Switzerland offers an excellent environment for innovation and entrepreneurship. But the road to success is paved with legal, tax, and administrative challenges that you need to think about.
Of course, especially at the beginning, you want to dedicate yourself primarily to your passion and the development of your ideas and business, which often neglects tax and legal aspects. That can cost you dearly years later.
This blog post takes you through the various legal forms and selected problem areas of self-employed people, start-ups and SMEs.
Start of activity: choice of legal form and establishment
Sole proprietorship, GmbH, AG: Differences and tax effects
- Sole proprietorship: Easy to set up, no minimum capital requirements, but you are personally and indefinitely liable with your private assets. Your business profit is your income and is taxed as such.
- GmbH (limited liability company): A legal entity that allows private and business assets to be separated. The share capital is at least CHF 20,000. Profits are taxed at company level, and distributions to you as a shareholder are subject to income tax.
- AG (joint stock company): The most complex form with a minimum capital of CHF 100,000. Offers maximum liability limitation and good scalability for larger companies or investments. Taxation similar to the GmbH.
Commercial register entry and notary fees
Entry in the commercial register is mandatory for limited liability companies and AGs. This includes notarial costs for public certification of the certificate of incorporation and articles of association. A sole proprietorship must only register in the commercial register with a turnover of CHF 100,000 per year (or if it carries out commercial activities).
Which legal form is right for me?
sole proprietorship
The sole proprietorship is particularly suitable for the first steps of self-employment in the service sector. In contrast to the GmbH and the AG, you are liable here with your private assets. This type of company is therefore particularly suitable for low-risk occupational fields to protect you from unnecessary expenses.
As the name suggests, the company form is suitable for people who want to get started alone and at low initial costs. This applies in particular to freelancers and creative professions.
From a tax and social security perspective, the profit of the sole proprietorship is taxed as your income or subject to social security.
ltd
The GmbH is ideal for small companies with a slightly higher business risk. Several people can also participate in the GmbH using the ordinary shares. In addition, a GmbH appears more reputable when it comes to business partners, banks and customers. This type of company is therefore suitable, for example, in retail, catering or IT service providers.
The profit of the GmbH is subject to profit tax. The profit tax is generally lower than the income tax, which is why there remains a higher after-tax profit, at least temporarily. This can be a positive effect, especially in transactions that require investment, as more money is left over for investments. If the funds are distributed, the dividend is then also subject to income tax, which results in a certain double burden on profits.
Joint stock company (AG)
The AG is suitable for growth-oriented companies and/or companies with many owners. The AG is particularly ideal for start-ups and companies that want their employees to participate in the company's success by selling them shares through an employee participation plan.
Taxes at a glance: What you need to know
The Swiss tax system is complex and varies from canton to canton. Dealing with this at an early stage is crucial.
Income and profit tax
As a sole trader, you tax your profit as income. Legal entities (GmbH, AG), on the other hand, pay profit tax on their corporate profits. Since profit tax is generally lower than income tax, you will have a higher after-tax profit for you, at least temporarily. This can be a positive effect, especially in transactions with high investment requirements, as more money is left over for reinvestment. If the funds are distributed, the dividend is then also subject to income tax, which results in a certain double burden on the profit.
Capital tax
Legal entities pay capital tax on their equity, including the paid up basic or share capital and reserves. However, this tax is relatively low.
Value added tax (VAT): threshold and obligations
As soon as your company exceeds a turnover of CHF 100,000 per year, you will be subject to VAT. This means that you must collect VAT on your services and pay it to the Federal Tax Administration. Under certain circumstances, it may be advisable to voluntarily subject yourself to VAT even before the turnover threshold is reached. If a company mainly serves customers subject to VAT and pays more input tax itself than actually charges value added tax, this approach can have advantages. This scenario is particularly common in the initial phase. This makes it possible to recover the difference from the Federal Tax Administration. You can find out more about this in our VAT contribution.
Withholding tax (for foreign employees)
When paying income to people who are residents abroad or do not have a permanent residence permit, income tax must usually be paid at source. As an employer, you are responsible for this.
Bookkeeping & Accounting: Order is half the story
Clean bookkeeping is not only a legal obligation, but also crucial for managing your company.
- Accounting obligation, depending on the legal form: All companies are required to maintain proper bookkeeping, although the scope varies depending on legal form and turnover.
- VAT-compliant invoicing: If you are subject to VAT, your invoices must include certain information to be VAT-compliant. You can find out more about this in our Contribution to invoices.
- Retention obligations (receipts, contracts): Invoices, receipts, contracts and other business documents must generally be kept for 10 years.
This is often forgotten when founding a company
In addition to the points listed, there are others that should be considered. The following list is a reminder for you what you need to find out about in each case:
- Social Security & Pensions: Obligations with AHV/IV and ALV, with the pension fund (BVG) and accident insurance (UVG). There are important differences here between employment as a self-employed person and as an employee of your own GmbH/AG.
- Labor law: Clear employment contracts are essential and the law sets certain framework conditions, for example for trial periods and notice periods, which must be met. Work permits are generally required to employ foreigners.
- Safeguard your intellectual property: Trademarks protect names and logos. Patents protect technical inventions. Copyrights protect literary, musical, artistic and other works. Think early on about what you can protect and where there is a corporate incentive to do so.
- Employee participation programs: In the case of corporations, employees can receive stronger incentives through shares. This form of remuneration is regularly confronted with complex tax issues, which need to be clarified.
- Data protection (DSG/GDPR): Compliance with the Swiss Data Protection Act (DSG) and, where applicable, the European GDPR is mandatory for all companies.
How do you approach the topics?
The possible tax and legal topics are varied and complicated. Find out ahead of time about the implementation of these topics and your associated obligations so as not to get into (legal) difficulties later on.
Of course, a tax expert or a lawyer can be consulted for all these topics. But especially at the beginning, the costs are often not proportionate to the required service or you simply lack the money.
However, there are plenty of cost-effective ways you can address your questions:
- Find out about funding from Innosuisse or Venturelab, which can offer a lot of support, especially in the early days after founding.
- Look out for webinars from reputable providers, which can often be watched online for free.
- Some commercial law firms already provide contract templates free of charge on their homepage, which represent a valuable basis.
- Take part in start-up trade fairs with a clear agenda: The tickets are often cheap and full of consultants. You can easily ask your questions there.
You can find more information about these tools online in just a few clicks.
In conclusion, the path to a successful start-up is full of challenges, but with the right preparation and the courage to actively address the issues, all hurdles can be overcome. Use the available resources, dare to ask questions, and exchange ideas with other founders. This is how you lay the foundation for sustainable and legally secure growth of your company.
Good luck on your entrepreneurial journey!
