Taxes for the self-employed in Switzerland: a complete guide
Finally understand how taxation works for the self-employed in Switzerland and which tax rates apply to your business.
Nearly 13 % of Switzerland’s working population are entrepreneurs who declare their main activity as self-employed (source: Federal Statistical Office). Many Swiss people therefore choose to take the plunge into self-employment. But like everyone in work, entrepreneurs are subject to a tax regime and must pay taxes. However, the tax regime differs depending on the business’s legal structure. Taxation can therefore change according to the type of legal structure: this is often where self-employed people need clarity. Sequence gives you all the advice you need to navigate the maze of Swiss taxes for the self-employed.
How taxation works for the self-employed in Switzerland
In Switzerland, there are several legal structures for businesses. Self-employed people can choose between:
- a sole proprietorship;
- a public limited company (SA);
- a limited liability company (SARL);
- a limited partnership;
- a general partnership.
Under the sole proprietorship regime, receipts from your self-employed activity are declared as personal income. This means you are taxed on all your income, both business and private, without distinction. Switzerland applies progressive taxation. The amount of tax payable therefore depends on your income. The more turnover you generate, the higher the amount will be. An advantage for self-employed people just starting out: taxation is favourable. Accounting is also simplified up to the threshold of 500 000 € in turnover. You can start your business without a substantial budget and without having to understand numerous Swiss tax regulations.
Businesses with a different legal structure, such as SAs or SARLs, are subject to tax on profits and capital. Further explanations follow in the dedicated sections.
Finally, it is important to understand that Swiss taxation operates at three different levels:
- National level: the tax rate remains the same throughout the country. This rate is 8,5 % for companies limited by shares or capital and cooperatives, and 4,25 % for associations, foundations and investment funds.
- Cantonal level: the 26 cantons apply different tax rates.
- Municipal level: likewise, rates can differ between municipalities.
The business is therefore taxed according to the address where it operates, which generally corresponds to the company’s registered office.
Tax on sole proprietorships
Sole proprietorships are not taxed as companies in Switzerland. The self-employed person is therefore personally subject to federal income tax, rather than tax on profits as companies limited by shares or capital are. Depending on the turnover generated by the business, the tax rate can be high. It all depends on total income and wealth.
Sole proprietorships are also subject to cantonal income and wealth tax. As mentioned earlier, the cantonal tax rate varies by location. Finally, partnerships are subject to a surcharge or deduction relative to the cantonal tax: this is the municipal level.
As a self-employed person in Switzerland, you can deduct your business expenses from your taxable income. Deductible expenses include rent in proportion to the space used, office supplies, business-related travel, training, marketing and advertising, and the tools used to manage the business, such as accounting and legal fees.
To deduct expenses, you must keep accurate records of your business expenditure with invoices, receipts, bank statements or any other administratively valid supporting documents. You then subtract the total amount for the year from your gross income to obtain your taxable income. If you are considering investing through your company, buying stock or expanding the business, it may be time to switch from a sole proprietorship to an SA or SARL to optimise your taxation.
SAs and SARLs: tax on profits and capital
SAs and SARLs are subject to tax on profits and capital tax. The former is a federal, cantonal and municipal tax. The latter is exclusively cantonal. This means that the amount of tax can vary between two businesses generating the same turnover, depending on where the business operates.
What is tax on profits?
Tax on profits is a levy corresponding to a percentage of the profits a business makes over a year. The business is subject to this tax from the start of its operations. It is therefore important to take it into account in the business plan and when managing receipts.
How is tax on profits calculated for SAs and SARLs?
The amount of tax on profits for SAs and SARLs is calculated at three levels. Federal tax on profits is set at 8,5 %. Cantonal tax on profits varies between 5,9 % and 16 % depending on the location. The canton of Zug offers tax advantages, while Geneva and Zurich have some of the highest tax rates on profits.
Some cantons apply a policy that takes the business’s rate of return into account. This return is calculated using a ratio between capital, reserves and the net profits earned during the year.
Finally, municipal tax on profits also varies by location. Some municipalities do not levy tax on profits and receive a share of the revenue collected by the canton, while others levy a surcharge.
Contact your canton and municipality to find out exactly which rates apply to your business.
What is capital tax?
Capital tax is a cantonal levy on declared reserves, share capital or company capital. SAs, SARLs, partnerships limited by shares, associations, foundations and cooperatives are required to pay this tax.
This tax is levied for each financial year and its amount varies from 3 to 9 per thousand of the amount of capital. If the business has no registered office, its economic connection determines the canton to which it must pay its taxes (and therefore the capital tax rate).
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