          
          
          
          
                              SWISS TAXATION
          
               Switzerland has a somewhat complex system of
          federal taxation.  Due to its federal structure, taxes
          are levied concurrently by three different authorities:
          the federal government, the cantons, and the
          municipalities.  Generally speaking, the Swiss federal
          tax laws are uniform throughout the country but the
          laws of the cantons and municipalities may differ. 
          Therefore, tax rules and tax liabilities are likely to
          vary from one place to another.
               In principle, Swiss companies are taxed at the
          three levels -- federal, cantonal, and municipal -- on
          their profit and capital; however, the rates as well as
          the methods of taxation differ according to the firm's
          legal structure.  Although Swiss civil law acknowledges
          only one form of joint stock company, there are three
          different forms as regards fiscal treatment: the
          operating company, the holding company, and the
          domiciliary company.
               An operating company is one that engages in an
          industrial, manufacturing, or service activity.  Such a
          company is liable for a federal tax called a defense
          tax, on net earnings, capital stock, and open and
          undisclosed reserves.  Stamp duties amount to 2% of the
          paid-in capital stock.
               Swiss law defines a holding company as one whose
          main purpose is to participate in other companies
          through investments.  The holding company is almost
          always legally structured as a corporation.  The Swiss
          federal tax system, as well as those of most of the
          cantons, grants holding companies certain tax
          privileges:
               1. The regular tax is reduced.
               2. The taxable capital is computed on a reduced
          basis.
               3. In lieu of options one and two, a proportional
          tax on capital, in combination with a tax exemption on
          earnings, is applicable.
               However, for the Swiss holding company to gain tax
          privileges offered holding companies by the federal tax
          system, a corporation must meet the requirements
          outlined by federal tax regulations.  Otherwise, the
          federal tax system treats the holding company the same
          as an operating company.
               The domiciliary company has its legal domicile in
          Switzerland, but has no office space.  It does not
          engage in business activities in Switzerland.  Such a
          company is usually limited by shares.
               The domiciliary company is often established in
          lieu of a holding company, when the requirements for a
          holding company cannot be met.  Domiciliary companies
          are often sales agencies or patent and/or copyright
          marketing companies.
               Any tax benefits to the domiciliary company come
          from the canton.  The federal tax system does not
          recognize it, but taxes it as an operating company (if
          certain conditions are met, the federal system may
          grant the domiciliary company similar deductions to
          that of the holding company).  As regards canton
          taxation, the pure domiciliary company enjoys more
          extensive tax advantages than the so-called mixed
          company; however, variations on the domiciliary company
          do obtain some tax advantages in the cantons. 
          Shareholders dividends paid by the domiciliary company
          are subject to a withholding tax that is currently 35%.
          
          The Withholding Tax
          
               The Swiss impose a 35% withholding tax on interest
          paid by a Swiss payor. You can recover this money by
          the simple expedient of declaring the interest to the
          IRS.  You can either obtain a refund from the Swiss,
          after getting the proper forms certified by the IRS, or
          you can apply the amount as a credit on your U.S. taxes
          under the foreign tax credit rules.  Note that this is
          a credit, not a deduction, so it comes right off the
          amount of the check you would have paid to the IRS. 
          However, the Swiss do not issue 1099 forms, and it may
          be difficult to determine the appropriate exchange rate
          for the dollar, although the IRS eventually gets around
          to printing an official rate for the preceding year. 
               One way to avoid the withholding tax is to have a
          fiduciary account instead of a regular bank account. 
          This is really the equivalent of having the trust
          department of an American bank handle your investments
          for you instead of putting the money in a CD.  More
          information on fiduciary accounts is given in the Swiss
          bank services section.  All of the investments are made
          outside of Switzerland, in whatever you tell the bank
          to do -- mortgages, mutual funds, other banks.  The
          money is merely passing through Switzerland, and is not
          taxed there.
          
          
          
