Choosing a right canton: guidance on Swiss taxation

Taxation is levied at three levels: federal, cantonal and communal. The federal part is uniform across the country, while cantons and communes set their own rules within a framework of harmonisation law. The harmonisation does not equalise rates; it only defines the general tax base, deductions, depreciation rules and how profits and losses are calculated. Cantons then remain free to set their own percentages, and communes apply multipliers on top of the cantonal base.

Because of this layered system, the effective total burden differs widely depending on the canton and even the specific commune. Choosing the canton is therefore a strategic decision, as it can reduce or increase the effective tax percentage by several points. A single declaration is filed per year, which is then assessed both by the canton and by the federal authority, simplifying the process for taxpayers.

If something is complicated for you to understand, you should resort to tax consulting services.

Federal Tax

The federal corporate tax is 8.5% on profit after tax, which corresponds to an effective burden of around 7.8% on pre-tax profit. The calculation is the same across the country, so location does not matter for this portion.

There is a participation exemption. If a company holds at least 10% in another, or an investment worth more than CHF 1 million, then dividends and gains from such holdings are largely exempt. This makes the country in question a common location for holding structures.

An additional tax has been implemented since 2024 for large multinational groups in which their consolidated revenues are €750 million at least. A complex pursuant to ensure that in case the real tax reimbursed in Switzerland is below 15%, a top-up levy must be imposed to reach the OECD minimum. In most cases, this does not apply to small and mid-sized businesses.

Cantonal and Communal Variation

The decisive element is cantonal and communal taxation. Each canton defines its own tax percentage, and the communes within it apply multipliers. Some cantons operate progressive structures, others fixed percentages.

The overall effective combined rate (federal + cantonal + communal) ranges roughly between 12% and 21%. The national average lies around 14–15%. 

Within a canton, the communal multiplier matters but not as much as the canton itself.

Incentives and Reliefs

Several preferential regimes exist despite the abolition of earlier special statuses.

• Patent box: income from qualifying intellectual property can benefit from up to 90% relief at the cantonal level;
• R&D super deduction: in many cantons up to 150% of qualifying research and development expenses can be deducted;
• Step-up on migration: when moving operations into the country, hidden reserves may be recognised and depreciated over time;
• Tax holidays: in less developed regions, new enterprises may obtain partial exemptions for up to 10 years, subject to federal approval.

These measures are designed to attract innovative activity and new investments, especially in technology and manufacturing.

Capital Tax

In addition to the profit tax, cantons impose an annual levy on equity (capital tax). Rates vary between 0.001% and 0.5%.

Examples: Zug ~0.07%, Geneva ~0.41%, Neuchâtel ~0.51%. In most cantons the standard level is about 0.1%. This tax is calculated on the net equity at the end of the year. In some cantons it can be credited against the profit tax if the latter is higher.

Equity invested in subsidiaries or participations may be subject to a reduced rate. In practice, this means holding companies are often relieved from excessive capital taxation.

Deductible Expenses and Loss Carry-Forwards

The sum of dues is considered after deducting the expenses necessary for the business: rents, wages, material, advertising, administration, conveyance, etc. That is considered principally important for this type of income. It should be noted that interest paid is also deducted, specifically in case of a large debt and then regarded as a concealed distribution. Such interest can be allowed as a deduction. Additionally, the taxes themselves, even the foreign taxes, are deductible. In commercially justified cases, it is typical to accept depreciation up to the limits fixed in the directives of the Federal Tax Authority. On the other hand, excessive depreciation or hidden reserves are corrected in the assessments. Provisions for research and development projects can be made out of 10% of the contract amount. Donations to charitable organizations are deductible within 20% of profit (10% in some cantons, Basel-Landschaft unlimited). Pension fund contributions shall be deductible. Seven years before, the loss can be carried forward. The losses can be applied in the respective years in which they occur. The loss cannot be carried back. Certain losses shall survive indefinitely in reorganisations. There are no group consolidations and, as a result, group relief is only possible through mergers. Extension of carry-forward to ten years has been discussed but was still not enacted.

Procedure, Deadlines and Assessments

The tax year corresponds to the financial year, usually the calendar year. One return is filed annually, including financial statements, reconciliation of profit, adjustments and equity.

Deadlines are generally six months after year-end, sometimes nine. Extensions are possible up to eleven or twelve months. Cantonal practice differs. Electronic filing is becoming mandatory via cantonal portals.

Advance payments are often requested, based on the previous year. The final assessment can take one to two years. Overpayments are refunded with interest, underpayments attract late interest.

Penalties apply for late filing or under-declaration. Intentional evasion can result in criminal proceedings. The limitation period is five years, extended to ten in cases of evasion, and sometimes fifteen. Audits are usually desk-based, but field audits are possible for large or complex cases.

International Aspects

Foreign corporations pay country-level corporate taxes on their profits from a permanent establishment or immovable property. There are no profits to tax if there’s no PE, except for withholding taxes. Interests and dividends are subject to withholding rates of 35%, the reduction of which is normally negotiated in a treaty. There is no withholding on royalties or service fees. It has been provided very clearly that the profits transferred by a PE in Switzerland to its head office abroad are not treated as distributions and hence will not be subject to withholding tax.

The country has a very comprehensive network of double taxation agreements modelled on the OECD. These treaties establish the allocation of taxing powers between the contracting states and avoid double taxation through exemptions or credits for the respective taxes covered.

Stamp duties or issuance taxes on share transfers or capital contributions to a company may be levied.

Overall Assessment

The system combines relatively low effective rates with legal certainty and a cooperative tax administration. The federal rate is moderate, and cantonal competition creates strong differences, which can be exploited for optimisation. Additional incentives (patent box, R&D, tax holidays) make the location attractive for technology and holding structures. Transparency has improved after the abolition of special regimes, and Switzerland is no longer classified as a tax haven, but remains competitive in Europe.