The Swiss subsidiary: what to expect after formation
The subsidiary is entered in the commercial register and the capital is paid in. Now everyday business begins: payments, salaries, VAT and figures that must satisfy both Swiss law and the parent company.
- The real work begins with the entry in the commercial register: bank account, registrations, accounting, payroll and tax must run according to Swiss rules from the start.
- The parent company usually needs its figures in its own chart of accounts and on its own deadlines. This can be combined well with the Swiss accounts if it is planned early.
- Services between the parent company and the subsidiary need written agreements and arm's length prices. Otherwise, the tax authorities may make corrections.
The first weeks after registration
As soon as the company is entered in the commercial register, the bank releases the paid-in capital. A few basics should now be in place before the first invoices and salaries are paid:
- Payments: who may approve payments, alone or jointly? Joint signature by two is often sensible for subsidiaries, because it allows the parent company to keep control.
- VAT: registration is mandatory once turnover reaches CHF 100,000 per year. Voluntary registration from day one can be worthwhile, so that input tax on start-up investments can be reclaimed.
- Social security: with the first employee, the company must join a compensation fund, an accident insurer and a pension fund.
- Insurance and contracts: business liability, lease, IT and everything the subsidiary concludes in its own name.
Accounting: Swiss law and group reporting
The subsidiary keeps its accounts under the Swiss Code of Obligations. The parent company, however, wants to see the figures in its own format, often under IFRS, US GAAP or the law of its own country and in its own currency. The two can be combined:
- The subsidiary's chart of accounts is set up so that each account can be clearly mapped to the group chart of accounts.
- Differences between the Swiss accounts and the group accounts, for example on depreciation or provisions, are recorded in a reconciliation.
- Bookkeeping and annual accounts are also possible in the foreign currency that is material to the business, such as euros or dollars. Since 2023, this also applies to the share capital.
Payroll and employees
Payroll administration in Switzerland is simpler than in many other countries, but has its own rules. These include deductions for AHV, IV, EO and unemployment insurance, the pension fund from an annual salary of CHF 22,680, accident insurance and, at the end of the year, the salary certificate. For employees without a settlement permit, the employer also deducts withholding tax from the salary and settles it with the canton.
If employees are sent to Switzerland from the parent company, it should be clarified early where they are covered by social security, where their salary is taxed and which company bears the costs.
Services within the group
Services almost always flow between the parent company and the subsidiary: management, IT, licences, goods deliveries or loans. The tax authorities expect these services to be charged at prices that independent third parties would also agree on. If the price is too low or too high, they can correct the profit and treat the difference as a hidden profit distribution, subject to withholding tax.
In practice, this means:
- written agreements for all recurring services within the group
- a traceable pricing method, often a cost-plus mark-up for pure service companies
- arm's length interest on loans; the Swiss Federal Tax Administration publishes guideline rates every year
- regular reconciliation of intercompany balances, so that both sides show the same amounts
The first year at a glance
| When | What |
|---|---|
| Every month | Accounting, payroll run, bank reconciliation, reporting to the parent company |
| Every quarter | VAT return, reconciliation of intercompany balances, interim accounts |
| January | Salary certificates and payroll declarations to the social insurers |
| After the financial year-end | Annual accounts under Swiss law, reconciliation to the group accounts |
| Within six months | General meeting approving the annual accounts |
| By the cantonal deadline | Company tax return |
Annual accounts, audit and distributions
At the end of the financial year, the subsidiary prepares annual accounts under Swiss law. Whether they must be audited depends on its size. Small companies with no more than ten full-time positions can opt out of the audit if the parent company as shareholder agrees. Many groups have an audit carried out anyway, because their group auditor requires it.
If the subsidiary distributes profits to the parent company, the 35 percent withholding tax applies in principle. Depending on the double taxation agreement, it can be reduced or eliminated, often through a notification procedure instead of a refund. The procedure must be applied for in good time.
How I support you
I set up the subsidiary's accounting, VAT and payroll and take care of ongoing support to the agreed extent: monthly closings, reporting to the parent company, annual accounts, tax returns and the general meeting. I coordinate directly with group accounting and your tax advisers abroad, in German, English, French or Croatian.
This article gives a general overview and does not replace advice in an individual case.
Igor Pavlovic is a fiduciary and auditor in Lucerne, Switzerland. He advises business owners and wealthy private individuals on tax, succession and audit, including cross-border matters.