The main tax deductions for a company

The profit tax of a GmbH or an AG is calculated on net profit, not on turnover. This means that every cost justified by the activity reduces the taxable base. Every entrepreneur’s concrete question is therefore simple: what can I deduct, and within what limits? Let’s look at the main categories and the mistakes that turn a legitimate deduction into an assessment.

The principle: costs justified by business use

The fundamental rule of Swiss law is that expenses justified by business use are deductible, that is, those incurred in the interest of the company’s activity. It is not enough for an expense to have been paid by the company: it must serve the business, not the shareholder as a private individual.

This is where the game is played. A genuine business expense lowers taxable profit; a private expense disguised as a business cost is a payment in kind (constructive dividend) to the shareholder, with tax consequences on both levels.

The main deductions

The categories that weigh most heavily on a company’s income statement are recurring.

Salaries and social security contributions

The salaries of staff and officers, with the related social security contributions borne by the employer (AHV/IV/EO (state pension, disability and income-compensation insurance), ALV (unemployment insurance), BVG (occupational pension), UVG (accident insurance)), are a deductible cost. The salary of the entrepreneur who works in their own company is also deductible, provided it is appropriate to the work performed: an inflated or negligible salary attracts the attention of the tax authorities, who can reclassify it.

Depreciation

Investments in durable assets are not deducted entirely in the year of purchase but spread over time through depreciation. The rates follow the nature of the asset and the practice of the administration. Depreciation is one of the most important planning levers because it distributes the tax burden across financial years.

Provisions

Provisions cover risks and charges that are probable but not yet certain in amount: warranties, credit risks, pending litigation. If justified, they reduce the profit of the year to which they relate. An excessive or unfounded provision, however, is added back as profit.

Interest expense and financial charges

Interest on company financing is deductible. Watch out for shareholder loans: the interest recognised must stay within the permitted rates, otherwise the excess portion is treated as a constructive distribution of profit.

Taxes

In Switzerland the profit tax and the capital tax are themselves deductible as an expense. It is a peculiarity of the system that lowers the effective rate compared with the nominal one.

Other operating expenses

Rents, materials, business insurance, staff training costs, consultancy costs, marketing expenses: everything that serves the activity and is documented reduces taxable profit.

What the tax authorities do not recognise

Some outlays are not deductible, even if paid by the company:

• Private expenses of the shareholder or their family disguised as a business cost.
• Fines and penalties of a criminal or administrative nature.
• Shares of mixed expenses not attributable to the activity (for example the private portion of a vehicle).
• Excessive depreciation and provisions relative to economic reality.
• Constructive distributions of profit, which the tax authorities add back and tax.

The recurring mistake: confusing the pockets

The most frequent problem in small companies is the overlap between the company’s assets and the shareholder’s assets. When the two pockets become confused, the tax authorities step in: they add back the private expense as company profit and tax it in the shareholder’s hands as income. The double levy is the price of confusion.

The practical rule is to keep a clear separation: the company pays for what the company needs, the shareholder receives transparent remuneration — salary and dividends — which follow their own rules.

Planning the deductions

Deductions should not be viewed one at a time, but as a system. Depreciation, provisions, salary policy and profit distribution interact: optimising one without the others leaves value on the table or creates risks.

At SIH ONE we analyse your company’s income statement, verify that every deduction is justified and documented, size depreciation and provisions in a defensible way and coordinate the company’s tax plan with the shareholder’s.

Want to know which costs you are deducting well and which expose you to a risk? Let’s analyse your numbers.