Taxation of a Company in Switzerland in 2027: Corporate Tax, VAT, and Dividends

Published on October 17, 2026 and written by Cyril Jarnias

Switzerland has a reputation for being an attractive country for businesses, but its taxation is far from uniform or simplistic. Between a three-tier corporate income tax (Confederation, cantons, municipalities), multiple VAT rates, and a sophisticated system for dividends and withholding tax, a company director must juggle numerous rules. Added to this is now the constraint of the global minimum rate of 15% for large groups (OECD Pillar Two), which is pushing several cantons to review their tax policies.

Corporate Income Tax: A Three-Tier System

Taxation of Swiss corporate profits is based on a stack of three layers: federal direct tax, cantonal tax, and municipal tax. These three levels make up the famous “combined effective” rate.

Federal Direct Corporate Income Tax

At the federal level, the mechanism is surprisingly simple: the federal direct corporate income tax rate is uniform for all companies, regardless of the canton. It is set at 8.5%, but with an important technical nuance: it is calculated on profit after tax and is itself deductible.

Concretely, this means that if we reason as a percentage of profit before tax, the effective federal rate is around 7.8%. This deductibility is provided for by the Federal Direct Tax Act (Article 68). In practice, when discussing the overall rate, this federal block is added to cantonal and municipal taxes.

The cantons also play an operational role: they collect federal tax via the annual corporate tax return, before remitting the corresponding share to Bern. For a company, the experience is therefore that of a single procedure, even if legally we speak of distinct taxes.

Cantonal and Municipal Taxes: A Highly Contrasted Landscape

It is at the level of cantons and municipalities that Switzerland reveals its true tax diversity. Each canton sets its own corporate income tax rate, to which municipal surcharges are added. The result is a combined effective rate that varies greatly depending on the location.

To measure the concrete impact of these differences, just imagine an SME generating a taxable profit of 1 million francs. In a very competitive canton like Lucerne or Zug, the tax bill will be significantly lower than in a more expensive canton like Bern or Zurich. The difference can represent tens of thousands of francs per year.

Comparison of Major Cantons: From Most Attractive to Most Expensive

The contrast is particularly striking between certain cantons. The cantons of Central Switzerland regularly dominate the rankings, while large urban cantons find themselves at the bottom of the pack. The table below summarizes a few combined effective rates (including federal) for 2026, calculated in cantonal capitals.

Lucerne now occupies the top spot with a rate of 11.66%, after reducing its rate from about 11.91% to 11.66%. Zug, long the champion, follows very closely at just over 11.7%. At the bottom of the ranking, Bern remains the most expensive canton with an effective rate of about 20.5%. In some urban cantons, certain municipalities can approach or even exceed 20% effective.

For a profit of one million, the difference in tax burden between a canton at 11.8% and a canton around 20.5% amounts to around 87,000 francs per year. For a profitable SME, changing cantons can therefore pay off very quickly, sometimes in less than two years.

Impact of Recent Reforms at the Cantonal Level

After the TRAF reform, many cantons lowered their rates to remain competitive. This wave of rate cuts is calming. Now, adjustments are more targeted, often in connection with the new international framework of 15% minimum taxation for large groups.

Several movements can thus be observed:

These adaptations aim for a specific objective: bringing effective rates closer to the 15% floor set by the OECD for large groups, in order to limit the need to levy a top-up tax.

Tax Reduction Mechanisms at the Cantonal Level

Beyond the rate, cantons have tools to reduce the taxable base or grant relief on certain income. Three mechanisms play a central role in corporate tax optimization:

The combination of these instruments is capped: intercantonal law provides that the total of relief measures (patent box, R&D super-deduction, NID) must not reduce the taxable profit by more than 70% (ceiling set out in Article 25b of the Federal Act on the Harmonization of Direct Taxes). Therefore, a company cannot completely eliminate its taxable profit at the cantonal level, even by combining preferential regimes.

Participation Relief: Near-Exemption of Intra-Group Dividends

For companies holding significant participations, Switzerland applies a powerful mechanism to avoid triple economic taxation of profits within groups: the “participation relief” (deduction for participations).

A company benefits from this deduction if it holds: a participation in another company.

– at least 10% of the capital of a subsidiary,

– or at least 10% of profits and reserves,

– or a participation whose market value reaches at least 1 million francs.

Dividends received from these participations, and under certain conditions capital gains from disposals, entitle the company to a proportional reduction of corporate income tax. The formula is simple: the portion of total profit deriving from net participation income (after related expenses and amortizations) is calculated, then the tax is reduced in the same proportion. In practice, for a holding company that derives the majority of its income from subsidiary dividends, the tax burden on this income is nearly zero.

This mechanism is mandatory at the federal level and in all cantons, which reinforces Switzerland’s attractiveness for holding companies and international groups.

The Shock of the Global Minimum Rate of 15% (Pillar Two)

One of the major recent upheavals for corporate taxation in Switzerland comes from the OECD and G20, with the introduction of the famous “Pillar Two”. This system establishes a minimum effective tax rate of 15% on the profits of large multinational groups.

Scope: Only Large Groups

Pillar Two applies only to groups with consolidated revenue exceeding 750 million euros in at least two of the last four fiscal years. This means that virtually all Swiss SMEs are out of scope: companies with revenue between 1 and 50 million francs are generally not affected, unless they belong to a large international group exceeding this threshold.

However, any Swiss entity that is part of a multinational group exceeding the 750 million euro consolidated revenue threshold falls within the scope, whether it is a Swiss group with foreign subsidiaries or a Swiss subsidiary of a foreign group.

Implementation in Switzerland: QDMTT and IIR

Switzerland has chosen a phased implementation, backed by a constitutional amendment approved in a popular vote and an implementing ordinance directly referencing the OECD model rules (GloBE).

– QDMTT (Qualified Domestic Minimum Top-up Tax): in effect for fiscal years starting on or after January 1, 2024, this is a domestic top-up tax that allows Switzerland to levy itself the difference when the effective tax rate of an entity or group in Switzerland would be below 15% according to the GloBE calculation. The idea is to prevent other countries from taxing this “shortfall” instead of Switzerland.

– IIR (Income Inclusion Rule): effective for fiscal years starting on or after January 1, 2025, this establishes a top-up tax at the parent company level to collect additional tax on insufficiently taxed subsidiaries.

However, Switzerland has decided not to implement, for now, the UTPR (Undertaxed Payment Rule), which would allow certain states to tax payments to low-tax jurisdictions. This choice aims to limit complexity and risks of jurisdictional conflicts.

Effects on Cantons and Rate Adjustments

A significant portion of Swiss cantons, particularly the most competitive ones, previously had combined effective rates below 15%. With Pillar Two, these cantons must accept that, for large groups, the tax burden must be raised at least to the minimum threshold.

– Geneva raised its combined rate from about 14% to 14.7%.

– Vaud introduced progressivity with a higher rate above 10 million in profit (up to about 14.7% on the high tranche).

– Schaffhausen now applies a rate of 15% on profits exceeding 15 million.

– Basel-Stadt plans an increase from 13.04% to 14.53% for the portion of profits exceeding 50 million.

– Other cantons have made marginal adjustments or maintained rates below 15% while relying on the QDMTT for the groups concerned only.

The aim of these movements is to align, at least partially, cantonal effective rates with the 15% floor, in order to reduce the amount of top-up taxes to be levied under Pillar Two.

Increased Complexity and New Reporting Obligations

For the groups concerned, Pillar Two represents a profound change. Beyond the potential increase in the tax burden, compliance costs rise sharply. It is estimated that approximately 150 different data points – financial, tax, organizational – must be collected and managed to calculate the GloBE effective tax rates.

Swiss entities subject to the regime must:

– register with the Federal Tax Administration on the OMTax platform,

– file a specific GloBE Information Return, centralized at the federal level,

– meet strict deadlines: for groups whose fiscal year coincides with the calendar year, the first GloBE return for fiscal year 2025 must be filed by mid-2026.

Non-compliance can result in fines of up to 10,000 francs, as well as the risk of new disputes over additional tax assessments.

For companies not affected by Pillar Two (the vast majority of Swiss SMEs), these developments have no direct impact on the tax burden, but they can indirectly influence competition between cantons, with some seeking to remain attractive while complying with the international standard.

VAT: Three Rates, Many Exceptions

Alongside corporate income tax, VAT is another major component of business taxation in Switzerland. The Swiss system is largely inspired by the European model, while retaining its own specificities.

General Structure of Swiss VAT

Swiss VAT is a non-cumulative tax, levied at each stage of the production and distribution chain, with the right to deduct input tax. It is based on three main rates, set by the VAT Act:

These rates, increased as of January 1, 2024 (the standard rate was previously 7.7%, the reduced rate 2.5%, and the special rate 3.7%), are expected to remain stable at least until 2026.

The standard rate applies to most transactions: sale of vehicles, electronics, clothing, consulting services, engineering, construction work, digital services, standard catering, etc. The reduced rate covers essential goods (foodstuffs excluding alcohol, tap water, medications, newspapers and books without advertising content, agricultural products, etc.), as well as certain cultural or sports services. The special rate is reserved for tourist accommodation, even when breakfast is billed separately.

Exemptions and Specific Out-of-Scope Operations

The law distinguishes two main types of exemptions:

– Exemptions without deduction right (true exemptions): certain sectors such as hospital services, healthcare, certain financial and insurance services, or specific cultural services are exempt without the right to recover input VAT. The company providing these services cannot deduct the VAT paid on its purchases related to these activities.

– Exemptions with deduction right (zero-rate): exports of goods and certain closely related services, for example, are exempt while allowing the full recovery of input VAT incurred. For an exporting company, VAT should therefore not constitute a final cost, provided that the allocation of expenses is properly documented.

Since 2025, the list of exemptions without deduction right has been extended, notably including the exemption:

– of resold travel services by Swiss or foreign agencies for stays in Switzerland,

– of active participation in cultural events,

– of certain managed care services in the medical field,

– of the provision of infrastructure for practicing physicians in outpatient facilities,

– of home care and assistance services provided by private organizations such as Spitex,

– of personnel placement by non-profit organizations,

– of the offering and management of investment groups by professional pension foundations.

These expanded exemptions sometimes complicate the management of the deduction right: a mixed structure (taxable activity and exempt activity without deduction right) must allocate its expenses and apply a deduction pro-rata for costs that are not directly attributable.

Right to Deduct Input VAT

For VAT-registered companies, the basic mechanism is simple: VAT charged on sales (output tax) is offset by VAT paid on purchases allocated to the taxable activity (input tax). Only the net difference is remitted to the Federal Tax Administration.

For input VAT to be deductible, several conditions must be met:

– the received service must be used to carry out taxed operations or exempt operations with deduction right (such as exports),

– the tax must be documented (invoice mentioning Swiss VAT or customs assessment for imports),

– the expense must be economically justified and recorded in the company’s statutory accounts.

Certain expenses, even if related to the activity, only give partial deduction rights, for example for meal and beverage costs, where 50% of the VAT is excluded from the deduction right. Others are entirely excluded (purely private expenses, costs related to fully exempt activities without deduction right).

Flat Rates (NRDM) and Simplifications

For small and medium-sized enterprises, Switzerland offers the possibility of using flat rates (Net Tax Rate Method, NRDM), which simplify the return. Instead of calculating deductible input VAT transaction by transaction, the company applies a net rate to its taxable turnover.

These rates range from about 0.1% to 6.9% depending on the sector. For example:

This method is interesting for companies with little input VAT or hard-to-track expenses, but it is only available below a certain turnover threshold and requires a global choice per activity.

Registration Thresholds and Foreign Companies

Generally, a company becomes subject to Swiss VAT if its worldwide turnover from taxable or exempt-with-deduction-right operations reaches or exceeds 100,000 francs per year. It is therefore not only the turnover generated in Switzerland that counts, but the total global sum of taxable revenue.

For a foreign company, the logic is the same: as soon as its worldwide turnover exceeds this threshold and it provides taxable services on Swiss territory, it must register, appoint a tax representative if necessary, and file periodic returns.

Certain important specificities should be highlighted:

For newly created companies, the Federal Tax Administration specifies that input VAT incurred before registration in the commercial register is only deductible within the six months preceding registration, provided that other registration criteria are met.

Reverse Charge Mechanism (Acquisition Tax)

As in the European Union, Switzerland applies a reverse charge mechanism (acquisition tax) for certain services provided by foreign suppliers not registered for Swiss VAT. The principle: it is the Swiss client, and not the supplier, who must declare the VAT due and, if applicable, deduct it as input VAT.

This mechanism applies in particular:

– to cross-border services (consulting, software development, licenses, etc.) provided by a foreign supplier not registered in Switzerland, as soon as the annual value of these services exceeds 10,000 francs for the Swiss recipient,

– to certain specific flows, like the supply of electricity and gas through networks, or the transfer of emission rights (carbon credits, guarantees of origin for electricity), for which the law now imposes a generalization of the acquisition tax, including between Swiss companies (domestic reverse charge),

– to electronic B2B services when the foreign supplier is not registered for Swiss VAT.

In practice, for a registered Swiss company, the reverse charge is often neutral: it declares the VAT on the received service and simultaneously deducts it as input VAT in the same return. For non-registered entities (exempt doctors, small associations, etc.), this mechanism can however generate a net cost if the acquisition threshold of 10,000 francs is exceeded.

Dividends: Double Taxation, Relief, and Withholding Tax

Dividend taxation in Switzerland is both generous for certain categories of shareholders and rigorous in terms of control, thanks to the Verrechnungssteuer, the 35% withholding tax levied on income from movable capital.

Economic Double Taxation of Dividends

In Switzerland, a company’s profits are taxed once at the corporate level via corporate income tax, and then a second time at the shareholder level when these profits are distributed as dividends. This is a classic case of economic double taxation.

For resident individual shareholders, dividends are considered taxable income and must be declared in the tax return. They are added to other income (salaries, fees, etc.) and subject to the progressive rate of federal, cantonal, and municipal tax.

To mitigate this double taxation, Swiss law has for several years granted relief to shareholders holding a qualifying participation, generally defined as at least 10% of a company’s capital.

Relief for Qualifying Participations for Individuals

For a private shareholder resident in Switzerland, holding a participation of at least 10%:

– at the federal level, only a portion of the gross dividend is taxable (70% since 2020, according to Article 20, paragraph 1bis of the Federal Direct Tax Act),

– at the cantonal level, most cantons apply a similar system, taxing only 50% to 80% of the dividend received.

In practice, this means the shareholder only pays income tax on a portion of the dividend, bringing the effective tax rate well below what it would be if 100% of the dividend were taxed.

For non-qualifying participations (less than 10% of capital), the dividend is generally fully taxed as ordinary income, both at the federal and cantonal levels, even though a few cantons grant partial reductions in certain cases.

Swiss Tax Rule

35% Withholding Tax: The Verrechnungssteuer

At the heart of the system is the withholding tax of 35% on dividends and other Swiss movable capital income. This tax is levied:

– on ordinary dividends,

– on constructive distributions (benefits granted without sufficient consideration to shareholders),

– on liquidation dividends,

– on interest from certain bonds and bank deposits,

– on income from certain Swiss investment funds.

The legal debtor of this tax is not the shareholder but the distributing company. When a general meeting decides on a distribution, the company must:

– withhold 35% on the gross dividend amount,

– declare and remit this withholding to the Federal Tax Administration within 30 days using the appropriate forms (e.g., form 103 for a stock corporation, 110 for an LLC),

– pay only 65% of the dividend in cash to the shareholder.

If the company decided to pay the full dividend to the shareholder and bear the 35% itself, the Federal Tax Administration would reclassify this amount as a net dividend, resulting in a “gross-up” and an effective tax burden of over 50% on that portion, thus penalizing the failure to pass on the tax.

Refund for Swiss Residents

For a shareholder who is a tax resident in Switzerland, the 35% withholding is in principle fully refundable, provided that:

– the securities (shares, units) are properly declared in the wealth statement,

– the dividends are declared as income in the tax return.

Foreign Shareholders and Double Taxation Treaties

For shareholders residing abroad, the situation depends on the existence and content of a double taxation treaty (DTT) between Switzerland and the state of residence:

– in the absence of a DTT, the 35% withholding tax generally remains final,

– in the presence of a DTT, the Swiss withholding rate is usually reduced for residents of the partner state, often to 15% for portfolio security holders, or even to 5% or 0% for parent companies holding a significant participation in a Swiss subsidiary.

In practice, this means that: concrete actions must be implemented to achieve the set objectives. (Note: This sentence seems like a placeholder or error in original; we will translate it as is.)

– the foreign shareholder first suffers a 35% withholding,

– then they can request, via the forms provided for by the DTT (e.g., a specific form for France, Germany, etc.), the refund of the difference between 35% and the reduced rate provided by the treaty (often 15%),

– the balance (e.g., 15%) remains payable in Switzerland, but it can generally be credited against the tax due in the state of residence, thus avoiding double taxation.

For parent companies resident in the European Union that meet the participation conditions (often more than 25% of capital for at least two years), the agreement between Switzerland and the EU allows, in many cases, a 0% rate on intra-group dividends. Exemption can be obtained via a notification procedure: instead of withholding 35% and then refunding, the Swiss company distributes the dividend without withholding upon presentation of the appropriate authorization.

Distributions from Capital Reserves: A Privileged Treatment

Another key element of the Swiss system is the distinction between dividends taken from profits and distributions taken from reserves from capital contributions (capital contribution reserves). When shareholders inject funds into the company in addition to nominal capital (share premium, issue premiums, etc.), and these contributions are properly declared and recorded as reserves from capital contributions, the company can later repay these reserves to shareholders without withholding tax and without income tax for private beneficiaries.

Dividends Received by Companies: Combination with Participation Relief

When a Swiss company receives dividends from another company in which it holds a qualifying participation (at least 10% of capital or a value of at least 1 million francs), two mechanisms overlap:

– the 35% withholding tax, which can be avoided or refunded via notification or refund procedures,

– the participation relief, which reduces to nearly zero the corporate income tax due on these dividends at the level of the receiving company.

In practice, for a qualifying Swiss holding company, intra-group dividends are almost entirely exempt from corporate income tax after applying the participation relief, and the 35% withholding tax is either not levied (notification) or fully refunded.

Key Takeaways for a Company Director in Switzerland

The Swiss tax architecture offers a subtle blend of generally moderate rates, strong intercantonal competition, and targeted regimes for innovative activities or group structures. At the same time, the country is progressively aligning with international transparency standards and minimum taxation for large multinationals.

For a typical Swiss company, a few points of vigilance stand out:

For large groups, the rise of Pillar Two and the 15% minimum rate adds a significant layer of complexity: new reporting obligations, risk of disputes, cantonal rate adjustments targeting very high profits, and the need to rethink certain incentive regimes to keep them compatible with GloBE rules.

This page covers corporate taxation. For the legal forms, the incorporation steps and the year-one cost, start from the parent guide on Swiss company formation, then see legal forms and the bank account.

FAQ

Sources

• PwC Tax Summaries — Switzerland, corporate income tax (reviewed 01/07/2026)
• PwC Tax Summaries — Switzerland, withholding taxes
• Federal Tax Administration (ESTV) — value-added tax

Cyril Jarnias

Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.

On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.

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