Register to receive Taxand’s latest opinion on topical tax news
News › Taxand’s Take Article
Switzerland & Singapore – attractive locations for holding companies
Singapore and Switzerland have been attractive locations for international holding companies for a number of years. They attract top or intermediary holding companies of multinational groups, investment companies and private holding companies. Even today, in the ever-changing world of taxation, both jurisdictions are still attractive for various reasons. Taxand Singapore and Taxand Switzerland discusses the key factors which make the jurisdictions favourable for holding companies.
What makes Switzerland an attractive holding company location?
- Holding companies are exempt from income tax at cantonal (ie State) and municipal level. Only federal income tax of 7.83% is levied. Dividends from qualifying investments (market value at least CHF 1 million or 10% holding quota) benefit from participation exemption relief which results in a very marginal taxation, at most. The same applies to capital gains on qualifying investments (10% holding quota), provided the investment has been held for a year
- Taxable income is the delta of the total revenues and all expenses justified by the company purpose. Debt interest is tax deductible as long it is not excessive or considered a deemed dividend because of thin capitalisation
- Holding companies pay an annual tax on equity that depends on the location of the company domicile (canton and municipality) and varies from 0.001% to 0.175%
- Holding companies can register as a value added tax (VAT) a taxpayer, which allows them to claim input tax on all expenses
- Dividend distributions by Swiss holding companies are subject to a 35% withholding tax. However, due to the extensive treaty network of Switzerland, partial or full relief of the dividend withholding tax is available based on the applicable tax treaty. Generally, dividends to European corporate shareholders with a qualifying share quota benefit from a full relief of withholding tax
- Should a change of tax status from holding company taxation to ordinary taxation be required, the assets will be stepped up to fair market value at the holding company tax rate in the tax balance sheet. Even the ordinary income tax rates are still competitive and range from 11.6% to 24.2% depending on the location of the company domicile
What makes Singapore an attractive holding company location?
- Singapore has a territorial system of taxation whereby only income that is Singapore-sourced is subject to tax. Foreign-sourced income, however, is subject to tax in Singapore only when it is received in Singapore. This is in contrast with worldwide systems of taxation found in other jurisdictions
- There is no capital gains tax in Singapore
- The corporate income tax rate is 17%, with partial exemptions given to the first SGD 10,000 and next SGD 290,000 of chargeable income
- The Singapore corporate tax system has long since converted from the imputation system to the one-tier system. Dividends of Singapore resident companies are tax exempt and not subject to further tax in the hands of its shareholders
- Singapore resident holding companies enjoy reduced withholding tax rates on interest, royalties and dividends under comprehensive tax treaties with 76 jurisdictions, including most of Asia and many European countries. More treaties are expected to be ratified
- Even if a Singapore company cannot avail itself to treaty benefits, Singapore grants unilateral tax credits for foreign tax suffered
- Tax exemption is also available for specific foreign-sourced income (dividends, branch profits and service income) where they have been subject to tax in the territory of source, and where the highest rate of income tax in that territory (at the time the income is received in Singapore) is at least 15% or more
- Singapore also offers an array of tax incentives to attract foreign investments, financial services, fund management, private wealth management, philanthropy, shipping and aircraft operations as well as companies that undertake qualifying headquarter activities
Holding companies are important structuring tools for multinational groups and for investors all over the world. Both Switzerland and Singapore are attractive jurisdictions for establishing a holding company. Both jurisdictions provide a stable environment, a reliable legal system, a skilled workforce, a variety of specialised providers and strong international connections. Most importantly, both jurisdictions offer very attractive fiscal conditions. When investigating locations for holding companies, multinationals should ensure they are aware of all conditions before committing to a jurisdiction.
Taxand's Take Author
To see more articles from this issue of Taxand's Take, please select a location
Access our Taxand's Take archive to discover more about the topical tax issues affecting multinationals