Losses realized by a company may be carried over to the following fiscal year. They may be offset by profits over a period of seven years.
The new company law stipulates that 5% of the annual profit must be allocated to the statutory retained earnings. This allocation is mandatory until the reserves amount to at least 50% of the share capital registered in the Commercial Register (Art. 672 CO), or at least 20% in the case of a holding company. If there is a loss carryover, it must be eliminated before allocation to the reserve.
If the balance sheet indicates a net loss instead of a profit at the end of the fiscal year, it must be covered in the following order (Art. 674 CO):
- by retained earnings brought forward;
- by voluntary retained earnings;
- by statutory retained earnings;
- by the statutory capital reserve.
Losses may also be offset against future profits over a period of seven years. The Federal Direct Tax Act provides that losses from the seven financial years preceding the tax period may be deducted, provided they could not be taken into account in determining taxable income for those years.
Dividends and interim dividends
As of 1 January 2023, so-called “super-dividends”, that is, a second allocation of dividends, have been abolished. Dividends may be distributed from the profit or from reserves created for that purpose, after the statutory reserves have been constituted.
The revised law also allows the distribution of interim dividends from the current year’s profits (Art. 675a CO). The general meeting may decide on such a distribution on the basis of an interim balance sheet that has been audited by the statutory auditor. If the shareholders approve the distribution unanimously, or if the company is not subject to audit, interim dividends may be distributed without any further authorization or prior review. However, such a distribution must not jeopardize the fulfilment of obligations.
Tax treatment
Dividends and directors’ fees (profit shares allocated to members of the board of directors) derive from the company’s profit. They are therefore subject to taxation twice: first, through corporate income tax on the company’s profits, and then through income tax on investment income at the shareholder level. A relief mechanism applies to dividends from so-called “qualified participations” (representing at least 10% of the company’s share capital). It reduces the taxable portion of such dividends to 70% of their total value. This partial taxation also applies to capital gains, provided the participation rights have been held by the taxpayer or the company for at least one year.
