One of the key features worth noting is the high level of trust, reinforced by strict control mechanisms from the authorities and the principles of honesty among entrepreneurs. This combination ensures a stress-free collaboration between businesses and the government. Hence, a longstanding good reputation with tax and other regulatory authorities guarantees faster, shorter, and practically unhindered oversight.
The formal structure of a business must adapt to reality and the applicable jurisdiction. However, what should you do if you were already a sole proprietor in Ukraine before coming to Switzerland? Let's shed light on the key factors to consider.
Is registration in Switzerland mandatory?
In Switzerland, independent entrepreneurial activities, whether freelance work, liberal professions, or business, are not considered separate legal entities. All assets and liabilities of such a business are inseparable from its owner. Therefore, registration in the commercial register is not a constitutive but rather a declarative measure. However, such registration is mandatory if the annual turnover exceeds 100,000 Swiss francs.
The same threshold applies to the registration as a VAT payer. Such registration with the federal tax administration is necessary if the turnover amount is not exempt from taxation (for example, medical, educational, and non-commercial activities), regardless of whether such turnover is generated in Switzerland or abroad. On the other hand, registration may be recommended to claim a refund of input VAT paid to suppliers. In any case, most services provided to clients outside Switzerland or exports of goods sold from Switzerland are not subject to taxation. Therefore, it is possible to receive net income from VAT in the Confederation.
Since independent activities are carried out in Switzerland, it is necessary to register with the cantonal social security administration and pay social insurance contributions from net income. However, the contributions are lower than those for employees, as independent entrepreneurs are not required to contribute to the second pension fund or unemployment insurance.
For all of the above, a registered business in Ukraine is irrelevant.
Do I have to pay income tax in Switzerland?
Concerning residing or conducting independent activities in Switzerland, it is necessary to pay income tax, declared once a year in the respective canton based on net income, following a progressive tax scale, with certain incomes below the minimum threshold being exempt from taxation.
Indeed, double taxation is risky when a Ukrainian business separately pays Ukrainian income tax at a fixed rate. The double taxation avoidance agreement prohibits this and requires the allocation of taxable income between the two countries. Different approaches are possible.
For entrepreneurs who do not have an actual office (only a legal address) or employees in Ukraine, there is an option to dissolve the Ukrainian business structure and register a new business in Switzerland. Additionally, it is possible to create a separate parallel business in Switzerland and allocate all income to it, thus avoiding tax payments in Ukraine. The location of the bank account, whether in Switzerland or abroad, is irrelevant. Similarly, whether the bank account is registered under the company or its owner does not matter, as Swiss legislation does not differentiate between these concepts.
For large companies that continue to conduct part of their activities in Ukraine, where the office and employees are located, it is also possible to register a branch in Switzerland. This way, profits and losses are distributed between the two branches; therefore, only a portion will be subject to taxation in each state.
Choosing the suitable model also matters for allocating social insurance contributions in Switzerland. As for VAT, the Swiss branch is considered a separate business, and only its actual turnover may be subject to VAT taxation.
