Many foreigners set up their businesses in Switzerland. These foreign contractors are, like local contractors, subject to taxation. What are the requirements for foreign companies operating in Switzerland?
Foreign profits are part of the taxable profit in Switzerland. This provision is only excluded if domestic measures are taken or if a treaty agreement is ratified.
In order to avoid double taxation, Switzerland has finalized about 100 agreements. These agreements relate to the tax status of foreign profits in Switzerland. These agreements can be used by companies that are resident in Switzerland and are the holders of the taxable profit.
Property income from foreign sources and profit attributable to legally established establishments abroad are excluded from the Swiss tax base. This does not exclude the possibility that such income may be taxable abroad according to the domestic law of each country.
Paradoxically, foreign source income from movable assets is fully taxable in Switzerland. Tax treaties reduce the foreign tax burden by offering substantial reductions in withholding taxes.
It is noted that for dividends, the withholding is reduced from 15% to 0% for participation dividends. For the one on interest, the withholding is limited from 15% to 10 %. It can also be dissolved.
All income of persons residing in the Swiss cantons is taxable, including income from investments outside Switzerland, with the exception of income from real estate and business operations. Nevertheless, these are used as the basis for calculating the overall tax rate.
In order to avoid double taxation, Switzerland has signed agreements with various countries for the relief of taxes on foreign source income. The beneficiaries of income from movable assets most frequently make use of these double tax avoidance agreements.
Indeed, these double taxation avoidance agreements consist in reducing the withholdings on income that the countries of domicile of the movable capital impute to dividends and various interests.
Through these agreements, investors resident in Switzerland only receive benefits by using these agreements. Indeed, they can have the withholding on their dividends reduced from 15% to 5% and on interest and royalties the withholding can be limited to 10%. In some cases, interest and royalty deductions may even be completely waived.
In addition to the relief from withholding taxes on dividends, interest and royalties, taxpayers may subsequently resort to the taxation of residual withholding taxes under the Swiss tax system. This is beneficial for investors given the low tax rates in Swiss tax law.
In summary, these double taxation avoidance agreements initiated by Switzerland offer tax relief on foreign income in two stages.
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