Switzerland is often chosen as hub for international
headquarters, holding companies, treasury centres, special purpose
vehicles in M&A transactions or for family offices. Such entities
are often highly capitalised, be it by way of equity capital or of debt
Stamp duties are taxes levied by the Swiss federal tax
administration on certain legal and capital transactions. The levying of
these duties is linked to the creation of participation rights and
premium payments (equity capital; issuance stamp duty), securities
trading (security transfer duty) or premium payments for certain types
of insurance (duty on insurance premiums). Basis for the levy of these
duties is the Swiss federal stamp duty law.
Especially the issuance stamp duty and the transfer stamp duty have
been considered for a long time as a negative factor for the promotion
of Switzerland as a business and security trading location as these
duties lead to additional tax costs in international comparison with
other business locations. A duty on the issuance of equity is harmful to
the economy and clearly counterproductive, especially in economic
In June 2021, the Swiss parliament finally approved the abolition
of the issuance stamp duty. The decision to abolish this duty was long
overdue and is clearly welcomed by the business community. Further steps
to abolish the security transfer duty or the duty on insurance premiums
have been postponed.
The abolition of the issuance stamp duty can, in principle, enter
into force per January 1 2022. However, certain political
representatives have already announced a referendum. Should the 50,000
signatures required for a referendum be collected, then the Swiss
population will have to vote about the abolition of the issuance stamp
duty and a possible entry into force of the abolishment will at least be
delayed until 2023. Therefore, should an investor plan in due course
higher equity investments in Swiss companies, it should be clarified in
advance when exactly the abolition of the issuance stamp duty will enter
Until the abolition enters into force, the Swiss company may, as a
temporary measure, be financed by way of debt capital, whereby the thin
capitalisation rules must be considered from a Swiss tax law
perspective. Only after entering into force of the abolition of the
issuance stamp duty, the debt capital should be converted into equity
capital. Such a temporary debt financing and postponed equity
capitalisation will result in the saving of the 1% issuance stamp duty
on planned capital contribution.
Promotion of Switzerland as hub for international headquarters, holding and treasury companies
Switzerland is well known for its moderate tax system, a wide tax
treaty network, a stable political and legal system and a high living
standard offering an international environment. Its presence as a hub
for international activity is not only for tax purposes, but also for other business reasons and reasons like the living standard and the social environment for the employees.
Nevertheless, the levy of Swiss issuance stamp duty is an extra
cost position is considered by foreign investors often as an adverse
factor in international comparison. Even if the issuance stamp duty can
be avoided in many situations by implementation of certain tax neutral
reorganisation measures or by corporate immigration of a non-Swiss
company into Switzerland, capital contributions in cash, be it by way of
a formal capital increases or by way of a contributions into the
reserves without a formal capital increase, trigger issuance stamp duty
of 1% and result therefore in additional costs. This might be hurtful
for a legal entity or a start-up, especially if a shareholder makes a
capital injection to recapitalise an over-indebted company. Having to
pay tax on a capital contribution is understandably incomprehensible for
many investors and discourages them accordingly.
To avoid such negative impact, the Swiss parliament has finally
decided in June 2021, after the decision was pending for an eight-year
period in one of the chambers, the abolition of the Swiss issuance stamp
Current system of issuance stamp duty no longer competitive
Issuance stamp duty is currently levied by the Swiss federal
government on the issuance of participation rights in Swiss companies.
It is, inter alia, levied on the issuance of and increase in
the nominal value of participation or quota rights in Swiss stock
corporations or limited liability companies, of profit sharing
certificates and participation certificates of Swiss companies and on
the contribution against no consideration into the reserves of a
The issuance stamp duty is 1% of the amount paid, but at least of
the (increased) nominal value. Upon payment of the capital in the course
of the establishment or a later formal capital increase, an exemption
of CHF1 million (approximately $1.08 million) applies, i.e. on a total
capital up to CHF1 million (formal capital and premium payments) no
stamp duty is levied. Only the accumulated capital payments more than
CHF1 million are subject to issuance stamp duty. Not the shareholder,
but the company receiving the capital contribution is liable for payment
of the issuance stamp duty.
Participation rights created or increased in the course of certain
tax neutral reorganisation measures (e.g. as a result of a merger,
conversions, push down or split) and in the course of a corporate
immigration into Switzerland are exempt from the issuance stamp duty.
Furthermore, to strengthen the stability in the finance sector, certain
stock and conversion capital has been exempt from issuance stamp duty in
Abolishment of issuance stamp duty to strengthen business location
The income realised by the Swiss federal government from the
collection of the issuance stamp duty is of minor relevance. On the
other side, the levy of the duty is, for various reasons, harmful to the
Swiss economy, which is why Swiss business community and the Swiss
Federal Council have supported its abolition for many years. As
mentioned before the Swiss parliament finally approved the abolition of
the issuance stamp duty in June 2021. The decision to abolish this tax
was long overdue and is clearly welcomed.
As the issuance stamp duty is levied on equity contributions by
shareholders to its companies, it hinders the capitalisation of Swiss
companies with sufficient equity capital. Rather, companies have often
been financed by debt capital, which does not trigger the issuance stamp
duty, but which allows the levy of interest on the debt as deductible
expense for the Swiss company. However, too high debt capital in ratio
to the equity capital will lead to the application of the Swiss thin
capitalisation rules, which in return may result in the (partial)
requalification of the debt into hidden equity. Even if hidden equity
does not trigger the levy of the issuance stamp duty of 1% (as hidden
equity is, from a civil point of view, debt capital and not equity
capital), such requalification might have corporate income tax and
withholding tax consequences. If a part of the interest paid is
requalified into excessive interest paid, such excessive part might be
added back to the taxable profit. Next to such profit adjustment, the
excessive interest paid might be considered as hidden dividend
distribution triggering the 35% Swiss withholding tax on hidden dividend
However, not only for thin capitalisation purposes, but also in
loss situations a solid equity basis is of importance for a company. In
the absence of sufficient equity, companies are subject to an increased
risk of bankruptcy in the event of losses. The Swiss commercial law
states that the board of directors of a company must without delay
convene a general meeting and propose financial restructuring measures
where the last annual balance sheet shows that one-half of the share
capital and the legal reserves are no longer covered.
If there is good cause to suspect over-indebtedness, an interim
balance sheet must be drawn up and submitted to a licensed auditor for
examination. If the interim balance sheet shows that the claims of the
company’s creditors are not covered, whether the assets are appraised at
going concern or liquidation values, the board of directors must notify
the court unless certain company creditors subordinate their claims to
those of all other company creditors to the extent of the capital
deficit. The notification of the court can thus only be avoided (i) if
the company is recapitalised, which will, subject to the CHF10 million
issuance stamp duty exempt recapitalisation amount, trigger the 1% stamp
duty, or (ii) if the shareholder subordinates loans in the amount of
the capital deficit (plus the amount necessary to cover the expected
loss of the ongoing business the current business year).
In practice, the loan subordination alternative, even if this
alternative does recapitalise the company, but only avoids the
notification of the court, is often the preferred alternative compared
to the recapitalisation alternative, which triggers the 1% issuance
stamp duty. The abolition of the issuance stamp duty will hopefully
contribute to more sustainable capital contributions and less
subordination measures in the future.
It should also be noted that capital contributions can be repaid to
the shareholder free of withholding tax if such contributions are not
offset against the reported loss in the balance sheet, but been
accounted as for separately as a capital contribution reserve. Thus, a
recapitalisation injection can in future be contributed issuance stamp
duty neutral and can at a later moment, when the company is again in the
position to distribute dividends, be repaid withholding tax free to its
shareholder. Thus, recapitalisation measures can, in principle, be
implemented tax neutral in the future.
There are various other reasons for abolishing the issuance stamp duty to strengthens Switzerland as business location:
Issuing new equity capital
In general, the abolition of the issue stamp duty has a positive
effect on all companies that issue new equity capital. This applies in
particular to (newly established) companies with major investment
projects and, as a consequence, with large capital needs.
Improving financing neutrality and stability
The abolition also contributes to improving financing neutrality,
since equity financing, which is currently the most expensive form of
financing for Swiss tax reasons, is no longer additionally burdened with
the issuance stamp duty. Especially with the current low interest rates
on debt capital, debt capital seems to be more attractive compared to
equity financing and companies have an incentive to replace expensive
capital with cheap debt capital. By abolition of the issuance stamp
duty, the equity financing will get more attractive again.
A solid equity base of a company secures financial and personnel (employees) stability of a (Swiss) companies.
It is expected that the abolition of the issuance stamp duty will
result in additional taxes on profits and equity after only a few years,
which will then more than compensate for the losses made by abolishment
of the issuance stamp duty.
Benefits for SMEs
Small and medium-sized enterprises (SMEs) will most likely benefit
more than subsidiaries of large companies. Most companies pay issuance
stamp duty only when they suffer a loss, when they have to carry a major
investment for which the accumulated equity is not sufficient, or when
they are in the start-up phase.
By abolishment of the issuance stamp duty, stumbling stones for a
(re-)capitalisation in the form of stamp duties are moved out of the
way. The more, due to the COVID-19 pandemic, many entities in
Switzerland suffered and still suffer losses and must be recapitalised.
The past has shown that the issuance stamp duty hits companies the
hardest when the economy is in recession and some of the companies are
dependent on equity capital injections to survive.
It was in the crisis years of 2001 (CHF375 million) and 2008
(CHF365 million) and 2009 (CHF331 million) that the issuance stamp duty
withdrew the most funds from companies. Debt capital can be used to
bridge liquidity bottlenecks but does not help companies to absorb
losses. Only equity capital can do so. It can be assumed that in the
years 2021 and 2022, a considerable number of companies will be
dependent on equity capital contributions from their shareholders to
avoid an over-indebtedness and to ensure the survival. To the extent
that the exemption amount of CHF1 million is exceeded, the issue tax of
1% is payable on equity capital contributions, unless the
recapitalisation exemption can be applied.
Under the recapitalisation exemption, an exemption from the levy of
the 1% issuance stamp duty is granted for recapitalisations up to CHF10
million if the following requirements are fulfilled: (i) the capital
contribution is used to book out existing commercial losses, and (ii)
the contributions of the shareholders do not exceed a total of CHF10
The CHF10 million exemption for the elimination of
over-indebtedness is clearly helpful for many SMEs, but for large
companies it is often only a drop in the ocean. Furthermore, the
requirement to set off the loss with the capital contribution will lead
to the loss of the possibility to repay the capital contribution
withholding tax free to the shareholder. Under the current law, one must
decide whether the loss shall be offset with the contribution or
whether the loss and the contributions shall be booked separately as
different equity positions without an offset:
- If the contribution is offset with the loss, no issuance stamp
duty is due on a contribution amount up to CHF10 million. However, once
offset the contribution can no longer be repaid to the shareholder free
of withholding tax; or
- If the loss and the contribution are not offset, but are shown as
separate equity positions, the contributions are subject to issuance
stamp duty of 1%, but can be repaid to the shareholder free of
withholding tax (35%) at a later moment.
The complete abolition of the issuance transfer duty will therefore
contribute to the overcoming the economic consequences of the COVID-19
pandemic and possible future recessions not only for SMEs but also for
large corporations with substantial losses to be covered.
Reducing tax burdens
On July 1 2021, the OECD Inclusive Framework published key
parameters for the future taxation of large companies that operate
internationally. Switzerland, in general, supports these, while
maintaining certain reservations and conditions. The key parameters
provide for a moderate shift of the taxation rights between the
jurisdictions and for a global minimum tax rate of at least 15%.
The envisaged global minimum tax rate will most likely lead to a
corporate income tax increase in Switzerland as in may cantons, the
latest since the entry into force of the corporate tax reform in 2020,
the effective income tax rate (federal, cantonal and municipal) is below
15%. The abolishment of the issuance stamp duty may not compensate for
possible corporate income tax increases because of the introduction of
the 15% minimum tax rate, but it will certainly represent a welcomed
reduction of the all-over tax burden suffered in Switzerland.
Excurse: Security transfer duty
As mentioned at the beginning of this article, the Swiss federal
stamp duty law does not only regulate the issuance stamp duty, but also
the security transfer duty.
Security transfer duty is levied on purchases and sales of Swiss
and foreign securities by domestic securities dealers. Simplified, Swiss
banks and legal entities with securities exceeding a book value of
CHF10 million, including participation rights in subsidiaries, are, inter alia,
considered as Swiss security dealers for security transfer duty
purposes. The security transfer duty amounts to 1.5‰ for domestic
securities and 3‰ for foreign securities. The tax is calculated based on
the consideration paid, i.e. on the price paid for the purchase or sale
of a security.
In order to make the Swiss financial centre attractive, the
provisions concerning the security transfer duty have already been
revised several times in the past. However, for Swiss financing
companies of international groups no sufficient measures have been taken
yet. Especially for companies that manage excessive liquidity of a
group by investing such excessive funds on an ongoing basis in publicly
traded shares and/or bonds and that turn the security portfolio on a
regular basis, the security transfer duty may result in an extremely
high additional expense, which will, in international comparison, make
Switzerland an unattractive and uncompetitive location for a group
internal finance company, and which will, as a consequence, exclude
Switzerland in the international competition as possible business
location for group internal financing companies.
By abolishing the issuance stamp duty, a first step in the right
direction has been made by the Swiss parliament to put Switzerland in a
more attractive light for group internal finance companies. The
abolishment will allow shareholders to equity finance Swiss subsidiaries
in a highly flexible way as no issuance stamp duty expenses result and,
as a consequence, to move away from the often not preferred debt
financing of a Swiss finance subsidiary. Flexibility will be available
as a parent company can make capital contributions without triggering
issuance stamp duty and request repayment of the contributed capital
without triggering Swiss withholding tax of 35%.
In 2020, the abolishment of the security transfer duty was also
discussed, but the abolition was finally rejected due to the expected
shortfall of security stamp duty income.
The author is of the opinion that the attractivity of the Swiss
business location could be highly increased not only for large, but also
for SMEs if not only the issuance stamp duty, but also the security
transfer duty would be abolished or if at least group internal finance
companies would be exempt from security transfer duty or would not
qualify as security dealer.
A Swiss branch of a non-Swiss foreign entity does, for example,
already today not qualify as a Swiss security dealer and is therefore
not subject to security transfer duty. If not only group internal Swiss
finance branches, but also group internal Swiss finance companies would
no longer qualify for payment of the security transfer duty, then this
would encourage investors and large groups to establish Swiss finance
companies and to manage excessive liquidity on a short or long term
basis as equity contribution out of the Swiss finance companies and to
invest such contributions in security investment.
Due to the abolishment of the issuance stamp duty and the security
transfer duty no additional transaction costs would arise and the income
realised from the investments that would be taxed as attractive income
tax rates, which are currently in various cantons between 11% and 15%.
The author is of the opinion that, in case of a reform of the security
transfer duty in favour of Swiss finance companies, the additional
income and capital taxes collected from newly settled finance companies
would by far compensate possible security transfer taxes collected today
from the currently existing finance companies.
Entry into force of planned abolition of issuance stamp duty
The abolition of the issuance stamp duty can, in principle, enter
into force on January 1 2022. However, it was announced by certain
political representatives that a referendum shall be taken up against
the abolition. It must be expected that the 50,000 signatures required
for a referendum can be collected in time and that the Swiss population
will ultimately have to vote about the abolition of the issuance stamp
duty. As such a referendum is not likely to take place before 2022, the
entry into force of the abolition of the issuance stamp duty is likely
to be delayed until 2023 (subject to the approval by the Swiss
population in a possible vote).
Rolf Wüthrich is an international tax lawyer at burckhardt Ltd. He
burckhardt Ltd provides its clients and their businesses with
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