Lawful tax planning: what you can really do

“Optimising taxes” is a phrase that provokes opposite reactions: for some it is a duty towards the business, for others a suspect activity. The truth lies in Swiss law, which clearly recognises the freedom to organise one’s affairs in the most tax-efficient way, but sets a boundary beyond which optimisation becomes tax avoidance. Understanding where this line runs is what separates solid planning from a risk.

The principle: you may choose the least-taxed route

The starting point is clear-cut: no one is obliged to organise their business in the way that generates the most tax. Choosing the most efficient legal form, the most advantageous domicile, the most balanced salary-dividend structure is entirely lawful. The taxpayer has the right to choose the least burdensome path among those the legal system makes available.

This freedom, however, has a limit: transactions must have real economic substance and must not be artificial constructions whose sole purpose is to circumvent the tax.

Where the lawful ends: the three signs of tax avoidance

Swiss practice identifies tax avoidance when certain elements are present together:

• A structure that is unusual, inappropriate or artificial in relation to the economic purpose pursued.
• The choice of that structure motivated solely by the tax saving, without an autonomous economic reason.
• A tax saving that, if the transaction were accepted, would be actual and significant.

When these elements coincide, the tax authority may disregard the chosen form and tax the situation according to its economic substance. The practical rule is clear: every transaction must stand on an economic reason that goes beyond the tax advantage.

The legitimate planning levers

The good news is that the lawful tools are numerous and often more effective than shortcuts. Among the most relevant:

Legal form

Moving from a sole proprietorship to a GmbH or AG changes the taxation regime, separates assets and opens up levers not available to the sole entrepreneur. It is a structural choice with legitimate tax effects.

The salary-dividend balance

The shareholder who works in their own company receives income in two forms: salary, subject to social security contributions but deductible for the company, and dividend, which bears the 35% withholding tax (imposta preventiva) as a safeguard and benefits from partial taxation in the shareholder’s hands. Finding the right balance between the two components is one of the most important levers and entirely lawful, provided the salary remains commensurate with the work performed.

Depreciation and provisions

Spreading the tax burden over time through proper depreciation and justified provisions is ordinary planning, envisaged by accounting and tax rules.

Domicile

The tax burden varies significantly between cantons and municipalities. Choosing a domicile consistent with the real activity — where the business genuinely operates — is legitimate; setting up a fictitious domicile in a low-tax canton without substance is tax avoidance.

Pension provision

Pension instruments offer recognised opportunities for deduction and deferral, integrating the company’s planning with the shareholder’s personal planning.

The error of perspective

Many entrepreneurs look only at the company or only at the individual. Effective planning, by contrast, holds the two levels together: the tax on the company’s profit and the taxation of the shareholder when they receive it. Optimising one while ignoring the other produces apparent savings and real risks.

In the same way, a transaction must be assessed over time: a choice that reduces the tax today but creates a problem when profits are distributed or the company is sold is not a good deal.

Substance, documentation, consistency

What makes planning defensible is not its boldness, but three concrete elements: the economic substance of the transactions, the documentation that justifies them and the consistency between what is declared and what actually happens. A well-documented and substantiated structure withstands an audit; an artificial construction, however formally impeccable, does not.

At SIH ONE we build tax plans that stay on the right side of the line: we analyse legal form, salary-dividend mix, domicile, depreciation and pension provision, coordinate the corporate level with the personal one and document every choice so that it remains defensible over time.

Do you want to reduce your tax burden without exposing yourself to an audit? Let’s build solid planning.