Swiss vs U.S. Tax Rates for Companies Compared

Entrepreneurs looking for the perfect location for their new venture will notice some key differences between the Switzerland tax rate vs U.S. tax rate. The tax landscape for businesses varies significantly between countries, influencing investment decisions and overall profitability.

Understanding how corporate tax rates affect your bottom line is vital for all prospective business owners as it drives informed choices. Be aware that choosing the perfect business location is much more than just the country as there are significant differences between states (in the U.S.) and cantons (in Switzerland) too.

Corporate Tax

Corporate tax is one of the most pressing concerns if you wish to start a business in Switzerland or the United States. The main differences between corporate tax treatment in Switzerland and the U.S. include the following:

Corporate Tax in Switzerland

Swiss corporate tax is levied at three levels: federal, cantonal, and communal (municipal). This means the amount you pay will vary depending on where you set up your business. Corporate income tax (CIT) applies to taxable profits generated by resident companies within Switzerland.

Federal-Level Corporate Tax (CIT)

Swiss CIT is charged at a flat rate of 8.5% on net profits. However, CIT is tax deductible and subsequently reduces the applicable tax base. For that reason, direct federal CIT on gross profits lies at around 7.83%. Since 1 January 2024, large globally active companies in Switzerland will pay at least 15% in tax.

Cantonal and Communal Level Corporate Tax

Besides federal CIT, each canton has its own tax law and levies cantonal and communal/municipal CIT. These rates vary. The tax burden will therefore vary from canton to canton. Some cantonal and communal taxes are levied subject to a progressive tax system.

Overall Tax Rates

The maximum CIT rate on gross profit including federal, cantonal, and communal taxes is between 11.9% and 21% (same source as above).

Corporate Tax Rates in the U.S.

The federal corporate tax rate in the U.S. is a flat 21%. Most states also levy their own state corporate tax. This can range from 2.5% to 9.8%. Check the corporate tax rates of any states you’re considering as tax policies vary significantly.

Issues Relating to Double Taxation

Business owners in some types of corporations in the U.S. face double taxation when net income is distributed to shareholders. These companies are firstly subject to corporate tax on the company’s taxable income and then to personal income taxes on the dividends that shareholders receive.

Capital Gains Tax

Capital gains tax can make a significant dent in your business profits when you sell assets like real estate. The following are the main differences between Switzerland and the U.S. with regard to capital gains tax:

Capital Gains in Switzerland

Private individuals (as opposed to professional investors) don’t pay tax on capital gains from investments like stocks and bonds. However, profits from the sale of real estate are subject to real estate gains tax. This varies by canton. The rates you pay are either progressive or proportional and vary depending on the duration of the ownership of the property.

Capital Gains Tax in the States

Capital gains tax is levied at the federal level and—in some states—at the state level too. Capital gains taxes don’t go over 15% in most cases, though the rate can reach 20% in some circumstances.

Capital gains taxes in 32 states and the District of Columbia are the same as the ordinary income rates, while other states levy rates above or below their income tax rates. Residents of tax-favourable states like Florida and Texas don’t pay capital gains taxes at the state level.

Sales Tax

Sales taxes differ significantly between Switzerland and the United States.

VAT in Switzerland

The standard VAT rate in Switzerland is 8.1%. A reduced rate for certain items (mostly essential items like food and medications) is 2.6%. This is much lower than EU countries that must levy a VAT rate of at least 15%.

Sales Tax in the U.S.

The United States is the only major economy in the world without a federal value-added tax (VAT). This is because each state (and sometimes county) levies its own sales tax. U.S. taxpayers can deduct state and local sales taxes paid or state and local income taxes paid on their federal income tax return to a maximum of $10,000 per tax year.

The highest combined state and local sales tax in the United States is Louisiana, at 9.56%. Five states currently have no sales tax. These are Alaska, Delaware, Montana, New Hampshire, and Oregon.

Personal Income Tax

The amount of personal income tax you’re liable to pay varies significantly depending on where you operate within your chosen country.

Income Tax in Switzerland

Personal income tax paid on gross income is progressive with a maximum rate of 11.5% at the federal level. Cantonal and municipal taxes are charged on top of this at progressive rates. The maximum combined cantonal and municipal rate is around 36%.

Income Tax in the U.S.

Federal income tax rates range from 10% to 37% in the United States. In addition, business owners may pay state and local income taxes as part of their personal income tax depending on the state they live in.

Tax-liberal states like Florida don’t impose any personal income tax while California’s top marginal income tax rate is 12.3%. Check the tax brackets in each state to work out your potential tax liability.

Self-Employment Tax

Self-employment tax rates are fairly similar in Switzerland and the United States:

Self-Employment Tax in Switzerland

Self-employed individuals in Switzerland pay 10.1% self-employment tax plus 5% of the amount due in administrative fees.

Self-Employment Tax in the U.S.

Self-employment tax in the States currently lies at 15.3%. This is made up of two parts: 12.4% for Social Security and 2.9% for Medicare.

Other Business Costs to Factor In

Apart from tax, make sure you have a realistic idea of how much you’ll need to set up and run your business in the U.S. or Switzerland. Some typical costs include the following:

Payment Processing

E-commerce businesses must factor in costs like web development and hosting, merchant services accounts and payment gateway services. These are key components of any modern e-commerce business as they allow your business to accept payments in different currencies and a wide range of payment methods.

Establishing Yourself Financially

Most banks require prospective account holders to be residents of Switzerland. If this isn’t your case, there are some banks in Switzerland for foreigners that can help you establish financial roots in the country.

Living Costs

Living costs in Switzerland are estimated to be around 19% higher than in the United States. Cities like Zurich and Geneva are notoriously expensive to live in. In fact, Zurich, Geneva, Basel, and Bern held the 3rd to 6th places on Mercer’s 2024 list of the costliest cities for international workers to live in.

Labour Costs

The median pre-tax salary in Switzerland in 2022 was CHF 6,788 (around 7,145 euros). This is compared to a national average wage index of $63,795.13 in the United States for the same year, which averages out to $5,316 monthly (around 4,743 euros).

Health Insurance

Obtaining health insurance is a must in Switzerland. New residents must purchase a policy within three months of their arrival. The average monthly premium reached CHF 359.5 (around 378 euros) in 2024.

The cost of health insurance in Switzerland is comparable to the United States. Research by Forbes revealed the average monthly premium is $420 (around 375 euros) for a bronze Affordable Care Act plan for a 40-year-old in the States.

Practical Concerns When Moving Your Business to Switzerland

Tax is a hugely relevant factor to consider when planning your new Swiss business venture. However, other considerations can also affect your financial prospects in Switzerland:

• Low corporate taxes are a huge draw for any business owner.However, only checking the CIT belies the reality of the tax burden you’ll face. Consider other factors like VAT, local taxes, and sales tax to get the full picture.
• Switzerland requires you to establish residency before starting a business. Many banks also demand residency as a condition to open a bank account. Take into account the costs and time associated with setting up residency.
• Keep a close eye on the tax rates wherever you decide to conduct business, as tax rates change. It’s best to work with a qualified accountant to help you stay on top of the complex tax codes found throughout the European Union and the United States.

Align Your Business Location with Your Long-Term Goals

The choice between Switzerland and the United States as a business location involves carefully considering various factors, with taxation being a significant component. While Switzerland offers lower corporate tax rates at the federal level, the picture may change significantly depending on the Swiss canton or U.S. state where you set up business.

Bear in mind that your tax liability will also be affected by your countries of citizenship and any tax treaties that exist between them. Take the time to research how your exact location will impact your tax bill as well as your long-term business prospects.