Opening a sole proprietorship in Switzerland: a practical guide

The sole proprietorship is the simplest and most widespread form for those starting a business on their own in Switzerland. No minimum capital, a light procedure, total control. But there is a flip side on liability that must be understood before starting.

What a sole proprietorship is

It is an economic activity carried out by a single natural person in their own name. There is no legal separation between the owner and the business: they are the same entity. This has direct consequences for liability, taxation and pension provision.

It suits professionals, tradespeople, consultants and small commercial activities that want to start quickly and at minimal cost.

Requirements to start it

The prerequisites are few but precise:

• The owner must be legally allowed to work in Switzerland (Swiss citizenship, a C permit, or a B/G permit with authorisation for self-employed activity).
• The activity must genuinely be independent: own organisation, several clients, own economic risk, invoicing in one’s own name.
• Recognition of self-employed status by the AVS compensation fund (AVS: state old-age and survivors’ insurance) is the key step: without it, the activity may be reclassified as salaried employment.

Commercial register entry

Entry is not mandatory for everyone. The practical rule:

• It is mandatory if annual turnover exceeds CHF 100,000.
• It is optional below that threshold.

Even when it is optional, registering brings advantages: greater credibility with banks and clients, protection of the business name, and the ability to rely on the entry in commercial matters. A registered sole proprietorship must compulsorily include the owner’s surname, with or without the first name (e.g. “Rossi Consulting”).

Liability: the critical point

Here lies the substantial difference compared with a GmbH and an AG. In a sole proprietorship the owner is liable for the business’s obligations with their entire personal assets, without limit. Business debts and private assets are not separated.

For low-risk activities with little capital this is often acceptable. For activities with investments, inventory, employees or significant contractual risks, it is worth considering a corporation from the outset.

Pension provision and social insurance

As a self-employed person, the pension rules change:

• You are required to pay AVS/AI/IPG contributions (AVS old-age, AI disability, IPG loss-of-earnings insurance) as a self-employed person; the rate applies to the activity’s income.
• You are not compulsorily insured against unemployment (AD).
• The pension fund (LPP, 2nd pillar) is not mandatory: you can join voluntarily or strengthen the 3rd pillar, which for the self-employed without LPP allows wider deduction limits.
• Accident insurance (LAINF) is not automatic as it is for employees: it must be arranged privately.

This set of reduced coverage is the real hidden cost of self-employment and must be planned for.

Taxation

There is no separate taxation of the business: the profit of the sole proprietorship is added to the owner’s personal income and taxed with direct federal tax and cantonal/communal taxes at the ordinary rates for natural persons. There is no double taxation (profit + dividend) as in corporations, but with high incomes progressivity can make a corporate structure more advantageous.

On the VAT front: liability generally arises when annual turnover exceeds CHF 100,000.

Advantages and limits in brief

Advantages:

• No minimum capital and low start-up costs.
• Quick procedure, simple accounting.
• Full control and profits accruing directly to the owner.

Limits:

• Unlimited liability with personal assets.
• Reduced social coverage (no mandatory AD, optional LPP).
• Unfavourable tax progressivity on high incomes.
• Continuity tied to the person: hard to bring in partners or transfer the business.

When it is worth taking the step towards a company

The typical moment to move to a GmbH or an AG comes when contractual risks grow, employees are hired, external capital is sought or one wants to optimise remuneration between salary and dividend. A sole proprietorship can also be transformed into a company by contributing the business.

If you want to understand whether to start as a sole proprietorship or directly as a company, and to set up AVS and pension provision correctly, SIH ONE guides you through the formation of your business in Switzerland.