Conditions for Swiss Holding Company Status
Swiss companies whose principal statutory aim consists of holding participations and managing investments on a permanent basis, and who have no commercial activity in Switzerland, benefit from a cantonal holding company status, provided that these investments or their income represents at least two thirds of the total assets or revenue. Capital gains on investments are also included as part of investment income.
In order to benefit from a holding company ruling, at least one of the following conditions must be fulfilled:

• at least 2/3 of the estimated assets of the company, (book or fair market value, whichever is the higher) consist of investments
• at least 2/3 of the revenues consist of investment income (the remainder being made up of passive income). Income from capital gains is also counted as investment income.

Federal income tax
Holding companies do not enjoy tax privileges on direct federal tax. Income tax is, however, reduced by means of the participation exemption, namely in the ratio of investment income to net profit. For a pure holding company (100 % income from investments), the company pays no direct federal income tax.

Cantonal and communal income tax
Holding companies are not taxed at the cantonal and communal levels.

Capital tax
At the cantonal and communal levels, companies with holding company status are subject to a special tax. The cantonal tax rate on the capital of holding companies domiciled in the Canton of Fribourg (Canton offering holding privileges that are amongst the most attractive in Switzerland) is 0.02 %, but only 0.01% for that part of the capital exceeding CHF 500 million. The rates for communal tax vary between 30% and 100% of the cantonal tax rate, dependent on the commune.

Conditions for Participation Exemption
Corporations holding at least 20% of the share capital of another company, or who hold an investment of at least CHF 2 million (based on fair market value) in another company, benefit from an income tax reduction by means of a participation exemption.
When the investment represents at least 20% of the shares of another company, the holding reduction also covers capital gains on investments.
At the federal, cantonal and communal levels, income tax is reduced proportionally to the relationship between net income from investments (investment income and capital gains less management and finance costs) and total net earnings.

Main purposes:
To Hold group subsidiaries
To hold significant shareholdings in external companies

Main benefits:

• Exemption or reduction of income tax on Dividends from “qualifying participations”
• Exemption or reduction of corporation tax on Capital Gains arising from the sale of “qualifying participations “
• Low income taxes on ancillary activities
• Deductibility of accrued or paid borrowing costs.
• Enhanced anonymity, confidentiality and transferability of shares through use of bearer shares

Legal Form
A Swiss company can be constituted either as a “gesellschaft mit eschränkter haftung” (private limited company- GmbH) or an “aktiengesellschaft” (public limited company- AG).

Formation
The minimum share capital for incorporation of a Swiss company is CHF100.000 for a public limited company. At the time of the first shareholders’ meeting at least 20% of the share capital with a minimum value of CHF50.000 (the higher of the two) must be paid up. Bearer shares are allowed but capital must be fully paid up.

Comments
A Swiss company is undoubtedly very prestigious but it is a correspondingly expensive corporate vehicle. In this connection, using Swiss companies in ordinary trading transactions is usually not practical. A company incorporated in Switzerland is a vehicle with a certain image and as a rule is used to hold large shareholdings in respectable enterprises or to establish international holding companies etc.

The owner of such a company must also bear in mind that the Swiss-resident nominee director is responsible to that country’s authorities for the legality of the company’s activities and for its financial solvency, and that, as a consequence, the company’s affairs will be subject to regular supervision.