanks...I've read all the great posts--what an excellent resource!

Syt 11.12.2009 12:05

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...


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