Self-employed: 4 tips for optimising your tax position in Switzerland

Optimising taxes for the self-employed in Switzerland: a comprehensive guide

People whose main occupation is self-employment account for more than 12 % of Switzerland’s working population (source: Federal Statistical Office). This high figure demonstrates the importance of entrepreneurship in the country. Nevertheless, like all Swiss people, the self-employed are subject to a tax regime and must pay taxes. Certain business structures have changed the landscape, giving the self-employed the option of choosing a favourable tax regime. But how exactly does taxation work for the self-employed in Switzerland? How can you optimise your tax position in Switzerland as a self-employed person? This article provides the answers.

How does taxation work for the self-employed in Switzerland?

Under the “sole proprietorship” structure, self-employed people in Switzerland are liable for tax on all their professional and private income. This means that revenue from your self-employed activity is declared as personal income. With the progressive taxation in force in Switzerland, you therefore pay tax according to your income. The more turnover you generate, the more you owe the state. This can be an advantage when starting out as a freelancer or trader.

When operating as a sole proprietorship, you benefit from simplified accounting up to 500 000 € in turnover. This notably saves you from having to complete additional paperwork. There is no need to put up capital, so you can start your business without a substantial budget. Unlike other structures, this status is not subject to double taxation (on income and wealth).

Anyone setting up a sole proprietorship undertakes to comply with the laws and rules in force. Ideally, you should use the right tools, such as Sequence, to manage your accounts and seek the services of a local fiduciary, an accounting expert.

Different rules apply to SA/SARL companies.

4 tips for optimising your taxes as a self-employed person in Switzerland

Now that you know how taxation works in Switzerland, you may want to learn some tips for reducing your taxes. The scope and tools available for tax optimisation in Switzerland for entrepreneurs operating as sole proprietors are fairly limited. As a result, successful businesses tend to switch to an SA or SARL once they have generated a certain level of turnover. Nevertheless, here are some tips for freelancers and self-employed people looking for tax optimisation in Switzerland.

Umbrella employment: for entrepreneurs starting out

Umbrella employment is a contract between three parties: the self-employed person (the umbrella employee), the client and the umbrella company. Each agreement actually gives rise to two contracts: one between the client and the service provider, and one between the service provider and the umbrella company.

With this status, you enjoy the same benefits as an employee:

• health cover;
• supplementary health insurance;
• minimum wage;
• unemployment insurance.

You also benefit from a generally more favourable tax rate thanks to dividend distributions. Another advantage of umbrella employment is that the umbrella company handles administration and salary payments.

Occupational pensions and retirement contributions for the self-employed

In Switzerland, there are two main pillars of occupational pension provision:

• Old-Age and Survivors’ Insurance (AVS): a basic social security scheme funded by employees and employers.
• mandatory occupational pension provision (LPP): an occupational pension scheme funded by the employer and employee. Self-employed workers are not obliged to join this scheme, but they can choose to do so.

Joining the second pillar (LPP) as a self-employed worker can offer significant tax advantages. Contributions paid into the second pillar are generally deductible from taxable income, reducing the tax base and therefore income tax. However, there are limits to these deductions, and they vary from year to year.

Self-employed people can choose between several pension institutions (pension funds) for their second pillar. It is essential to compare the fees, returns and investment options offered by these institutions. By choosing a plan with lower management fees and better returns, you can optimise your savings over the long term.

Deducting your business expenses

As a freelancer in Switzerland, you can deduct your business expenses from your taxable income to reduce your tax burden. However, you must follow certain rules, such as keeping accurate records of all expenses related to your self-employed activity. This includes invoices, receipts, bank statements and any other supporting documentation.

Deductible expenses for the self-employed in Switzerland may include:

• rent (in proportion to the space used) and office supplies;
• travel and transport costs related to your professional activity;
• professional training costs;
• membership fees for professional associations;
• business insurance premiums;
• marketing and advertising costs;
• costs associated with running your business, such as accounting and legal fees.

To calculate tax deductions, simply subtract your total business expenses from your gross income to obtain your taxable income. Make sure you keep supporting documents to substantiate your deductions in the event of a tax audit. Using a tool such as Sequence can help you keep your accounts organised and automate part of the tax deduction process.

Switching to an SA/SARL (limited liability company)

If you feel that you could optimise your tax position, it may be time to switch your business from a sole proprietorship to an SA or SARL. Its tax treatment does not make it advantageous: you are taxed on the company’s profits as well as on your income as a shareholder. The taxation of a SARL varies from canton to canton. 

Nevertheless, a SARL allows you to invest for the long term. Profits can be reinvested in property, stock purchases or business development to limit corporate tax. This allows you to develop your business while optimising your tax position. 

In brief: how can I optimise my taxes as a self-employed person?

There are several options available to optimise your tax position as a self-employed person. The method you choose will depend on your background and turnover. You can always ask your accountant for advice.