Germany–Switzerland · Businesses

German Entrepreneur with a Swiss Company: Taxation, Management and Shareholdings

A Swiss AG or GmbH can make commercial sense for an entrepreneur living in Germany. However, a Swiss registered office alone does not prevent German taxation. Key factors include where the company is actually managed, where its operating activities take place and how the German shareholder works with the Swiss company. Dividends, disposal gains, transfer pricing and, where applicable, German controlled foreign company taxation under the Foreign Tax Act (AStG) must also be assessed.

Starting Point

A company with a Swiss registered office is not automatically taxable exclusively in Switzerland

Under German tax law, a corporation may be subject to unlimited German corporate income tax liability if either its registered office or its place of management is in Germany.

A Swiss AG or GmbH may therefore face significant German tax consequences despite having its statutory seat in Zurich, Zug, Basel or another Swiss canton if its actual senior management is exercised from Germany.

For a German entrepreneur who alone or substantially controls the Swiss company, one question is particularly important: where are the key ongoing business decisions actually made?

Four Levels of Analysis

Analyse the Swiss company and the German shareholder separately

The Company’s Tax Residence

The registered office and actual place of management determine whether the company is subject to taxation in Switzerland, Germany or, initially under domestic law, both countries.

Permanent Establishments

Even if the company is Swiss-resident, operating activities in Germany may create a German permanent establishment and therefore German business taxation.

The German Shareholder

Salary, dividends, loans, disposal gains and other payments to the German entrepreneur must be assessed at the individual level.

AStG

International Tax Rules

For controlled foreign companies, transfer pricing and controlled foreign company taxation may also be relevant.

Section 10 AO

The centre of senior business management is decisive

Section 10 of the German Fiscal Code (AO) defines the place of management as the centre of senior business management. The decisive factor is therefore where the management decisions governing ongoing business operations are actually made, rather than primarily where the company was registered.

If a sole shareholder living in Germany effectively runs the operating business from a German office or home office, there is a significant risk that the company’s place of management is in Germany.

Who makes the ongoing business decisions?
Where are these decisions actually made?
Who negotiates and approves significant contracts?
Who controls personnel, pricing and financing?
Where are operating activities coordinated?
Does Swiss management have genuine decision-making authority?

German Corporate Income Tax

Management in Germany may trigger unlimited German corporate income tax liability

Section 1 of the German Corporate Income Tax Act (KStG) links unlimited corporate income tax liability to a registered office or place of management in Germany. A Swiss company therefore does not need a German statutory seat to become subject to unlimited German tax liability.

If the centre of senior business management is in Germany, Germany may generally bring the company’s entire income within the scope of taxation.

At the same time, the company may remain subject to Swiss domestic taxation because of its Swiss registered office. The Germany–Switzerland double taxation agreement must then be included in the analysis.

Germany–Switzerland Tax Treaty

The place of effective management is particularly important in cases of dual residence

Where a company is treated as resident in both Germany and Switzerland under their domestic rules, the Germany–Switzerland double taxation agreement contains a special rule for dual-resident companies.

In the relationship between the two countries, the place of effective management is particularly relevant. A company effectively managed in Germany may therefore be treated as German-resident for treaty purposes despite its Swiss registered office.

This can have far-reaching consequences for business profits, dividends, employees and withholding taxes.

Business Substance

Swiss business substance requires more than an address and four board meetings a year

Particularly in an owner-managed company, the actual organisation must support the stated Swiss place of management.

A nominal Swiss board of directors provides little support if the German shareholder makes all significant decisions in Germany and the Swiss director merely approves them afterwards.

OFF

Business Premises

Owned or genuinely available Swiss office premises support an operating presence, but do not replace actual management.

DIR

Decision-Making Authority

Swiss directors and officers should have genuine authority rather than acting merely as nominal signatories.

EMP

Personnel

The company’s own qualified personnel in Switzerland can significantly strengthen its operational presence there.

BANK

Banking and Payments

Signing authorities, financing and banking decisions should reflect the actual governance structure.

DOC

Documentation

Minutes should record actual decisions rather than retrospectively create the appearance of Swiss management.

OPS

Operating Functions

Clients, contracts, personnel management and operating processes often show where a business is actually managed more clearly than formal arrangements do.

German Permanent Establishment

Germany may tax business profits even where management genuinely takes place in Switzerland

Even if the company is clearly managed in Switzerland, a fixed place of business in Germany may create a German permanent establishment.

Section 12 AO specifically includes business offices and the place of management among permanent establishments. The treaty must also be examined to determine whether its permanent establishment requirements are met.

German office or business premises
Workplaces available on an ongoing basis
German branch or business office
Personnel performing significant functions in Germany
Contract-concluding or agency functions
Profit attribution between Germany and Switzerland

The Shareholder’s Home Office

A German home office may create greater risks for an entrepreneur than for an ordinary employee

An ordinary employee occasionally working from home does not automatically create a permanent establishment for the employer.

The risk assessment may differ if the German sole shareholder and managing director regularly performs the Swiss company’s key activities from that home office.

The issue may then extend beyond a home office permanent establishment. The Swiss company’s entire place of management may already have shifted to Germany.

Transactions Between Entrepreneur and Company

Cross-border payments must comply with the arm’s length principle

A German shareholder may have various economic relationships with their Swiss company: as managing director, employee, lender, landlord, licensor or through a separate German business.

German international tax law generally requires arm’s length terms for transactions with related parties. Prices, the scope of services, contractual terms and actual implementation should therefore be documented.

Relationship	Typical Tax Question	Documentation
Managing director’s salary	Appropriate remuneration and allocation of taxing rights under the treaty	Contract, duties, work locations, remuneration benchmarking
Shareholder loan	Arm’s length interest rate and terms	Loan agreement, term, security, interest rate benchmark
Consulting services	Were the services actually provided? Is the price at arm’s length?	Service description, time records, invoices
Licensing / IP	Who owns the intangible asset and who creates its value?	IP agreements, functions, risks, valuation documents
German business ↔ Swiss company	Profit allocation between associated enterprises	Contracts and transfer pricing analysis

Managing Director’s Salary

The German entrepreneur may also serve as a director or officer of the Swiss company

If the entrepreneur living in Germany receives remuneration for acting as managing director, director or a comparable senior executive of a Swiss corporation, that payment must be analysed separately from the shareholding.

The Germany–Switzerland double taxation agreement contains special provisions for certain executive functions. Actual work locations, possible cross-border commuter status and German and Swiss payroll or withholding tax obligations must also be examined.

Remuneration should therefore not be structured solely according to where a lower personal tax rate is expected. Its appropriateness under company law, the actual work performed and the allocation of taxing rights under the treaty must be consistent.

Distributions

Dividends from a Swiss company paid to a German private shareholder

If the shareholder lives in Germany, dividends from their Swiss AG or GmbH are generally also subject to German personal income tax.

Switzerland generally levies 35% withholding tax on dividends. The Germany–Switzerland double taxation agreement generally limits the final Swiss tax burden for a German private shareholder to 15% of the gross dividend.

Swiss withholding tax is generally initially 35%
Treaty relief generally reduces the Swiss burden to 15% for German private shareholders
Excess Swiss tax should generally be reclaimed
Declare the dividend in Germany
Account for creditable Swiss withholding tax
Assess German shareholding taxation rules separately

35% Is Not Necessarily Final

German residents generally need to reclaim part of the Swiss withholding tax

The Swiss company generally has to remit 35% withholding tax on dividends. For a private shareholder resident in Germany, Switzerland may generally retain only 15% under the treaty.

The difference, generally 20 percentage points, can be reclaimed through the Swiss refund procedure if the requirements are met.

In Germany, the dividend is taxed under German rules. Swiss withholding tax permitted under the treaty can generally be credited within the limits of German law.

Holding Company Instead of Personal Ownership

The tax analysis changes if a German corporation holds the Swiss shareholding

If the Swiss company is held by a German GmbH, for example, rather than directly by an individual, different German participation and withholding tax rules apply.

For certain qualifying corporate shareholdings, the Germany–Switzerland double taxation agreement provides greater withholding tax relief, potentially including full exemption, provided that the ownership percentage, minimum holding period and other requirements are met.

At the German level, section 8b KStG, trade tax and the specific ownership percentages must be examined in particular. The choice between direct personal ownership and a holding structure should therefore be modelled before formation or acquisition.

Disposal of the Swiss Shareholding

A German entrepreneur may be taxable under section 17 EStG when selling their Swiss company

If the German-resident shareholder held, directly or indirectly, at least 1% of the Swiss corporation at any time during the preceding five years, a disposal gain generally falls within section 17 of the German Income Tax Act (EStG).

An entrepreneur owning all or a majority of their Swiss company will generally be well above this ownership threshold.

Before a sale, the treaty, any special Swiss rules, acquisition costs and previous restructurings and capital contributions should also be reviewed.

≥1%

Ownership Threshold

Section 17 EStG generally covers shareholdings of at least 1% at some point during the preceding five years.

Acquisition Costs

The purchase price, capital contributions and certain subsequent acquisition costs may affect the taxable gain.

DTA

Treaty Provisions

The treaty must also be examined, particularly where the company holds an unusual mix of assets or cross-border restructurings are involved.

Controlled Foreign Company Taxation

A Swiss company may fall within sections 7 et seq. AStG

If a German taxpayer controls a foreign company, certain low-taxed passive income of that company may be attributed to the German shareholder even if no dividend has actually been distributed.

Control generally exists where the taxpayer, alone or together with related parties, is entitled to more than half of the voting rights, capital, profits or liquidation proceeds.

Assess control exceeding 50%
Classify the company’s income under section 8 AStG
Distinguish active and passive income
Calculate the effective tax burden under German AStG rules
Consider the low-tax threshold of less than 15%
A CFC income inclusion may arise without a distribution

Less Than 15%

The Swiss nominal tax rate alone does not determine whether CFC taxation applies

Under section 8 AStG, income is generally considered low-taxed if the relevant income, calculated under the German AStG rules, is subject to an income tax burden of less than 15%.

Simply looking at a published cantonal corporate tax rate is insufficient. The tax burden on the relevant income must be calculated in accordance with the German statutory rules.

A low tax burden alone does not trigger a CFC income inclusion. The income must also be of a type for which the foreign company qualifies as an intermediate company (Zwischengesellschaft) under section 8 AStG.

Switzerland Is Outside the EU and EEA

The special substance exemption under section 8 AStG does not apply to Switzerland

The AStG provides a special exemption for certain companies in an EU or EEA state that conduct substantial economic activity with sufficient personnel and physical resources.

Under section 8(3) AStG, this statutory exemption is restricted to companies with their registered office or place of management in a member state of the European Union or a state party to the EEA Agreement.

Switzerland belongs to neither the EU nor the EEA. A Swiss company therefore cannot rely on this specific EU/EEA exemption.

This does not mean that Swiss substance is irrelevant for tax purposes. It remains central to the place of management, permanent establishments, actual functions and transfer pricing. For CFC taxation, however, the specific income category under section 8 AStG must be examined first.

Typical Risk Areas

Swiss structures for which an AStG assessment is particularly important

FIN

Financing

Interest and financing income should be reviewed for classification under section 8 AStG.

Rights & Licensing

Licensing and IP structures should be examined with particular attention to who actually performs the relevant functions.

REL

Intragroup Services

Services provided to the shareholder or associated enterprises may raise specific AStG and arm’s length issues.

HLD

Holding Structures

Income from shareholdings and disposal gains must be assessed under the specific statutory activity categories.

CASH

Asset Management

A company primarily managing investments generally has a different risk profile from an operating Swiss business.

MIX

Mixed Activities

Active and passive income within the same company may require different tax treatment.

Reporting and Filing Obligations

A shareholding in a Swiss company may trigger additional German tax filing and notification obligations

A German entrepreneur should not record a Swiss shareholding solely in a personal asset summary. Depending on the size of the shareholding and the circumstances, specific German reporting and filing obligations for foreign investments may apply.

If CFC taxation is also relevant, the necessary foreign company data must be prepared in accordance with German tax principles.

This may go well beyond the ordinary Swiss annual accounts. From formation onwards, the accounting records, shareholding documentation and transaction data should therefore also be available for German compliance purposes.

Structuring

Personal ownership, a German holding company or another structure?

Whether the entrepreneur holds the Swiss company personally or through a German or other holding company can significantly affect distributions, disposal gains, withholding taxes and reinvestment opportunities.

A holding company does not, however, resolve the issue of a Swiss company being managed from Germany. Ownership structure and actual business management are separate matters.

A structure should also not be planned solely around taxation of distributions. Operating functions, financing, exit plans, succession and the entrepreneur’s personal mobility belong in the same analysis.

Structuring Issue	Personal Ownership	Holding Structure
Ongoing dividends	Taxation at the German shareholder level	Participation exemptions and withholding tax require separate assessment
Sale	Section 17 EStG for a qualifying shareholding	Assess section 8b KStG and trade tax in particular
Reinvestment	Profit is available after personal taxation	Retaining profits at holding company level may provide greater flexibility
Swiss place of management	Must actually be in Switzerland, irrespective of the ownership structure
AStG	Requires separate assessment based on the ownership chain and income category

Practical Approach

Setting up a German entrepreneur’s Swiss company correctly

Define the Business Purpose and Functions

First establish the actual economic function the Swiss company will perform and why that function is being located in Switzerland.

Establish the Management Arrangements

It must be clear who manages the company, what decision-making authority they have and where those decisions are actually made.

Identify German Activities

Home offices, German offices, employees, client activities and contractual functions must be included in the permanent establishment analysis.

Agree Arm’s Length Contracts

Managing director remuneration, loans, services and intragroup transactions should be documented in written agreements before they begin.

Model the Ownership Structure

Compare personal ownership and holding company alternatives based on distributions, exit plans, financing and reinvestment.

Assess CFC Taxation

Analyse control, income categories and the effective tax burden under sections 7 et seq. AStG.

Coordinate German and Swiss Compliance

Annual accounts, corporate tax returns, personal tax returns and foreign investment notifications should be prepared from a consistent set of data.

Maintain Governance in Practice

A Swiss place of management planned on paper is ineffective if actual management is subsequently carried out from Germany on an ongoing basis.

Common Mistakes

What often goes wrong with Swiss companies owned by German entrepreneurs

Equating a Swiss Registered Office with Swiss Management

A registered office does not establish where ongoing management decisions are actually made.

Expecting a Nominal Swiss Board to Resolve Every Issue

A corporate body without genuine decision-making powers does not automatically relocate actual management to Switzerland.

Running the Business from Germany Every Day

This may place the entire company’s management in Germany, as well as potentially creating a permanent establishment.

Choosing a Low-Tax Swiss Canton Without an AStG Analysis

Controlled companies earning low-taxed passive income may trigger German CFC taxation.

Treating 35% Swiss Withholding Tax as the Final Dividend Tax

For a German private shareholder, the treaty generally limits the final Swiss withholding tax burden to 15%.

Failing to Document Payments to the Shareholder

Salary, loans, consulting and other transactions should be agreed on arm’s length terms and implemented accordingly.

Further Tax Knowledge

German Entrepreneur with a Swiss Company

Can I own a Swiss GmbH or AG as an entrepreneur living in Germany?

Yes. A shareholder’s German residence does not prevent ownership of shares in a Swiss corporation. However, the place of management, permanent establishments, personal taxation, transfer pricing and German international tax rules must be assessed in particular.

Is my Swiss company taxable only in Switzerland?

Not necessarily. If the company’s actual place of management is in Germany, it may be subject to unlimited German corporate income tax liability under section 1 KStG. If it is resident in both countries, the Germany–Switzerland double taxation agreement must also be applied.

What does “place of management” mean?

Section 10 AO defines the place of management as the centre of senior business management. In practice, the key issue is where the management decisions essential to ordinary business operations are actually made.

Is a Swiss board of directors enough to establish management in Switzerland?

No. Actual management is decisive. If the German entrepreneur continues to make the key ongoing decisions from Germany, a purely formal Swiss governance structure cannot rule out a German place of management.

Can my German home office be a permanent establishment of the Swiss company?

This depends on the specific facts. For a controlling shareholder-managing director, it is often also necessary to assess the more significant question of whether the entire company is managed from the German home office.

How are dividends from my Swiss company taxed in Germany?

For a private shareholder resident in Germany, dividends are generally taxable in Germany. Switzerland generally initially levies 35% withholding tax. Under the treaty, the final Swiss withholding tax burden for individuals is generally limited to 15%, so the excess Swiss tax should generally be reclaimed.

Can I claim a German tax credit for the full 35% Swiss withholding tax?

You should generally not assume that this is possible. Where the treaty limits Swiss tax to 15%, the excess amount must generally be reclaimed in Switzerland. The German tax credit is governed by German law and the treaty provisions.

How is the sale of my Swiss GmbH or AG taxed in Germany?

If the German-resident seller held at least 1% at some point during the preceding five years, a disposal gain generally falls within section 17 EStG. Entrepreneurs’ shareholdings usually exceed this threshold.

Do German CFC rules also apply to Swiss companies?

Yes. Where a Swiss company is controlled, low-taxed passive income may fall within sections 7 et seq. AStG. The specific income category and its effective tax burden must be examined.

When is a Swiss company considered low-taxed?

Under section 8 AStG, low taxation generally exists where the relevant income, calculated under the German AStG rules, is subject to an income tax burden of less than 15%.

Does genuine Swiss substance protect against CFC taxation?

Swiss substance is very important for the place of management, permanent establishments and transfer pricing. However, the special statutory substance exemption in section 8(2) and (3) AStG is restricted to companies in EU and EEA states and therefore does not apply directly to a Swiss company. The specific income category is consequently particularly important for CFC taxation.

Should I hold the Swiss company personally or through a holding company?

This depends particularly on the distribution strategy, reinvestments, planned exit, financing, succession and other shareholdings. A holding company may offer significant advantages, but it does not eliminate issues arising from actual management exercised from Germany.

Germany–Switzerland Business Tax Advice

Do you live in Germany and own or plan to establish a Swiss company?

We review the structure from both the German and Swiss perspectives, analyse the place of management, permanent establishments, shareholding taxation, dividends, transfer pricing and CFC taxation, and develop a structure in which the legal organisation, actual activities and tax treatment are consistent.

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