The Swiss economy is known for its stability and prosperity. For these reasons, among others, many may be attracted by the idea of setting up their own business in Switzerland.
There are five different types of company setups in Switzerland. This article is a complete guide that will help you to understand how the Swiss legal system works with regards to self-employment, also known as a sole proprietorship.
Disclaimer: Be aware that this article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.
Independent Contractor according to Swiss Law
In Switzerland, being self-employed is essentially a social insurance matter.
Therefore, in terms of social insurance, people who are independent in their work, who bear the financial risk of their activity and who work on their own behalf are considered self-employed.
Furthermore, self-employed people have their own infrastructure, decide their own work organization, draw up invoices in their name, have a company name (sole proprietorship for instance), and are responsible for their VAT when they are subject to it.
If you're not looking to become an independent contractor, but hire one - learn how you can do it compliantly in Switzerland.
Sole proprietorship
From a legal point of view, sole proprietorship, "l'entreprise individuelle" in French, is the ideal setup when only one natural person is involved in a commercial activity.
Business activities that are directly linked to the owner as it's the case for liberal professions (architects, artisans, doctors, lawyers) will often use this legal form since they generally carry out their activity alone. It's also very suitable for other professionals who work for themselves, such as freelancers, small businesses, individual entrepreneurs.
The legal form of a sole proprietorship isn't regulated by any special requirement in the Swiss Code of Obligations and the registration procedure is quite simple. Real benefits are offered by the simple start-up requirements and especially by the fact that there isn't a minimum capital requirement.
Also, setting up a sole proprietorship does not involve many costs. Professional advice in Switzerland for starting up a proprietorship can cost up to CHF 1,000, in addition to CHF 120 for registration in the trade register.
Creating the company name
The proprietor's last name must appear in the company name. The first name can also be a part of the company name, but it's not mandatory. In addition to the company name, extra elements can be added, such as the field of activity or an allusion to the nature of the company (Art. 945 al. 1 CO, the Swiss Code of obligations).
However, the law requires that the business name has to be truthful, can't be misleading, and must not run counter to any public interest (Art. 944 al. 1 CO).
Also, the business name must not have any kind of suffix or ending which suggests the constitution as a company or partnership (rt. 945 al. 2 CO).
Registration in the trade register
Not all sole proprietorships have to be submitted to the trade register. The registration will be optional until you reach CHF 100,000 of annual turnover (Art. 36 ORC, Ordinance on the trade register).
Registration is mandatory when professional activities are run in a commercial form and when annual income exceeds CHF 100,000.
When determining the obligation to register for someone who operates several sole proprietorships, the business figures of these companies are added together.
Have the self-employed status recognized
In Switzerland, the proprietor must be recognized as self-employed by social insurance. This is a general obligation for anyone wishing to work as self-employed in this country.
For this, registration is required at the competent compensation fund of the municipality where the company’s head office is located. It is the compensation fund in which the business is carried out that checks whether your status can be granted or not. However, in the building sector (painters, masons) and in the transportation sector (taxi drivers) this is the Swiss National Accident Insurance Fund (SUVA) which is responsible for granting the self-employed status. In these sectors, proprietors may only submit an application to the compensation office once the go-ahead has been received from the SUVA.
The decision taken by the compensation fund is based on the criteria set out in the Federal Law on Old Age and Survivors' Insurance (LAVS- Loi fédérale sur l'assurance-vieillesse et survivants), the guidelines of the Federal Social Insurance Office (OFAS- Office fédéral des assurances sociales) and the case-law of the Federal Supreme Court (TF-Tribunal Fédéral).
As said above, in order to obtain self-employed status, the proprietor has to submit an application to the compensation fund in the area in which their business is carried out. For recognition of this status, some documents are required:
- A completed affiliation form. You can find the affiliation form on the website of your cantonal compensation office.
- You must provide supporting documents such as copies of invoices already drawn up, agreements concluded, your business plan, offers made to potential customers, your letterhead, your rental lease, your civil liability insurance.
Also, you must be able to prove to the compensation office that you have already started your business by providing invoices, contracts, and other proof requested at the time of affiliation.
It is better if the proprietor submits the affiliation form in the first months of the business activity in order to have the self-employed status recognized as soon as possible.
Become self-employed as a foreign national
Except for Croatian nationals, all nationals of Member States of the EU/EFTA can submit an application to the Cantonal Population Office where the business activity has to be run (in Switzerland, each canton has its own Population Office). A residence permit (Permit B) valid for five years and renewable will be delivered to the proprietor if the application is approved.
For other countries, nationals who are holding a Permit C (residence permit for nationals of non-Member States) or the spouses of holders of a Permit C or Swiss citizens are entitled to carry out self-employment. Other nationals must file an application with the canton. Here is the direct link for each cantonal immigration and labor market authority.
Social security contributions to pay
In Switzerland, the social security system works by pillars. The first pillar includes the Old-Age and Survivors' Insurance, the Disability Insurance and Loss of Earnings Insurance. Sole proprietors need to register with a compensation office in order to contribute to the first pillar of the pension system. Self-employed persons who belong to a professional association must join the association's fund. Here is the direct link of every cantonal compensation office and the direct link of professional fund associations.
In addition, unlike employees who share payment of their contributions with their employer, self-employed persons pay the full amount of their contributions, on their own. The contributions' amount will vary depending on the turnover.
The second pillar represents the occupational pension scheme. For self-employed people, contributing to the second pillar isn't compulsory, unlike for employees. Therefore, sole proprietors are free to determine how they want to handle their social security protection. Normally, by accumulating the first two pillars, insured persons should be able to maintain their previous standard of living, with the aim of reaching about 60% of the last salary. If sole proprietors don't contribute to the second pillar, it is almost certain that at the time of retirement, there will not be enough money to live properly. This is the reason why self-employed should definitely contribute to this pillar, in order to ensure a certain standard of living on retirement. They will pay also contributions in full.
The third pillar, which is used to supplement the income from the first and second pillars, is also optional.
Insurance as a self-employed person
Apart from health insurance, which is mandatory, self-employed persons can choose whether or not to get coverage against the risks of loss of earnings in the case of illness or accident. It is advisable to get insurance for loss of earnings in case of sickness. Self-employed should consider taking accident insurance as well, which covers work accidents, non-work accidents, as well as occupational diseases.
When it comes to the risks surrounding the company, some types of insurance are mandatory. This is the case for civil liability insurance and fire insurance. Other types of insurance are optional and can be more or less useful depending on the sector of activity in which you operate: legal protection, theft, etc.
Bear in mind that self-employed people cannot contribute to unemployment insurance.
Taxes
Sole proprietors' profits are declared as income. They must file a tax return based on their business accounts and on their private assets.
In a case where the office address differs from the founder's private home address, the overall tax might be reduced because the founder can choose for instance to locate the office elsewhere, in a location with fewer tax costs.
Liability
The biggest advantage of being a sole proprietor is that a person benefits from all profits. On the other hand, the biggest disadvantage is that the person assumes full liability for the risk of losses. This also means that if a person faces debts, they must commit their commercial and private assets to cover them. In addition, the sole proprietorship can be declared in bankruptcy.
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Accounting requirements
If the sole proprietor's turnover doesn't exceed CHF 500,000 in the previous financial year, it's required, at a minimum, to keep simplified accounts to report their income, expenditure, and their asset position. In that case, the accounting duty is only to have summary accounts that include a statement of assets and liabilities, statement of income and expenditure, statement of deductions, private contributions.
On the other hand, if sole proprietors have achieved sales revenue of at least CHF 500,000 in the last financial year, they must keep and present accounts in accordance with the rules set out in the Swiss Code of Obligations (Art. 957 ss CO). It means that above CHF 500,000 they need to keep full accounts, including balance sheet, profit and loss account, and appendices.
VAT
Self-employed persons making CHF 100,000 of annual gross turnover are subject to VAT (except in certain sectors, such as insurance or health) and therefore must inform the Federal Tax Administration. Here is the link where you can register for VAT or determine whether the conditions of liability are met directly on the AFC website.
