Nationals from EU/EFTA Member States
Nationals from an EU or EFTA Member State must comply with a certain number of rules when creating their company. Process:
All nationals of EU/EFTA Member States may also be self-employed and have the right to live and work freely in Switzerland. They can thus also become self-employed.
According to the Agreement on the Free Movement of Persons, self-employed entrepreneurs can set up their business without a permanent residence permission (C permit). It is sufficient to have a B permit, which is valid for five years. At registration in Switzerland though, the planned self-employed activity needs to be proven. Proof can be provided for example with a valid VAT number, an entry into the professional register, the registration at the social insurance as self-employed entrepreneur, a business plan, accounting figures or the entry in the Commercial Register. For more information, contact the cantonal migration offices (Federal Office for Migration: work permits for citizens of EU/EFTA states).
The B EC/EFTA permit for self-employed work is at first issued for 5 years and includes full geographic and professional mobility.
Entrepreneurs from the EU can thus change their place of residence or work as well as their profession. They can also change from self-employed entrepreneur to employee.
The future self-employed entrepreneur is free to choose in which industry to work. However, there are restrictions for some professions and businesses (Permits and regulated professions).
The Federal Council has activated the safeguard clause with effect from 1 January 2023. Croatian nationals will now require a quota permit if they wish to take up gainful employment in Switzerland after this date. Both the short-term L permit and the B residence permit for Croatian nationals are subject to quotas from 1 January 2023.
Requirements to set up a company
The following regulations regarding nationality, residence and requirements apply for entrepreneurs from EU/EFTA countries to establish a:
- Sole proprietorship
A sole proprietor company is owned by one proprietor only. Therefore, labour market regulations for persons apply. A residence and work permit is always required to work in Switzerland.
- General and limited partnership
General and limited partnerships are usually small person-oriented companies. The limited partnership can include external investors who are not actively involved in the management of the company. Accordingly, labour market regulations for persons with a valid work and residence permit apply for the individuals.
- Limited liability company (GmbH)
The limited liability company (GmbH) as a legal entity must be represented by at least one person resident in Switzerland. This can be the manager or a director. Accordingly, this person / these persons need to have a valid residence and work permit in Switzerland.
- Joint-stock company(AG)
A joint-stock company (AG) as a legal entity requires that at least one person entitled to represent the company must live in Switzerland and hold a valid residence and work permit for Switzerland.
Purchase of property
For EU citizens who live in Switzerland, the same regulations for the purchase of real estate apply as for Swiss citizens (national treatment). EU entrepreneurs with a Swiss residence permit but main residence abroad only have the same rights as Swiss citizens if the property is used for business purposes. Holiday and second homes are subject to authorization. Purchased property does not need to be sold again upon leaving Switzerland. According to the federal law on the acquisition of real estate by non-residents, foreign companies can acquire real estate for the operation of a business without an authorization. However, with only very few exceptions, flats cannot be purchased or built in the process. When buildings or land are sold for commercial purposes, the following taxes are due:
- Capital-gains tax: the cantons of Zurich, Bern, Uri, Schwyz, Nidwald, Basel-Stadt, Basel-Landschaft, Ticino and Jura subject all real-estate profits to this tax. The other cantons and the federal government include these gains in the ordinary tax on profits. The tax rate on real-estate gains depends on the amount and on how long the property was held, according to the March 2020 "Tax on Real Estate Gains" guide (only in French).
- Transfer taxes (but eliminated in certain cantons, including Schwyz), according to the April 2018 "Transfer Law" guide (only in French).
Taxes: Private individuals
In Switzerland, income tax is levied by the Confederation (federal tax) as well as the cantons and municipalities (cantonal and municipal tax). As each of the 26 cantons has a different tax code, the tax burden varies between the cantons. Taxpayers have to fill in a tax return every year, on the basis of which the tax factors (income and assets) are established and tax is determined.
Foreign workers who do not have a C permit but have their residence for tax purposes in Switzerland are taxed at the source, i.e. the employer directly withholds the amount of tax from the income (withholding tax). Normally, there is no further tax debt (Quellensteuer (Bundesgesetz über die direkte Bundessteuer) (only in German)).
Under the tax code (Section 94), these persons are subject to normal tax procedures for income not subject to withholding tax. This means that persons living without a permit in a canton do not have to pay withholding tax for self-employed work. They have to file this income in a tax return - just like resident foreigners or Swiss citizens.
To prevent double taxation in Switzerland and abroad, Switzerland has implemented international taxation conventions. Switzerland has signed such treaties with almost 100 countries including all Western industrialized states. Country-specific details can be found in the respective agreement (Doppelbesteuerungsrecht (only in German)).
In Switzerland, companies pay taxes on their earnings and on their capital. Earnings are taxed at the federal, cantonal and local levels, while capital is taxed only at the cantonal and local levels.
The federal tax on net profits is 8.5% (art. 68, LIFD). The other rates vary significantly according to canton or commune. In general, central Switzerland enjoys the lowest rates. In this region, the total tax burden (federal, cantonal and local) is between 10% and 11.1%, according to the BAKBASEL Taxation Index 2022 published by BAK Economics. In contrast, it reaches 17.9% in Zurich and 12.5% in St. Gallen.
Companies headquartered abroad that provide services in Switzerland must pay Swiss VAT. Only companies with a total annual taxable turnover of less than CHF 100'000 in Switzerland and abroad are exempt from paying VAT. You can find the VAT registration form and further information here: VAT Registration.
Switzerland has one of the lowest VAT rates in Europe. The standard rate is 7.7%; a rate of 3.7% applies for accommodation in hotels and related businesses, and VAT of 2.5% applies for basic necessities. Many services, particularly in the areas of health, social welfare, education, culture and sport, and financial and real estate transactions, are exempt from VAT (Value Added Tax Radio & tv fee, Value added tax: how it works).