Christian Lingg

International tax planning in Zug

A mixed company is the ideal vehicle for international trading companies, as it is easy to organize and attracts very low taxes.

This type of company is particularly suited to situations where trade is conducted between different countries and most of the goods never even enter Switzerland in the first place. Compared with the tax burden for such companies in other countries (e.g. Germany or the US), tax savings of as much as 75% are possible. It is therefore well worth looking at the mixed company option wherever this may be feasible.

There are certain prerequisites for taking advantage of this highly attractive tax solution: the company in question must be a legal entity (incorporated or limited liability company), more than 80% of whose business activities (both buying and selling) are conducted outside Switzerland.

Trade with Swiss customers and suppliers must not exceed 20% in either case. Once these conditions are met, the profits from foreign business transactions within the canton will be taxed at a maximum rate of 25% of the normal tax. Depending on the number of employees – the fewer the better – the tax burden in the canton of Zug can even drop to as low as 10% of the normal tax rate. In conjunction with the direct federal tax of 8.5%, this results in many cases in a maximum tax burden of 9.5 to 10%.

Compared with the corresponding tax burden in Germany, the US and other countries, this means a reduction in taxes of around 75% in many cases.

If the company also generates income from Swiss sources, this is dealt with separately (as if for a distinct business line) and subjected to normal tax. Currently, the maximum tax burden for such earnings is around 19%.

Even though this type of tax-optimized structure entails annual costs and initial costs on a not insignificant scale, it is nonetheless worth giving the matter careful and thorough consideration. For in all the cases with which we have been entrusted to date, both the costs of evaluating and establishing the company or structure and the operating costs for the first few years were easily set off by the tax savings achieved in the first year of business.