In order to limit taxable income to 100% directly, for all holders of SMEs in companies, the recurring question is to find the balance between salary, dividend, loan or advances from the company.
As a reminder, it is possible by respecting specific rules to grant:
Loans, with interest fixed each year by the AFC
Dividends to the main shareholder (Minimum 10% of the shares) and taxable at the rate of 60%.
It is clear that the irregular results of the past two years with the repercussions and consequences of the pandemic do not help to maintain reasonably smooth taxation over time and the decisions taken have significant financial repercussions, whether at tax or social charges.
There are specific rules to be observed before making decisions and special attention must also be paid to the rates to be applied for loans and advances which are set for each fiscal year by the AFC.
The loan rates are differentiated according to the use made of it and the currency in which the loan is denominated, depending on the latter the rates can vary enormously.
Do not hesitate to contact us for a first interview on this subject.
ADVANCES AND LOANS TO SHAREHOLDERS OR ASSOCIATES
General Rules 2022
the loan is possible but must not jeopardize the company (means salaries, LPP, AVS and creditors).
The loan must be capitalized (long term of the balance sheet)
There is mandatory interest according to the federal table.
The loan is nominative (the person must be declared and not just named "loan to the administrator" (agreement of the board of directors if several people)
AFC Appendices
Company loan - Interest rates and rules in CHF
Company loan - Interest rate in foreign currencies
AFC Circular 6 hidden equity
To determine whether the remuneration of advances or loans granted in Swiss francs is appropriate, the Federal Tax Administration applies the following interest rates annually:
Tax-allowed interest rate on advances or loans in Swiss francs
Tax-allowed interest rate on advances or loans in foreign currencies
AFC-CIRCULAR NO. 6
DIVIDEND - RULES
Dividend means the amount of profits that a public limited company pays to its shareholders.
The payment and the amount of a dividend are proposed by the management at the general meeting (or meeting of shareholders) and decided by the shareholders. There is no legal obligation to pay out all or only part of the profit.
The company can keep the profit to invest in a new machine or in a building, for example.
In Switzerland, the dividend is generally paid once a year.
Dividing the dividend by the share price gives its yield. It indicates the amount realized for each franc invested. The dividend yield combined with the rise in the share price gives the total return of the shares or investments.
In Switzerland, dividends are subject to income tax and withholding tax .
There are two types of dividends:cash dividends , which are paid out in cash to the shareholder, and dividends in kind , which may be paid out in the form of any assets of the limited company. It is usual for companies to distribute the shares of a subsidiary in the form of dividends in kind and thus spin-off from the subsidiary.
For LLCs, we are not talking about dividends but about distribution of profits. The amount of dividends depends on the profit of the company; as a rule, part of the profit is withheld and allocated to reserves, for example to finance investments. In some cases, a special dividend may also be paid independently of the annual surplus.
Ceiling amounts
In principle, the share of the salary and that of the dividend must be adapted. Benefit payments should be comparable with third parties and consistent with local and industry practices.
It should be noted on the one hand that an excessively high dividend payment, in the event of a manifestly disproportionate amount in relation to the salary, may be requalified by the compensation fund as a salary paid up to the usual remuneration in the sector. .
On the other hand, the tax authority may assume a hidden distribution of dividends in the event of the payment of excessive salaries to shareholders. This is always an overall consideration in a case-by-case review.
In federal taxation case law, the "Nidwaldian practice" has imposed itself to answer the question of a manifest disproportion between work and its remuneration, or between capital employed and dividends paid.
(ATF 134V 297). According to this principle, the declared AVS income and the salary in accordance with industry practices are related to the payment of dividends and the value of the share in order to determine whether a part of the dividends distributed should be considered as a determining income for the contributions.
It is up to the compensation funds to independently assess whether an income component should be qualified as determining salary or capital income. However, the compensation funds must adhere to the point of view of federal tax law (Art. 23 RAVS).
A different view of tax authorities and social insurance institutions should be avoided if possible.
From a return on equity of more than 10%, the compensation funds assume that the dividend is excessive (ch. 2011.7 Guidelines on the determining salary in the AVS, AI and APG, status January 2016).
An exception to this principle is however possible, according to recent case law in the field of tax law, for example in the case of a substantive dividend (judgment of October 25, 2012; 9C_669/2011).
Substantive dividend
Dividends can be distributed not only on the net profit of the past financial year, but also on the substance (art. 675 al. 2 CO, open reserves). A distribution of dividends on a financial year with a loss is also possible insofar as the profit brought forward is higher than the loss.
According to case law in federal tax law, an excessive dividend therefore corresponding to a return on equity of more than 10%) should not lead to a requalification as a salary if it is a dividend deducted from the substance and if a salary at least equivalent to the practices of thesector was paid during the period of hoarding of the company's profits (ie during the supply phase of the substance with a view to subsequent payment of dividends).
In other words, this means that a disproportionate dividend could not be requalified as a salary during the reserve constitution phase due to social insurance law if a salary in line with industry practice has been paid during these years. It does not matter if an appropriate salary was also paid in the year of payment of the substantial dividend.
During its meeting of May 19, 2021, the Federal Council decided that the revision of the inheritance law would come into force on January 1, 2023. These new provisions will allow testators to freely dispose of a greater part of their assets.
The new inheritance law will be more flexible . The testators will be able to freely dispose of a greater part of their property.
Currently, the hereditary reserve of children is equal to three quarters of the legal share.In the future, it will be reduced to half.The parents' reserve is purely and simply abolished.
That of the spouse or registered partner, on the other hand, remains unchanged . The person who wishes to settle his succession by means of a will will be less constrained by hereditary reserves. She will be able to dispose of her property more freely, and favor more, for example, her de facto partner. The Federal Council has decided that the revision of inheritance law will come into force on January 1, 2023.
In order to better understand this case, here are some explanations of the legal terms used in inheritance law.
Legal heirs
The legal heirs are those designated by law to the succession if the deceased has not expressed his last wishes..
The right to inheritance varies according to the marital status of the deceased at the time of death and the degree of relationship of their survivors.
Legal heirs inherit according to a certain order of succession based on the degree of relationship or, more precisely, according to the order of relatives in relation to the deceased.
The closest relatives exclude those who are more distant . Therefore, the legal heirs are always those of the closest relatives.
The first family is that of the direct descendants of the deceased, either his children or their descendants. Children inherit in equal shares per branch.
Adopted children or natural children inherit like legitimate children;
The second kinship inherits when there are no descendants remaining. It includes the father and mother or, in the case of predeath, the brothers and sisters of the deceased or even their descendants if one of them is predeceased;
The third family is that of the grandparents of the deceased and their descendants. These are uncles and aunts, cousins or their descendants .
The surviving spouse is outside the family since he or she is not related by blood.
Certain close relatives are necessarily entitled to a certain proportion of the estate. The reserved heirs are:
The surviving spouse
The descendants
inheritance share
The legal inheritance share is the share of the inheritance to which a person is entitled by law, unless the testator has decided otherwise (e.g. with a will).
Hereditary reserve
The hereditary reserve is the minimum share of inheritance, defined by law, to which a person is entitled; it is lower than the legal inheritance share. However, not all legal heirs are entitled to a hereditary reserve.
Only the spouse and children of the deceased are entitled to a compulsory share
If a will does not respect the hereditary reserve, it is not automatically void; it must first be contested by the legal heirs.
Available quantity
The available portion is the portion of the estate that remains, after deduction of the hereditary reserves. The testator can transmit this at his discretion, to individuals or non-profit organizations, by means of a will or an inheritance agreement.
Testament Switzerland
The Swiss civil code provides for three forms of will: holographic, public and oral. The holographic will is the simplest and most widespread form. It must be handwritten in its entirety, dated and signed by the testator.
Swiss inheritance agreement
A succession pact is a contract between two or more people whose object is the succession of at least one of them.
Any person capable of discernment and aged 18 or over can conclude an inheritance pact.
The settlor can, with the agreement of the heirs, freely dispose of his estate without limit. By this act, a reserved heir can renounce all or part of his estate, for example.
The succession agreement may harm the reserves of other heirs not participating in the contract.
In this case, the injured parties can assert their rights through an action against the other heirs (action for reduction).
The inheritance pact is drawn up in authentic form (with a notary).
Unlike the will, the inheritance pact cannot be modified unilaterally. Any change must be made in the presence of a notary and with the participation of all parties.
Changes for married couples
The hereditary reserve of descendants will decrease.
Today, children are entitled to a hereditary reserve of 3/8.
From now on this share will amount to 1/4 The available portion will increase from 3/8 to 1/2.
The testators will therefore be able to dispose of a larger share of the estate as they wish.
Married couples living in a blended family will be able, thanks to the increase in the available quota, to benefit their own children, but also take their step-children into account.
Spouses can better protect each other. This aspect is of particular importance when the surviving spouse is dependent on income from the estate or must amortize the mortgage to keep their home.
Otherwise, he will at worst be forced to sell in order to reduce his fixed costs or to compensate the children.
A reduction in the hereditary reserve allows business leaders to more easily regulate succession within their company.
Changes for cohabiting partners
Inheritance law does not regulate cohabitation.
Without specific provisions, cohabitants and their children will therefore not be able to claim inheritance even after the revision of inheritance law.
These constellations can be very different, it is not the law but the testators who, including after the reform, will remain authorized to decide on the people they wish to favor.
In the future, testators will have greater room for maneuver in doing so, because the hereditary reserve of descendants will decrease and that of parents will disappear entirely.
Cohabitants and blended families must also take steps to avoid an unfair situation when sharing inheritance.
Anyone who has already settled their estate and, for example, drawn up a will should study with an independent specialist the points that need to be adapted due to the reform in order to avoid making mistakes.
Loss of right to hereditary reserve during divorce proceedings
Divorced spouses whose divorce judgment is enforceable lose all rights to the other's estate; this also applies to registered partnerships.
The surviving spouse and registered partner currently their right to the inheritance share and the hereditary reserve if the other spouse or partner dies in the middle of the inheritance procedure. divorce.
Today, registered partners and married couples are on equal footing before the law. With the revision, the spouse and registered partner will lose their right to hereditary reserve upon filing divorce proceedings.
Until the divorce judgment is enforceable, the surviving spouse and registered partner will still be entitled to their legal share of the estate unless the testator decides otherwise (e.g. through a will).
Passing on the business within the family is much more than just a legal challenge.
Just the act of favoring or harming one family member among many others can harm the good understanding between families and generate multiple problems for the new owner.
In the new inheritance law, hereditary reserves constitute a less important part, which facilitates transmission within the family.
Outlook for future review stages for family businesses
In the next stage of the revision of inheritance law, it is planned to facilitate the transfer of family businesses.
Family businesses are particularly at risk in the event of the death of the owner if his estate is not settled.
Depending on the valuation of a company, its buyers must pay high compensatory compensation to their co-heirs who are protected by hereditary reserves.
This can put a company in difficulty or even lead to its fragmentation if a large part of the assets are tied up in the company.
The revision aims, among other things, to make it possible to defer the payment of compensatory allowances if the company has insufficient liquidity for immediate payment.
Legal inheritance shares, hereditary reserves and available portion
SWISS CIVIL CODE – INHERITANCE LAW
RO 2021 312 OF December 18, 2020 – COMING INTO FORCE ON JANUARY 1, 2023
2 Divorced spouses cease to be legal heirs of each other.
3 Unless otherwise stipulated, spouses lose all benefits resulting from provisions due to death:
1. at the time of divorce;
2. at the time of death if divorce proceedings resulting in the loss of the surviving spouse's reserve are pending.
Art. 216, par. 2 and 3
2 Profit sharing allocated in excess of half is not taken into account for the calculation of the hereditary reserves of the surviving spouse or registered partner as well as the common children and their descendants.
3 Such an agreement cannot affect the reservation of non-common children and their descendants.
2 The same applies in the event of dissolution of the plan due to death, when divorce proceedings resulting in the loss of the surviving spouse's reserve are pending.
Art. 241, par. 4
4 Unless otherwise stipulated in the marriage contract, the modification of the legal division does not apply in the event of death when divorce proceedings resulting in the loss of the surviving spouse's reserve are pending.
Art. 470, par. 1
1 Anyone who leaves descendants, their spouse or registered partner has the right to dispose of what exceeds the amount of their reserve upon death.
Art. 471
II. Reserve
The reserve is half of the inheritance tax.
Art. 472
III. Loss of reserve in the event of divorce proceedings
1 The surviving spouse loses his or her reserve if at the time of death divorce proceedings are pending and:
1. the proceedings were initiated on a joint petition or continued in accordance with the provisions relating to divorce on a joint petition, or
2. the spouses have lived apart for at least two years.
2 In such a case, the reserves are calculated as if the deceased had not been married.
3 Paras. 1 and 2 apply by analogy to the procedure for dissolution of the registered partnership.
Art. 473
IV. Usufruct
1 Whatever use he makes of the available portion, the spouse or registered partner may, by disposition due to death, leave to the survivor the usufruct of the entire share devolved to their common descendants.
2 This usufruct takes the place of the inheritance right attributed by law to the surviving spouse or registered partner in conjunction with these descendants. In addition to this usufruct, the available portion is half of the estate.
3 If the surviving spouse remarries or enters into a registered partnership, his usufruct ceases to encumber for the future the part of the estate which, at the death of the testator, could not have been the subject of the usufruct legacy according to the ordinary rules on descendants' reserves. This provision applies by analogy when the surviving registered partner enters into a new registered partnership or marries.
Art. 476
3. Insurance in the event of death and linked individual protection
1 Insurance in the event of death taken out on the head of the deceased, including within the framework of linked individual insurance, which he has taken out or which he has disposed of in favor of a third party by inter vivos act or due to death , or which he transferred free of charge to a third person during his lifetime, are only added to the estate for the redemption value calculated at the time of death.
2 The claims of beneficiaries resulting from the deceased's individual pension provision with a banking foundation are also added to the estate.
Art. 494, par. 3
3 Provisions due to death and inter vivos gifts which exceed customary gifts may, however, be challenged, to the extent:
1. where they are irreconcilable with the commitments resulting from the inheritance pact, in particular when they reduce the advantages resulting from the latter, and
2. where they have not been reserved in this pact.
Art. 522
B. Reduction action I. Conditions 1. In general
1 Heirs who receive in value an amount lower than their reserve have the action for reduction, until the reserve is reconstituted, against:
1. acquisitions due to death resulting from the law;
2. donations due to death, and
3. inter vivos gifts.
2 Provisions due to death relating to the lots of legal heirs are considered simple rules of sharing if they do not reveal a contrary intention on the part of their author.
Art. 523
2. Reservers
Acquisitions due to death resulting from the law and donations due to death from which reserved heirs benefit are reducible in proportion to the amount of what exceeds their reserve.
Art. 529
4. Insurance in the event of death and linked individual protection
1 Insurance in the event of death taken out on the head of the deceased, including within the framework of linked individual insurance, which he has taken out or which he has disposed of in favor of a third party by inter vivos act or due to death , or which he transferred free of charge to a third person during his lifetime, are subject to reduction for their redemption value.
2 The claims of beneficiaries resulting from the deceased's individual pension provision with a banking foundation are also subject to reduction.
Art. 532
III. Order of reductions
1 The reduction is carried out in the following order until the reserve is replenished:
1. on acquisitions due to death resulting from the law;
2. on donations due to death;
3. on inter vivos gifts.
2 Inter vivos gifts are reduced in the following order:
1. donations granted by marriage contract or property agreement which are taken into account for the calculation of reserves;
2. freely revocable donations and linked individual pension benefits, in the same proportion;
3. other donations, going back from the most recent to the oldest.
II
The modification of other acts is regulated in the appendix.
III
1 This law is subject to referendum.
2 The Federal Council sets the date of entry into force.
Council of States, December 18, 2020 President: Alex Kuprecht Secretary: Martina Buol
National Council, December 18, 2020 The president: Andreas Aebi The secretary: Pierre-Hervé Freléchoz
Expiration of the referendum deadline and entry into force
1 The referendum deadline applying to this law expired on April 10, 2021 without having been used.[3]
2 This law comes into force on January 1, 2023.[4]
May 19, 2021
On behalf of the Swiss Federal Council: The President of the Confederation, Guy Parmelin The Chancellor of the Confederation, Walter Thurnherr
2 Unless otherwise agreed, partners lose all benefits resulting from provisions due to death:
1. at the time of dissolution of the partnership;
2. at the time of death if dissolution proceedings resulting in the loss of the surviving partner's reserve are pending.
2. Law of June 25, 1982 on professional old-age, survivors and disability insurance[6]
Art.82 Equivalent treatment of other forms of pension provision
1 Employees and self-employed people can also deduct contributions allocated exclusively and irrevocably to recognized forms of pension assimilated to professional pension. Are considered as such:
has. individual insurance linked to an insurance establishment;
b. individual pension provision linked to a banking foundation.
2 The Federal Council determines, with the collaboration of the cantons, to what extent the deductions referred to in para. 1 are admitted.
3 It sets the terms of recognized forms of insurance, in particular the circle and order of beneficiaries. It determines to what extent the pension holder can modify the order of beneficiaries and specify their rights; the arrangements made by the pension holder must be in written form.
4 Beneficiaries of a recognized form of pension provision have a specific right to the benefit that this form of pension provision grants them. The insurance establishment or banking foundation pays the benefit to the beneficiaries.
Upon retirement, “good customers” are surprised to suddenly pass for bad payers in the eyes of their bank.
Depending on their financial situation and the degree of amortization of their mortgage, retired clients are suggested to sell their house or apartment.
Amortization required
If, as a rule, a mortgage loan is granted for residential real estate in the amount of 75 – 80% of the value of the object for active customers under 55 years of age.
This percentage will drop drastically to around 50% / 60% at the time of retirement!
The rule applied as a general rule for the charges/interest ratio is that the cost of the mortgage calculated on the basis of an average rate of 6.5% must not exceed one third of the income.
It is easy to understand in view of the above that a good part of Seniors risk finding themselves in very unpleasant situations in the near future, this phenomenon being further accentuated by a reduction in LPP pensions and an additional reduction for those who have used part of their LPP capital for home ownership.
According to the analyses, only 40% of property owners will be able to meet the criteria for bank financing when they no longer have a gainful activity, 40% will have to take saving measures and20% will find themselves in a difficult situation. bearable.
Real estate strategy for retirement
1 – Invest in mortgages, pay off?
The mortgage is not necessarily a charge. The mortgage loan is an investment alternative that can reassure in this period of negative interest rates.
This opportunity is possible, but has a tax cost, especially since our tax system for private rental values does not help matters and it is more or less heavily felt depending on the Canton.
2 – Saving in the third pillar and/or possible redemption in LPP?
In this way we save taxes and we will have more money at retirement in order to adapt housing or reduce mortgages.
No longer possible to save for retirement, what measures can be considered?
Passing on your house to the children while retaining a right of habitation or usufruct.
That the children (if their income is sufficient) are joint and several co-debtors for the mortgage loan.
and if the collateral rate allows it, create a “bank rent ”. The mortgage is increased, part of this credit can be used to immediately pay the interest of the next 10 to 15 years on the basis of a fixed rate and the rest to improve its income. Banks are rather hesitant on the subject.
As a long-term solution, and if the collateral rate allows it, create a life annuity “life annuity, with or without reimbursement ”. The mortgage is increased, the credit is used to finance an immediate life annuity which allows the cost/interest ratio to be reduced and income to be improved. The annuity is pledged to the pledgee. It is clear that this solution will reduce the capital to be passed on to the heirs.
Sale in life
The principle is simple: people of a certain age or retired sell their house at a price below market value.
In exchange, he lives there until their death without paying rent and, sometimes, even receiving an additional pension.
He also receives capital at the conclusion (the bouquet) allowing immediate liquidity.
The potential buyer will, therefore, consider the possible gain, i.e. the market value of the property minus the capital required at the time of the sale (the bouquet). But also, and this is the most delicate, the amount of the possible annuity to be multiplied by the number of months until the potential death of the seller.
In summary:
For future Seniors (of which we are all part) who are already owners, it is necessary to anticipate, analyze and implement exit strategies as quickly as possible.
It is clear that the third and fourth ages are not really suited to direct real estate investments and that for this category of investors it is better to turn to indirect real estate investment which exists in different forms.
The global tax landscape is changing with repercussions for Switzerland and the companies based there.
According to the roadmap planned by the OECD and the G20 states, the first elements of a minimum tax should come into force on January 1, 2023.The Federal Council has therefore decided to implement the minimum tax through a modification of the constitution and to ensure, by means of a transitional order, that the minimum taxation can be introduced on January 1, 2024.Voters will be called upon to vote on this subject on June 23, 2023.Fiscally, Switzerland remains an attractive place for businesses and individuals alike, but with a view to the introduction of a global minimum tax on large companies, some cantons must prepare to tax large companies more. In view of the reforms envisaged by the OECD and the G20 countries, which plan to introduce a minimum profit tax rate of 15% for companies , the differences that exist between cantons which tax their companies low, such as Zug 11.85%, and Berne 21.04% which tax them heavily will decline. However, the minimum tax rate of 15% targeted by the OECD will only apply to companies with an annual turnover of more than €750 million.In French-speaking Switzerland, the cantons of Vaud and Geneva have set their corporate profit tax rate at 14%, Neuchâtel at 13.57%, Friborg at 13.87%, Valais 17.12% and Jura at 16%. %. Compared to the minimum rate of 15% planned by the OECD, the gap is not very high and these cantons will only have to make a slight adaptation to be in compliance with the rates planned by the OECD In German-speaking Switzerland , the canton of Zug is at the top of the ranking, with a rate of 11.9%, Nidwalden (12.0%) and Lucerne (12.2%). With a rate of 21.0%, the canton of Bern is at the bottom of the pack .
2022 profit tax rates in Switzerland In international comparison, companies are taxed low in Switzerland . Rates lower than those in low-tax cantons are only found in traditional offshore domiciles, in Guernsey, Qatar and a few countries in Eastern (southeast) Europe. Ireland remains Switzerland's main competitor in Europe. Internationally, large Swiss companies will also be subject to the same rules as those located in cities like Singapore, Hong Kong or Dubai, which will also have to increase their tax rate to 15%. There will therefore be fewer incentive factors which will encourage companies to move to such locations purely for tax reasons. For very large companies, tax competition between cantons will play a less important role as a factor in establishing themselves in the future. future. As for whether developments in corporate taxation will have consequences for personal taxation, only time will tell.
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