Why do business in Switzerland?
Any experienced businessperson will tell you that there’s a lot of love about doing business in Switzerland. From the astounding banking and financial infrastructure to the diplomatic approach the nation takes to trading, opportunities abound. Despite not being an EU member state, Switzerland also offers enjoys great relationships with multiple neighbouring nations.
It may not come cheap to run a payroll in Switzerland. The authorities of the country are fiercely protective of their reputation as the home of expertise, so salaries will be expected to reflect this. The market is also very closely regulated, so there will be no playing fast and loose with any rules and regulations. Overall, though, Switzerland is a dream location for many businesses.
World Bank Ease of Doing Business Ranking (1-190)
Tax rates 2022
How to set up payroll in Switzerland
Setting up payroll in Switzerland is comparatively simple. It’s also advisable if you’re eligible, as many districts – known as cantons – offer tax incentives to overseas businesses, in addition to prospective loans at favourable rates. It only takes a few weeks, too. You may be up and running within a month, though it may be up to 12 weeks before you can make your first hire.
You’ll need a residence in Switzerland to open a business, so if this does not apply to you, partner up somebody based in Switzerland. This individual does not need to be Swiss – the business can be 100% foreign-owned – but a permanent address in the country in mandatory. The same applies to opening a local bank account, which is a must for anybody looking to trade in Switzerland.
When the time comes to register your business, you’ll need to do so through the Chamber of Commerce and Commercial Registry. From here, you can choose your legal structure – typically GmbH, AG or branch. To trade as an individual, you’ll need permanent Swiss residence. This is only granted after ten years living and working in the country if you do not qualify through your passport.
When it comes to hiring staff, Switzerland has a wide and diverse talent pool to choose from. Although Switzerland is not in the EU, you’ll also be able to hire holders of EU or EEA passports without a visa or work permit.
Expect to pay around 1.5 times an employee’s annual salary to make a hire, once a 12% social security tax is applied to any wages. Employees will also need to pay income tax, which is offered at extremely favourable rates in Switzerland. National taxation breaks down as:
- Salary below CHF 4,500 – 0%
- Salary between CHF 4,500 and CHF 31,600 – 0.77%
- Salary between CHF 31,601 and CHF 41,400 – 0.88%
- Salary between CHF 41,401 and CHF 55,200 – 2.64%
- Salary between CHF 55,201 and CHF 72,500 – 2.97%
- Salary between CHF 72,501 and CHF 78,100 – 5.94%
- Salary between CHF 78,101 and CHF 103,600 – 6.6%
- Salary between CHF 103,601 and CHF 134,600 – 8.8%
- Salary between CHF 134,601 and CHF 176,000 – 11%
- Salary between CHF 176,001 and CHF 755,200 – 13.2%
- Salary between over CHF 755,201 – 11.5%
These low taxes mean that you can likely attract top-tier international talent to Switzerland to join your business. You’ll need to withhold these payments and register them with the Federal Tax Administration, with the Swiss tax year running from January to December.
Swiss employment law & HR considerations
Social security payments of 12% of an annual salary offer a range of HR benefits to Swiss employees. These payments will cover contributions to a state pension, as well as government insurance policies that cover disability, unplanned unemployment and topping up salaries for low incomes. Naturally, though, an employer will be expected to top up these contributions with supplementary benefits.
The most prominent of these is an additional month of salary, usually paid in December as a bonus. This is not mandatory under Swiss law, but 90% of businesses willingly pay this bonus. Naturally, this means a company that declines to do so may struggle to attract employees. Many Swiss employers also arrange an additional pension, as well as perks such as reduced memberships to gyms and health clubs and daily sustenance. Some employers will also offer additional holiday days, especially to employees with children.
On the subject of holiday, Swiss employees are entitled to 20 days of personal vacation every year (25 for young employees aged younger than 20). Maternity leave tends to be 16 weeks on full pay (paternity leave is just a day as standard), with unpaid extensions agreed between employee and business. The Swiss government takes care of these payments through social security, which are usually 80% of a salary (to a maximum of CHF 196 per day). Sick leave is capped at three weeks on full pay for the first year of employment, then varies by canton after this.
Public holidays are slightly more complicated. Officially, Switzerland only recognises one national holiday, on the 1st of August. However, all cantons have their own traditions and public holidays. Which of these you will be expected to observe depends upon where your office is based. Be sure to research this, as expecting employees to work public holidays can land your business in trouble. On average, each canton observes around nine public holidays per year.
Setting up a subsidiary entity in Switzerland
An overseas businessperson will be entitled to open a subsidiary company in Switzerland, under one of three common auspices.
A Gesellschaftmitbeschränkter Haftung, or GmbH, is a Swiss Limited Liability Company. This business structure is very popular, as it ensures that business interests and their owners remain separate legal entities. A GmbH requires at least two shareholders and minimum share capital of CHF 20,000. One of these directors needs to be a resident of Switzerland, but the company can be 100% foreign-owned.
Alternatively, you could open an Aktiengesellschaft, or AG – this is a public company, trading on the Swiss stock exchange. The minimum share capital for this business entity is CHF 100,000, and at least one director must be registered as a company founder. Directors of an AG in Switzerland can be local or foreign, but at least one must be a resident in the country. As with a GmbH, the corporate tax rate for an AG is an appealing 18%.
Finally, you could consider opening a branch of an overseas business. One of the biggest advantages of this is the exemption of a 35% withholding tax, payable to the parent company. What’s more, there is no minimum share capital to be paid when establishing a branch, and Switzerland shares a double taxation treaty with the UK so your business will not be taxed twice.
There are obviously pros and cons to both approaches. Opening a branch is the cheapest option, with the least amount of red tape and expense involved. This approach comes with risks though, as any issues (financial or legal) experienced by a Swiss branch will become the liability of the parent company. If you’re looking for complete freedom, investigate a GmbH instead.
The first thing to remember about doing business in Switzerland is the fact that the nation is multi-lingual. Depending on where you are based and who you are looking to trade with, a business associate may consider German, French or Italian their native tongue. Take this under advisement, learning at least a little of each language.
Some cultural elements of the country are unmistakably Swiss though, including a conservative and formal working environment. Swiss associates will not waste time with small talk, preferring any business communication to be direct. Hierarchy is also very important in Switzerland, with the most senior staff rarely taking suggestions from a subordinate under consideration.
The Swiss also value their time, so you should always be punctual. While employees may work longer hours, it is frowned up to expect additional contact outside of a working day. Do not call a counterpart at the weekend unless expressly invited to do so. Be aware that many Swiss employees work flexible hours though, so your associates may not conform to a 9 – 5 working pattern. This does not make the employees less formal, though.
Finally, be prepared to discuss your business dealings in significant detail. In Switzerland, there can never be too many details. You will not be able to bluff your way through a meeting or convince a Swiss counterpart to agree to a trade based on emotion or impulsive decision-making. Take the time to prepare a thorough and unmistakable business case ahead of any meeting.
Setting Up in Switzerland FAQs
Your business entity in Switzerland can be up and running within six weeks if you’re fortunate, but expect to wait at least twelve weeks before you’re ready to make your first hire.
Expect to pay around 1.5 times an employee’s total salary in Switzerland once expenses and social security taxes are taken into account.
If you’re looking to start a Limited Liability Company in Switzerland, known in the country as a GmbH, the minimum share capital is CHF 20,000.
That’s around GBP£16,000. This does not necessarily need to be a cash payment, though – it could be made in the form of contributions in kind.
A public company, or AG, has a much higher minimum share capital of CHF 100,000 (around GBP£80,000). At least 20% of this sum needs to be paid up at incorporation.
Yes, you will need to ensure that your business has a bank account in Switzerland. Swiss banks are welcoming to foreign account holders, but different branches have differing regulations surrounding minimum deposits.
Swiss employees tend to work hard, for slightly longer hours than many European counterparts. A typical working week in Switzerland will be around 45 hours, spread over five days, though most employees will be legally contracted to 40 or 41.
Although Swiss employees make contributions to a national pension scheme through their social security contributions, a company-sanctioned private pension is also a popular supplementary benefit.
Most businesses in Switzerland offer a “13th month salary” to their employees. This takes the form of a double payment in December. Naturally, this will be taxable as standard. Additional perks could include subsidised payments on meals, travel and childcare.
Swiss labour laws allow for, “freedom of dismissal.” This means that employees can have their contracts terminated seemingly at will. You will not necessarily need to provide a written explanation for this dismissal, though it is recommended.
The reason for this is that, should an employee have reason to believe their dismissal is due to discrimination, they can appeal your decision. The terminated employee can also request a formal explanation for their termination. You will also need to allow the employee to serve a contractually agreed notice period, or at the very least be paid an equivalent sum of severance pay.