 Taxable profit is based on accounting profit for the period as adjusted for tax purposes. The tax period corresponds to the business year and is assessed on a current year basis. Taxable capital (only cantonal and municipal taxes; the capital tax in the direct federal taxes, was abolished in 1997) is based on the state at the end of the tax period.
The taxable net profit consists of the balance of the calculated profit and possible taxation corrections.
Resident companies are taxed on worldwide income, except for that derived from real property or a permanent establishment abroad. Non-resident companies are taxed only on Swiss-source income derived from a permanent Swiss establishment. A company is considered to be resident, if it has its legal domicile in Switzerland or if it is managed in Switzerland.
 | Double taxation treaties: The Swiss constitution prevents double taxation. In addition, tax treaties also exist between Switzerland and most other industrialized countries that prevent or limit double taxation. |
| Inventory assessment: Inventory is valued at the lower of cost and market value. For income tax purposes, an additional revaluation reserve of up to one-third may be taken in the statutory books. |
| Bad debt assessment: A bad debt of up to 10% (without proof of necessity) of foreign receivables and 5% of domestic receivables may be deducted for tax purposes if booked in the accounts. |
| Depreciation: The depreciation rates per year on relevant book value are list below: |
a. Degressive method
- Commercial buildings 4%
- Industrial Buildings 8%
- Machinery 30-40%
- Patents and goodwill 40%
b. Linear method
- Commercial buildings 2%
- Industrial Buildings 4%
- Machinery 15-20%
- Patents and goodwill 20%
| Participation relief: If the ordinary corporation has a share - equivalent to at least 20% of the share capital of the participation or to a market value of CHF 2 m. - in another business, in addition to its other activities, it may benefit from relief, in which case a reduced rate of capital tax is applied to the equity invested in the participation.
Relief also applies to dividends paid out if the recipient company has at least 20 % of the share capital of the other company or if this share is valued at CHF 2 m. or more. The tax on profit is reduced in proportion to af-ter-tax profits from these participations to overall profits. The costs of financing the participation as well as ei-ther a flat fee for management and administration equivalent to 5 %, or the effective costs accounted for, can be deducted from the derived profits. Capital invested in the participation is taxed at 0,05 % rather than the usual 0,15 %. With effect from 1.1.2001, participation relief can also be applied to capital gains resulting from the sale of significant holdings, i.e. for holdings of more than 20 %, as long as these have been held for at le-ast one year. |
 The proportional profit tax is 8.5%. Effective January 1, 1998, a special reduction is granted on profit if a company holds at least 20% of the share capital and has these shares for at least one year.
 Profit taxes at cantonal and municipal level are applied as a flat rate. This is set at 5% and is then adjusted using a multiplier set by the respective municipality and the canton. Taxation of capital is approximately 0.22%.
The total tax liability at cantonal and municipal level is around 10%, once the deduction of tax as an operating cost has been taken into account. The total taxation payable by an operating company, including direct federal tax, is around 16% and therefore highly competitive by both Swiss and international standards.
 The Canton of Schaffhausen offers special tax concessions for certain types of companies if specific conditions are met. The special tax status of Holding Companies, Auxiliary Companies, Domiciliary Companies and Mixed Companies are outlined briefly below. Other special concessions granted at the cantonal and municipal levels are negotiable e.g. for newly established companies in the canton. In individual cases, the Economic Development Team of Canton Schaffhausen will outline your options and will establish dialogue with the respective officials to consider your case.
a) Holding company: Corporations, limited liability companies and cooperatives can claim the Holding Privilege, provided that: | Their principal objective is the on-going management of participations (shareholdings) in other companies and cooperatives
| | at least two-thirds of their assets consist of long-term participations and shareholdings. The basis of calculation may be the book value or the market value
| | alternatively, the requirements may be met if at least two-thirds of the earnings are achieved via shareholdings and dividends |
Since January 1st, 2004 no significant stake holding is requested for the holding privilege.
Holding Company status applies to companies which perform no commercial activity in Switzerland. Permitted activities include the administration and management of participations, strategic and accounting functions, though not the management of individual subsidiary companies.
If the conditions for the holding privilege cannot temporarily be met, the cantonal tax authorities may grant a prescribed time during which the company has to restore compliance with the legal requirements. For this period, the holding privilege is maintained.
Holding Companies are exempt from the profit tax. Revenue from property holdings in Schaffhausen are taxed in line with the usual guidelines.
Capital tax is levied on the paid-up capital, reserves and profits brought forward at the reduced rate of 0.0025%, subject to a minimum tax of CHF 100.00. The tax is, thereafter, grossed up by the cantonal and municipal multiplier.
b) Auxiliary company: Businesses which do not qualify as Holding Companies but whose business activities include a significant proportion of participations are taxed as Auxiliary Companies by claiming the Auxiliary Privilege.
Auxiliary Companies pay a reduced tax on profit which is calculated on the total profit minus the Auxiliary Privilege. The auxiliary privilege is calculated on the basis of the relationship between net profit from participations and total net profit. The net profit from participations represents the total profit from participations minus the respective financing cost and an administration cost of 5%. The tax rate may vary between 1% and 6%. This is then grossed up by the cantonal and municipal multiplier.
Since January 1st, 2001 the Auxiliary Privilege can also be applied to capital gains.
Auxiliary companies pay a reduced capital tax which is computed on paid-up capital, declared reserves and hidden reserves. The capital allocated to participations is taxed at 0.0025%. The remainder is taxed at the usual rate of 0.15%. The resulting sum is then grossed up by the cantonal and municipal multiplier.
c) Domiciliary company: Corporations, limited liability companies and cooperatives can claim the Domiciliary Privilege, provided that: | they have only their domicile in the canton
| | they exercise only an administrative function and conduct no business in Switzerland
| | they maintain no offices and employ no personnel in Switzerland |
Exercising an administrative function includes management of own assets, activity in the areas of intellectual property, know-how management, factoring and collection as long as this does not entail the maintenance of offices or employment of personnel in Switzerland.
Foreign-source income is not subject to tax. Swiss-source income and earnings from property in Switzerland are taxed at standard rates. The cantonal tax rate applied is determined by total profits.
Domiciliary Companies pay capital tax at 0.005% on paid-up capital, declared reserves and profits brought forward subject to a minimum tax of CHF 100. This tax is then grossed up by the cantonal and municipal multiplier.
d) Mixed Companies: Corporations, limited liability companies and cooperatives can claim the Mixed Companies Privilege, provided that: | their business activity is primarily outside Switzerland
| | only subordinate activity is carried out in Switzerland
| | no production or industrial activity is carried out in Switzerland |
Whereas Domiciliary Companies perform their business activity exclusively outside Switzerland, the activities of Mixed Companies are only primarily conducted outside Switzerland. Mixed Companies are also allowed to maintain offices and employ personnel in Switzerland. As a guide, 80% of income must be foreign-source and 80% of costs incurred by the company, either directly or via third parties, must be incurred outside Switzerland. An exception is made for purchases transacted in Switzerland but dealt with as if via a third party.
Foreign-source earnings are taxed in proportion to the volume of business activity in Switzerland. The tax rate is usually 10% - 20%.
Swiss-source income is taxed at the standard rate. This also applies to earnings from property in Switzerland.
Earnings from significant shareholdings and capital gains revaluation gains from such participations are not subject to tax. Losses from shareholdings can only be off-set against profits from shareholdings. They cannot be off-set against profits from Swiss-source or foreign income. The allocation of costs is accounted for by business unit or dealt with proportionally if no separate business unit accounting is available. The rate applied at cantonal level is determined by total profits.
The capital tax on paid-up capital, declared reserves and profits brought forward is levied at a rate of 0.0025%. This tax is then grossed up by the cantonal and municipal multiplier.
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