What you should know about LLC and Swiss taxes

Hello everyone,

I’m a Swiss resident and I gonna run my own business.

Instead of GmbH, I want to set up a LLC US-based company which better fits with expectations using “pass through” for US tax purposes.

The goal is to pay myself a small salary or distribute it as dividend and invest in my company.

  1. However, from a Swiss tax perspective, what factors need to be taken into account? AHV/ALV/EO, insurances, social deductions, etc? What will the Swiss tax authorities ask me?

I have heard that some entrepreneurs running a business abroad have had to pay some Swiss social contributions, etc… just curious what they ask for concretely.

  1. Another question, how does it work with business expenses to get deductions later?

Any kind of feedback is welcome! :slight_smile:

Thank you.

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Why a US LLC? Do you plan to do business in the US only? From which country will you perform your activity?
Why not a Swiss sole proprietorship?

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Worldwide but for my digital business is better. I work from Switzerland.
Swiss sole proprietorship is not suited because I have a business partner.

If you are working from Switzerland and are the only employee, the Swiss tax authorities will not accept that. They will categorize it as a Swiss company because all work is performed from here.

Moreover, when you pay yourself dividends, you need to have a salary „in line with the market“, otherwise the dividends will be treated as salary by AHV.

You need to have an accounting system. There are not really deductions for LLCs, but you have expenses and only pay taxes on your profit.

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The US LLC will be a tax resident in Switzerland, pursuant to Art. 49-51 DBG. At the same time, since it’s a “pass through” vehicle, the company won’t have any tax obligations in the US. That means you can’t apply any provisions from the US-CH double tax treaty to offset the tax obligations.

If your goal of this setup is to avoid paying company income taxes (CIT) in Switzerland, you will need to change also your personal residency. If you have multiple personal residencies, the Swiss tax authorities may have hard time to prove that the company is actually managed from Switzerland, since the burden of proof for claiming an unlimited CIT is on the tax authority claiming it.

Let’s say you get a personal residency in Panama and then register the US LLC as a Panamian resident, while keeping another residency in Switzerland. You will still be obliged to report your LLC in your personal Swiss tax return as an asset and pay taxes on any distributed profit (i.e. dividends received), but since the burden of proof to claim unlimited CIT lays on the Swiss tax authority, it’s hard for me to imagine how would they proof without a reasonable doubt from where the company is actually managed.

Sole proprietorship has unlimited personal liability. That can be quite risky if the company becomes insolvent.


More info on the Swiss tax treatment of a US LLC

FR - https://www.steuerkonferenz.ch/downloads/merkblaetter/praxishinweise_steuerliche_behandlung_us_llc_2011_f.pdf

DE - https://www.steuerkonferenz.ch/downloads/merkblaetter/praxishinweise_steuerliche_behandlung_us_llc_2011_d.pdf

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Thank you for this document, very useful.

Thank you for your answer!

The key point here is to know from where the company is actually managed from to define what will be the applicable CIT - I guess if this is Switzerland, then the CIT of the canton will apply, right?

Many thanks for your view.

I didn’t know the authorities don’t tolerate being paid in dividends alone, as many countries do…

I think dividend income obtained from foreign companies is taxed at the standard rate of 35% for individuals.

I don’t see much benefit from an US LLC structure from a tax point of view finally…

Get an advice from a Swiss tax advisor

Once you’ll describe your business and needs, he/she will be able to help on the best structuration, tax and social security aspects.

Yes, with a US LLC you will need to pay AHV in CH.

A US LLC make sense:

  • if you have customer who would like to work only with you if you have a US company.
  • you are a digital nomad, so you have a legal entity and you pay no tax
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Interesting point is how the swiss authorities treat digital nomads? What is the allotted period during the year?

They must have a tax residency even if they work and travel abroad.

It varies between cantons. Each canton has its own tax residency criteria. It also depends on which countries you visit. Each country has its own criteria for how long you can stay before you are considered a tax resident. As a general rule, tax residence in Switzerland ends when tax residence in another country begins, but there can be conflicts in some cases.