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Switzerland Sees Record Company Registrations

by Ulrika Lomas, Tax-News.com, Brussels

20 July 2007


A record number of companies set up in Switzerland during the first six months of this year, with the fastest rate of growth registered in Canton Obwalden, which slashed tax rates at the beginning of 2006.

Citing a study by risk assessment company Dun & Bradstreet, Swissinfo revealed that 18,365 new companies established in Switzerland in the first half of the year, a 5.5% rise in new registrations compared with the first half of 2006. Almost one third (5,186) of these new entrants were foreign companies, and of these, four-fifths were German businesses.

While Zurich was the canton which saw the largest number of incorporations, the tiny central Canton Obwalden saw a 230% rise in company registrations during in the first six months of 2007 compared with the corresponding period last year.

The canton's decision to cut corporate tax to just 6.6% on January 1, 2006, following a local referendum, has undoubtedly helped Obwalden to attract new companies. Somewhat ironically, however, it was a court ruling striking down its cuts in personal income tax, designed to attract wealthy residents and enacted at the same time as the corporate tax cut, that raised Obwalden's international profile.

Last month, the Federal Tribunal in Lausanne ruled that the income tax law was unconstitutional because of its regressive nature, which was not based on economic imperatives. Under the 2006 law, those earning more than CHF300,000 per year had their income tax cut to 1% from 2.35%. Individuals earning up to CHF70,000 paid 8%, and those with income up to CHF300,000 paid up to 6%.

"It brought a lot of attention to Obwalden and gave us a lot of visibility that we would not normally have received," Knut Hackbarth, managing director of the relocation company Obwalden Business Promotion told Swissinfo.

While the latest figures highlight the success of the Swiss tax regime in attracting foreign companies, this system is under attack from the European Union, despite the fact that Switzerland is not an EU member state. According to Brussels, Swiss company tax laws are incompatible with a 1972 trade treaty between Switzerland and the EU, because they distort trade and competition.

Under Swiss law, the cantons may fully or partially exempt profits generated abroad from cantonal and municipal company tax. All Swiss cantons have made use of this provision, although in different forms. The EU says that this allows European companies to incorporate in Switzerland and avoid EU taxes, and it is attempting to bring proceedings against the Swiss government under EU state aid laws. Given Switzerland is not an EU member state, however, it is uncertain whether this strategy will succeed.

A comprehensive report in our Intelligence Report series looking at offshore and onshore corporate structures and their tax implications is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report7.asp

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