The capital tax on Swiss companies
When people discuss the taxation of Swiss companies, attention almost always goes to the profit tax. But there is a second levy, often overlooked, that hits legal entities regardless of their results: the capital tax. It is a cantonal and communal tax that bears on the company’s equity, and you need to know about it because it is due even when the financial year closes at break-even or at a loss.
What it applies to
The capital tax hits the company’s taxable equity. In simplified terms, the base comprises:
- the share capital (of a GmbH or AG);
- the disclosed reserves, both legal and statutory;
- retained earnings and the profit for the year not yet distributed;
- taxed hidden reserves, in the cases provided for.
Unlike the profit tax, which depends on the economic result, the capital tax depends on the balance sheet structure. A heavily capitalised company, with solid reserves, has a high tax base even if in a given year it has produced no profits.
Cantons and municipalities only
One point should be made clear: at federal level there is no capital tax for legal entities. The levy is cantonal and communal. This means that rates and arrangements vary from canton to canton, often significantly. Some cantons apply very modest rates, others higher ones; the detailed rules on the tax base can differ.
For this reason the choice of domicile affects not only the profit tax, but also the capital tax, and the two must be assessed together.
Crediting the profit tax
Many cantons provide a mechanism that eases the double burden: the crediting (or offsetting) of the profit tax against the capital tax. In practice, the profit tax due is deducted, in whole or in part, from the capital tax. The result is that a profitable company, which already pays a significant profit tax, can see its capital tax reduced to zero or sharply lowered.
The flip side concerns companies that are not very profitable but heavily capitalised: without a sufficient profit tax to offset, the capital tax remains fully due. This is the typical case of asset-holding companies and start-ups with substantial paid-in capital but still modest profits.
Why it is paid even at a loss
This is the point that surprises most. The profit tax in a loss-making year is nil, but the capital tax remains due because the equity exists regardless. A loss-making company can therefore find itself paying capital tax even though it has generated no income. It must be entered in the accounts and factored into cash planning, exactly like a fixed cost.
Levers to reduce the weight
Capital tax cannot be “avoided”, but it can be scaled with lawful and consistent choices:
- Dividend policy: distributing undistributed profits reduces taxable equity, but must be balanced against the need for own funds and the taxation of the shareholder.
- Financing structure: the ratio between equity and debt affects the base, subject to the rules on hidden equity capital.
- Choice of domicile: for the same activity, the canton and municipality make a real difference.
- Coordination with the profit tax: where crediting applies, optimising the two taxes together avoids paying one without exploiting the reduction on the other.
A mistake to avoid
The most common mistake is to ignore this tax entirely in planning, reasoning as if only profit mattered. The second is to overcapitalise the company without need: leaving large reserves inside “for safety” has a recurring cost in terms of capital tax, which must be weighed against the real benefits of that immobilised liquidity.
How we handle it
At SIH ONE we assess the capital tax together with the profit tax, we check whether crediting applies in the canton of domicile, and we size equity, reserves and dividend policy consistently with your activity. The goal is for the company’s balance sheet structure to be solid without generating avoidable taxes.
Want to know how much your company’s capital really weighs? Let’s analyse your structure.