Legal structure of a foreign company in Switzerland
The foreign company has the possibility to either set-up a branch office in Switzerland or form a subsidiary of the foreign company. A branch office is a commercially independent business of the foreign company, although legally dependent on the foreign company, and it must carry out the same type of commercial activity as the foreign company. A subsidiary on the other hand is legally fully independent from the foreign company and creates a separate legal entity governed under Swiss law. The most common company types chosen are either a limited liability company (LLC/GmbH/SARL) or a public limited company (Ltd/AG/SA). Whereas a branch office does not require capital to be set-up, an independent subsidiary requires a certain minimum capital for the formation depending on the company type chosen.
Regardless of the legal structure, the foreign company needs to list the business activity in the Swiss commercial registry, and it is also required that an authorized person, who is a resident of Switzerland, is appointed to represent the foreign company.
Employer obligations of a foreign company in Switzerland
As soon as the first employee is employed, it is important that all employer obligations are met which are mandated by Swiss employment and labor law.
- Working conditions
Swiss labor law sets out clear rules on the employment relationship and regulates various topics such as weekly working hours, compensation of overtime, annual holiday allowance as well as probation and notice periods etc. Even though an orally agreed employment contract would be valid, it is recommended that the employment agreement is formalized and in writing.
- Social security, pension fund and insurances
The foreign company, or its subsidiary, needs to register with a Swiss compensation office (Ausgleichkasse/Caisse de Compensation) to remit social security contributions as well as set-up a Swiss employer pension fund and obtain a mandatory accident insurance coverage for its employees. As Swiss employment law foresees continued salary payments during illness for a certain period, most employers also obtain a daily sickness benefits insurance coverage for their employees. The social security and insurance coverage can be a significant cost for the employer, and therefore it is important to understand beforehand the expected cost, when hiring employees in Switzerland. Even though the costs for the social security coverage is usually shared between the employee and employer, some social benefits provided to an employee are an important factor when establishing the compensation policy. Therefore,the set-up of a pension fund and the selection of the required insurances is not only a legal requirement but also strategically important to be competitive and to attract the right talent on the market.
- Work authorisation
Whenever a non-Swiss national is employed, the employer needs to verify that the employee has obtained the relevant work permit to perform a gainful activity in Switzerland. If no work permit has been obtained, the employer is required to apply for such with the competent cantonal immigration authorities before the gainful activity of the employee is commenced. Regarding locally hired employees,who are EU/EFTA citizens, the process for obtaining the work permit is normally not an issue, whereas for third country nationals there is a strict process to be followed and restrictive work quotas apply. Hiring individuals without valid work permit may lead to severe punitive penalties for the employer.
- Withholding/payroll taxes
Whereas withholding taxes normally do not apply for Swiss nationals or permanent resident permit holders, foreign employees of Swiss employers are subject to withholding tax which must be administered by the employer. Therefore, as soon as the employer is hiring an employee who is subject to withholding taxes, the employer needs to register with the competent tax authorities and start to remit monthly payroll taxes. Even though the payroll tax is deducted from the employee’s salary, the employer is ultimately liable that the payroll taxes are remitted to the tax authorities and therefore it is important that the payroll tax set-up is done correctly to ensure that the employer is tax compliant.
If you are planning to enter the Swiss market, or employ any individuals in Switzerland, and need help to establish your business in Switzerland or to manage your employer obligations, just send us a message on firstname.lastname@example.org or give us a call at +41 61 533 6331 and we are happy to help you making your presence in Switzerland a success story for you!
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