Turning your business plan into a business

One of the first decisions you need to make is what legal structure you want for your business. Your choice will depend on many factors, including the number of business partners you have, the amount of risk and liability you are willing to take on, and how much capital you have to invest.

The different types of legal structures available in Switzerland are set forth in the Swiss Code of Obligations. In general there are two types of companies: unincorporated companies (sole proprietorships and general partnerships) and incorporated companies (limited liability companies and corporations). Unincorporated companies are inseparable from their founders; the founders are the company, and the founders’ assets are inseparable from those of the company. Incorporated companies have their own legal personality; their assets are completely separate from those of the owners.

The legal structure you decide on will determine the steps you need to take to register the company, as well as the tax and accounting procedures you will have to follow. So it’s important to get familiar with the different types of structures available so you can make the right decision. The following table compares the main features of each one:

choix-forme-juridique.pdf (in french) (864.7 kB)

When selecting a site for your company, there are two things to keep in mind. First, the size and capacity you need (like surface area, volume, height, and bearable weight), and second, specific criteria related to your business (like tax rates, labor pool, equipment suppliers, infrastructure, and transportation links).

• If you choose to rent your business premises, you will need to sign a commercial lease. They typically run for five years with a six-month notice period for termination of the lease.
• If you just want somewhere to work away from home, you could rent an office in a coworking space. This is a low-cost solution that will also put into contact with other local entrepreneurs.
• If you want to purchase your business premises, you will have to go through a notary. Your company as the buyer will be responsible for paying the property transfer fees. Real-estate transactions are also subject to various other fees and taxes.
• Another option is to purchase land and build your own premises; this would be a major undertaking that should be done with the help of professionals. You will need to become familiar with local zoning laws and apply for a building permit.

Zoning

Before embarking on the long and costly process of purchasing, building or renovating your business premises, make sure your plans comply with local zoning laws. Each municipality (commune) has a zoning plan that specifies which plots can be used for what purposes. If your plans don’t comply with the local zoning laws, you can apply to the municipality for a variance.

Corporate taxes

Sole proprietors pay taxes on income from their business and on their total assets, including any capital invested in the sole proprietorship. Limited liability companies and corporations are taxed as individual entities separate from their owners and managers.

• If you create a limited liability company or corporation, your company will be taxed on its net income and capital.

• The Vaud Cantonal Government (Conseil d’Etat) may grant tax exemptions to new businesses if they are of particular benefit to the Canton’s economy. The exemptions apply to some or all of the taxes on a company’s income and capital, but not to taxes on real-estate gains or the additional tax on buildings. Tax-exempt status is accorded for 10 years, including the year of the company's creation.

Value added tax (VAT)

As an entrepreneur in Switzerland, you will have to pay value added tax (VAT) to the federal government. But you can recover any VAT that you pay to other businesses, such as when you purchase supplies and services. The purpose of VAT is to tax end consumption. There are four VAT rate categories depending on the type of product or service:

• The normal rate of 8.1%
• A reduced rate of 2.6% for certain goods, such as food and non-alcoholic drinks not consumed in a restaurant, and books, magazines, and newspapers
• A special rate of 3.8% for the hotel sector
• Flat rates that are applicable, upon request, to companies with less than CHF 5,000,000 in annual revenues and that pay less than CHF 109,000 in taxes. These rates are set by the Swiss Federal Tax Administration and vary by sector. They are meant to spare smaller companies all the administrative work involved in the normal VAT system.

Even if your new company doesn’t reach CHF 100,000 of revenues during the start-up period and subsequent years, you may want to register for VAT voluntarily if you plan to spend a lot of money to build your premises and purchase capital equipment. That will let you deduct the entire amount of the VAT you pay on those expenses.

By the same token, if your company carries out some activities that are excluded from VAT (such as organizing cultural events or leasing property to taxpayers), you may want to voluntarily register those activities for VAT so that you can deduct the VAT on your business expenses.

All businesses must pay Swiss social security contributions, which consist of unemployment insurance, old-age and survivors’ insurance (assurance vieillesse et survivants, AVS), disability insurance (assurance invalidité, AI), loss-of-income insurance (assurance perte de gain, APG), and an occupational pension fund. You may also have to pay family allowances and purchase accident, health, and/or maternity insurance.

If you hire staff, you will have to become familiar with the part of Swiss law applicable to employment contracts.

Payroll taxes

• Social security obligations: Employers are responsible for paying their employees’ AVS contributions (8.7%), AI contributions (1.4%), and APG contributions (0.45%). 

• Unemployment insurance: Premiums are equal to 2.2% of employees’ annual salary. Sole proprietors do not have to pay for unemployment insurance.

• Occupational pension plans: Employees whose annual salary is above CHF 22,050 must be admitted to the company’s occupational pension plan. Companies are required to contribute only on the first CHF 88,200 of an employee’s salary. Sole proprietors may voluntarily choose to contribute to an occupational pension plan. Sole proprietors who choose to enroll in such a plan will be subject to the law governing occupational pensions.

• Family allowances:  Employers are responsible for paying contributions to a family allowance fund even if their employees do not have children young enough to be eligible for the allowances. Sole proprietors are required to contribute according to the level of their salary that is subject to social-security contributions (the salary level is capped at CHF 148,200 per year).

• Accident insurance: Employers must provide all employees with insurance for accidents in the workplace. Employees who work at least eight hours per week must also be covered for non-work accidents. Sole proprietors are not required to have accident insurance. They can, however, take out an insurance policy to provide income in the event of illness or disability.

• Health insurance: In Switzerland, employers are generally not required to provide staff with health insurance (i.e., to cover the cost of care provided or for loss of income owing to illness).

• Maternity insurance: Women who are gainfully employed can take 14 weeks of maternity leave following the birth of a child. During this leave they will receive an allowance equal to 80% of their most recent salary (up to a maximum of CHF 196 per day).

Labor law

• Employment agreement: An employment agreement, which should preferably be in writing, sets forth the obligations of both the employer and the employee. It is used for both short-term and permanent positions. A written agreement is required for an apprenticeship or when the employment terms differ from those set forth in the Swiss Code of Obligations.

• Working hours: An employee’s working hours are specified in the employment agreement. Swiss law sets the maximum number of working hours per week at 45 or 50, depending on the profession.

• Vacation and holidays: Swiss law sets the minimum number of vacation days at five weeks up to the age of 20 and four weeks after that age. Employees’ salaries must continue to be paid in full during the vacation. Vacation dates must be approved by the employer and include at least two consecutive weeks.

• Terminating an employment agreement: Employees must be given notice if their employment contract is to be terminated (except in cases of immediate dismissal for good cause). The required notice period is:
  • 7 days during the trial period
  • 1 to 3 months (from the end of the month) after the trial period:
  • 1 month during the first year of employment
  • 2 months from the 2nd to 9th year of employment
  • 3 months from the 10th year onward.

Once the trial period is over, employees cannot be dismissed under the following circumstances: while carrying out military service (or four weeks before or after); in the event of total or partial inability to work (from 30 to 180 days, depending on the number of years employed); during pregnancy and for 16 weeks after giving birth; or if engaged in foreign assistance on behalf of the federal government.