Immigration of Foreign Corporations to Switzerland.
In the last few years, immigrations of foreign corporations to Switzerland were stagnating somehow. This was due to expected future changes in Swiss tax legislation under the fight of the OECD against so called Base Erosion and Profit Shifting (BEPS) strategies. It is clear that Switzerland will have to give up a lot of its special tax regimes such as mixed or auxiliary companies. However, Switzerland will offer other, internationally accepted privileges (such as licence boxes) and maintain generally low tax rates for corporations and individuals. Therefore, we can expect that also in the future quite a few foreign corporations will move their registered office and effective management to Switzerland. The legal requirements and the tax implications of such an immigration of a corporation to Switzerland are the following.
First of all, the foreign competent authority must certify that the foreign corporation duly exists and that a transfer of the registered office is allowed under the foreign law.
The Swiss international private law further requires that the by-laws of the foreign corporation are adapted to one of the legal forms allowed to corporations in Switzerland (e.g. AG or GmbH). This question usually requires a written opinion of the Swiss institute for comparative law.
Then, a certified auditor must verify that the share capital is fully covered under Swiss or generally accepted accounting rules.
Further, the board members have to certify that they will move the effective management to Switzerland.
If all these preliminary questions are answered positively, the foreign shareholder’s meeting decides to move the corporation to Switzerland. Because of the following tax implications, the shareholders might also decide to change the capital structure of the corporation prior to the relocation.
The board then files the legalized minutes and the new by-laws with the Swiss commercial register.
A foreign corporation moving to Switzerland should no longer aim to profit from the very favorable Swiss Holding or Auxiliary company regimes (or only for a short period of 2 – 3 years), because these regimes will be abolished under the BEPS legislation. However, the tax rates for ordinarily taxed corporations are still quite attractive compared to our neighbor states in Europe. Further, a corporation once in Switzerland can use the more than 100 tax treaties that reduce withholding taxes on dividends, royalties and interest payments received, whereas most tax haven countries do not have any tax treaties at all.
Additionally, the (individual) shareholders might profit from a „transposition“ of taxable retained earnings into tax neutral capital (for corporate shareholders, this is not as important, because usually they can profit from the so called dividend exemption on distributed retained earnings).
For example, the shareholders might profit from a recent change in Swiss tax law. Paid-in share premiums (that are quite common with publicly traded corporations) can now be paid back to the shareholders as a „repayment of capital contribution reserves“ without any income or withholding tax consequences. Therefore, a payment that under the foreign jurisdiction would qualify as a taxable dividend distribution is now tax neutral. All that the corporation has to do is to book the share premiums as „capital contribution reserves“ on a separate account in the balance sheet before moving to Switzerland.
Moreover, if the foreign corporation comes from a tax haven country, it could transform its retained earnings into share capital before moving to Switzerland. Such „bonus shares“ (conversion of reserves into capital stock) would be subject to Swiss withholding taxes on dividends when issued here. However, when these „bonus shares“ are issued while the corporation is still domiciled in a tax haven, there is no withholding tax and even a lot of countries where the shareholders are domiciled would not tax such shares upon issuance (only, maybe, when paid back upon resolution of the corporation).
The foreign corporation might also step up the tax basis of its assets and liabilities at its old location if the tax implications for this are lower than in Switzerland or if it levies an exit tax on the transfer of business anyway.
Later, these assets can be depreciated again tax efficiently and/or new provisions can be built in Switzerland.
Switzerland does not even levy a stamp duty on pre-existing share capital (except on share capital that was issued only shortly before moving to Switzerland).
In conclusion, immigrating foreign corporations to Switzerland might indeed be very attractive in a lot of cases. Of course, these remarks are very general and may not be used as guidelines, because each case is different and should be examined thoroughly and regulated in binding rulings with the Swiss trade register and tax authorities before effectively moving to Switzerland