At the crossroads between law and accounting, corporate taxation is an important subject for financial management. While tax optimization is legal, and can improve a company's profitability, there are nevertheless strict rules to be observed. Find out how to minimize tax costs while staying within the law.
Understanding corporate taxation
Important: in this article, we will only discuss the taxation of legal entities (and not individual companies).
There are three main types of corporate tax:
- Withholding tax: dividend distributions are taxed at around 35%. However, the rate of this tax is adjusted according to the various Swiss tax treaties.
- Corporate income tax: in Switzerland, income tax is a deductible expense. However, there are different tax rates for different cantons and communes, so the tax burden can vary by as much as a factor of two.
- VAT: with a few exceptions, companies with annual sales in excess of CHF 100,000 must pay VAT. The tax rate varies between 7.7% for services, cars and alcohol (rising to 8.% from 2024) and 2.5% for medicines, food and books (2.6% from 2024). For accommodation, the rate is 3.7% (3.8% from 2024).
GOOD TO KNOW
Each country has its own tax regulations. It's a good idea to find out which tax optimization levers are applicable, and which are not, for international companies!
How can a company optimize its tax situation?
Deduction of current expenses
De nombreuses charges courantes sont déductibles du résultat de Many current expenses are deductible from a company's income. This applies, for example, to raw materials and energy costs (gas, electricity, etc.), insurance premiums, advertising costs, and property and personal rents. These various expenses, deducted from revenues, reduce the amount of taxes due.
GOOD TO KNOW
By using depreciation appropriately and in accordance with the law, you can optimize your tax situation and save on taxes.
Carrying forward losses
Another method is to carry forward business losses against future profits. There is no time limit. By strategically managing losses, it is possible to offset corporate income tax for several years running.
Donations & dividends distribution
Since the latest tax reforms, it has been more attractive to transfer company profits in the form of a salary rather than a dividend. Salaries reduce the company's tax burden, unlike dividends. You should also be aware that transferring dividends entails a double tax burden: taxation at company level and personal taxation.
Create a holding company
Many companies use holding companies to reduce their tax bill. In fact, you should know that :
- Interest on a loan taken out with a holding company is tax-deductible;
- Holding company dividends are 95% tax-exempt;
- And the losses of one subsidiary can be offset against the profits of another subsidiary of the holding company.
The holding company's financial structure, with a "parent-child company" regime, therefore enables significant savings on corporate income tax. It is important to note that this type of set-up must be motivated by commercial rather than tax reasons.
In addition, the creation of a holding company may be subject to certain complex tax rules, which must be scrupulously respected, as abuse of rights is punishable by law.
Tax optimization: is it worth enlisting the help of corporate tax experts?
As you can see, corporate taxation, and more specifically tax optimization, is a technical subject. For best results, and to avoid tax fraud (whether intentional or not!), it's best to surround yourself with professionals: fiduciary experts, chartered accountants, lawyers.
Are you an accountant, financier or company manager looking to develop your skills? Join our short program on corporate taxation. Whether it's corporate tax, mergers & acquisitions or the sale of a business, we offer a 3-day training course on the subject.
Corporate taxation
What are the limits of tax optimization for companies?
While there are many tax strategies that can reduce the amount of tax a company has to pay, there are limits to tax avoidance!
This is particularly the case when tax optimization is taken to extremes, and financial arrangements are created solely to avoid paying tax. In other words, if the tax strategies used do not correspond to an economic reality, or reflect a misleading situation on the part of the company, then it may be a case of abuse of rights. It's illegal and punishable (heavily) by law!
You now have more information on legal ways to optimize your company's tax situation. Remember, there are many strategic ways to reduce your tax bill, but it's best to get trained, or have someone help you!
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