Situation
Swiss AG / GmbH · Shareholder resident in GermanyOwning a Swiss company while living in Germany
If you live in Germany and hold an interest in a Swiss AG or GmbH, several separate issues must be considered: the company’s tax residence, dividends, remuneration as a managing director or board member, a subsequent sale of the shareholding and possible consequences under German international tax rules. The structure becomes particularly sensitive if key business decisions are actually made from Germany.
Overview
A Swiss registered office does not automatically mean taxation exclusively in Switzerland
A Swiss AG or GmbH remains a Swiss company under company law. For tax purposes, however, a formal registered office in Switzerland is not sufficient in every case.
Under German corporate income tax law, a company may also be subject to unlimited German corporate income tax liability if its place of management is in Germany. The decisive factor is the centre of overall business management.
A distinction must also be made between the company’s tax position and the personal taxation of its shareholder resident in Germany.
Two separate taxpayers
Assess the company and its shareholder separately
For tax purposes, a Swiss corporation is not simply a foreign securities account belonging to its shareholder. The company is a separate legal entity. Its business taxation must be assessed separately from the shareholder’s personal income tax.
- Company: registered office and place of management
- Company: business profits
- Shareholder: dividends
- Shareholder: remuneration for services
- Shareholder: sale of shares
- Shareholder: possible consequences under the AStG
Place of management
The main structural question: is the Swiss company actually managed from Germany?
Under section 1 of the German Corporate Income Tax Act (KStG), a corporation may be subject to unlimited German corporate income tax liability if its place of management or registered office is in Germany. Section 10 of the German Fiscal Code (AO) defines the place of management as the centre of overall business management.
It is therefore not sufficient that the company is entered in the Swiss commercial register, has a Swiss bank account or holds its general meeting in Switzerland. What matters is where the decisions relevant to the ongoing management of the business are actually made.
Substance in Switzerland
A local management team, office, employees, decision-making processes and operational activities in Switzerland support a Swiss place of management.
Management from Germany
If contracts, financing, pricing, staffing and key operational decisions are regularly controlled from Germany, a significant German tax risk arises.
Dual residence
If the domestic laws of both Germany and Switzerland are relevant to the company’s residence, its position under the tax treaty must also be assessed.
A shareholder-managing director working from home raises more than payroll tax questions
If a managing director who controls the company, or its sole managing director, works permanently from their home in Germany, this may affect the tax position of the entire Swiss company as well as their personal income tax. The place of management must therefore be assessed independently of the treatment of employment income.
Company level
Potential German tax consequences for the Swiss company
Corporate income tax
If the place of management is in Germany, unlimited German corporate income tax liability may generally arise.
Trade tax
A German place of management or permanent establishment may also raise trade tax issues.
Permanent establishment
Even without a complete relocation of the place of management, a fixed place of business in Germany may require a separate assessment.
Transfer pricing
Cross-border transactions with related companies must be structured on arm’s-length terms.
Distributions
Dividends from the Swiss company
If an individual resident in Germany receives a dividend from a Swiss AG or GmbH, the distribution generally also has German tax consequences.
Switzerland generally levies withholding tax on distributions in the first instance. For ordinary dividends paid to individuals, the Germany–Switzerland double taxation agreement generally limits Swiss withholding tax to 15% of the gross amount.
| Issue | Switzerland | Germany |
|---|---|---|
| Distribution | Swiss withholding tax | German taxation of the dividend |
| Tax treaty | Limited right to tax at source | The country of residence generally retains its taxing right |
| Relief | Refund of excess tax where applicable | Credit for the Swiss tax ultimately retained |
| Size of shareholding | The German treatment of substantial shareholdings may differ from the treatment of small private shareholdings. | |
Swiss withholding tax is a separate specialist topic
Swiss withholding tax procedures and German foreign tax credits are covered in more detail under Investments & Withholding Taxes . This guide focuses on the ownership structure.
Working for the company
Managing directors, executives and Swiss board members
Where an individual resident in Germany also works for their Swiss company, the different types of role must be distinguished.
Managing director / executive
Article 15(4) of the tax treaty contains a special rule for certain senior management roles in a corporation. This may take precedence over the general workday-based approach under Article 15(1).
Board member
Remuneration for serving as a member of a Swiss board of directors generally falls under Article 16 of the tax treaty and may be taxed in Switzerland.
Frontier worker
Article 15(4) is expressly subject to the frontier-worker rule in Article 15a of the tax treaty. The specific duties and pattern of returning home must therefore be assessed separately.
Combined board and executive management duties
A Swiss board member may perform both supervisory and operational management functions. For treaty purposes, it may therefore be necessary to allocate the remuneration between the respective functions.
Shareholder-managing directors
Salary and dividends are different types of payment for tax purposes
Remuneration for services
Managing director or board remuneration is treated as payment for services. The allocation of taxing rights under the treaty, payroll tax and, where applicable, social security must be determined separately.
Distribution to a shareholder
A dividend arises from the shareholding. It is governed by the treaty’s dividend provision and the German rules for income from shareholdings.
Observe the arm’s-length principle
Payments between a company and its controlling shareholder should be clearly agreed and structured on arm’s-length terms. Unclear or inappropriate remuneration arrangements can raise additional tax classification questions.
Disposal of a shareholding
Selling a shareholding in a Swiss AG or GmbH
For a shareholder resident in Germany who holds the shares as private assets, the size of the shareholding is particularly relevant to a subsequent sale.
If the taxpayer held, directly or indirectly, at least 1% of the company’s capital at any time during the preceding five years, a disposal generally falls within section 17 of the German Income Tax Act (EStG).
Section 17 EStG
Shareholdings of at least 1% at any time during the preceding five years are generally subject to the special rules in section 17 EStG.
Small shareholding
If the shareholding does not fall within section 17 EStG, the rules for private investments may apply.
Check the tax treaty
It is also necessary to establish which country the treaty gives the right to tax the particular disposal gain.
Document acquisition costs
The company’s formation, capital increases, subsequent share purchases, capital contributions and other changes to the shareholding should be fully documented. This is particularly important if the shareholder later moves to Germany.
German Foreign Tax Act
CFC taxation: owning a Swiss company does not automatically trigger the AStG
If a person subject to unlimited German tax liability holds an interest in a foreign company, Germany’s controlled foreign company (CFC) rules under sections 7 et seq. of the German Foreign Tax Act (AStG) may also need to be considered.
These rules are not triggered merely by the existence of a Swiss company. In particular, the statutory ownership or control conditions, certain types of passive income and a low level of taxation must be present.
Under section 8(5) AStG, low taxation currently means a tax burden of less than 15%.
Do not automatically assume that Swiss substance provides an exemption
The statutory exception based on evidence of substantial economic activity under section 8(2) AStG is restricted to companies with a registered office or place of management in an EU or EEA state. Switzerland is not a member of the EU or the EEA. A Swiss company must therefore be assessed under the rules applicable to third countries.
Distinguishing the issues
Place-of-management risk and CFC taxation are separate questions
| Issue | Place of management | CFC taxation |
|---|---|---|
| Level | The company’s own tax liability | Taxation of the German shareholder |
| Key question | Where is the business actually managed? | What foreign income does the company earn? |
| Connection to Germany | Management or the centre of overall business management in Germany | A shareholder subject to tax in Germany |
| Consequence | Possible German tax liability of the company | A possible CFC income inclusion for the shareholder |
Shareholder moving to Germany
Particularly important when moving from Switzerland to Germany
If a shareholder or managing director of a Swiss company moves to Germany, the structure should be reviewed before the first German tax return is prepared.
Shareholding
Document the ownership percentage, acquisition costs, capital transactions and the history of the shareholding.
Role
Clearly distinguish the roles of shareholder, managing director, executive and board member.
Management
Establish and document where business decisions are actually made.
Payments
Record salary, board fees, dividends, loans and other payments separately.
Checklist
Documents for the Germany–Switzerland review
Company
Articles of association, commercial register extract, organisational chart and ownership structure.
Shareholding
Acquisition date, acquisition costs, capital increases and contributions.
Management
Managing director and board appointments, signing authorities and allocation of responsibilities.
Decisions
Board minutes, management decisions and the locations where decisions are actually made.
Remuneration
Employment contract, managing director remuneration, board fees and bonuses.
Distributions
General meeting resolutions, dividend statements and Swiss withholding tax documents.
Taxes
Swiss tax returns, assessments and cantonal corporate profit tax calculations.
Operational substance
Office premises, employees, operational processes, contracts and actual business activities.
Order of assessment
Assessing a Swiss company owned by a German resident in eight steps
Legal form
Identify whether the entity is a Swiss AG, GmbH or another type of company.
Shareholding
Establish the ownership percentage and beneficial ownership.
Place of management
Determine the actual centre of overall business management.
Permanent establishment
Review any fixed place of business or other presence in Germany.
Remuneration
Classify salary, board remuneration and other payments.
Dividends
Review distributions, Swiss withholding tax and German taxation.
AStG
Examine control, passive income and low taxation.
Sale
Document acquisition costs and the treatment under section 17 EStG and the tax treaty for a future exit.
Frequently asked questions
Owning a Swiss AG or GmbH while living in Germany
Can I live in Germany and continue to own a Swiss GmbH?
Does my Swiss company automatically become subject to German tax?
Is a Swiss registered office enough to keep the place of management in Switzerland?
What if I run the company from my home in Germany?
Where are dividends from my Swiss company taxed?
What rules apply to my managing director’s salary?
Is a Swiss board member treated in the same way as a managing director for tax purposes?
What happens if I later sell my Swiss shareholding?
Do the CFC rules apply to every Swiss company?
Is a Swiss company considered low-taxed whenever its tax rate is below the German rate?
Do I have to report my Swiss company in my German tax return?
Further topics
A Swiss company and its German-resident shareholder
Germany–Switzerland tax advice
Do you live in Germany and own a Swiss company?
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