One of the questions we hear most often from clients settling in Switzerland, or already freelancing there, goes something like this: I’m earning decent money now, shouldn’t I finally set up a GmbH? The question almost always comes with a quiet assumption baked in, namely that a capital company is automatically the more „grown-up,“ more tax-savvy option once you cross a certain income threshold.
Sometimes that’s true. Sometimes the same decision costs you a few thousand francs a year without you ever noticing, because the math simply isn’t as tidy as „incorporate, save on taxes.“
Three legal forms, three completely different logics
Let’s start with the basics before we get to the numbers. As a freelancer, or sole proprietor (Einzelunternehmen), you need no minimum capital and no formal incorporation at a notary. In exchange, you’re personally liable with your entire private wealth for all business debts, unlimited, with no separation between business and personal assets. The full profit is also subject to your personal, progressive income tax plus the full self-employed social security contributions.
With both the GmbH and the AG, this looks fundamentally different, and it’s a point that tends to get lost in the pure tax discussion: both are independent legal entities, and as a shareholder you’re generally liable only up to the capital you’ve paid in, not with your personal assets. If you operate in a field with real liability exposure, say contracts, staff, or physical products, this factor deserves at least as much weight as the tax savings, sometimes more.
The GmbH requires share capital of at least CHF 20,000, fully paid in. Your name as a shareholder appears publicly in the commercial register, which is a non-issue for some and, particularly from an asset-protection and privacy standpoint, quite relevant for others.
The AG demands considerably more, CHF 100,000 in minimum capital, of which at least CHF 50,000 must actually be paid in at founding. Interestingly, formation agencies tend to charge surprisingly similar fees for a GmbH and an AG. With some providers the AG comes in only around CHF 100 to 200 above the GmbH, sometimes even less. The real cost driver, then, isn’t the incorporation itself but the higher capital tied up in the AG. The more meaningful practical difference lies elsewhere: unlike GmbH shareholders, AG shareholders aren’t listed publicly in the commercial register, only the members of the board of directors are visible. For clients who value discretion more than the extra locked-up capital, that’s often half the decision right there.
The real question: where exactly does a capital company save you money?
This is where it gets interesting, and where most of the misunderstandings live. The tax advantage of a GmbH or AG doesn’t come from capital companies simply paying less tax across the board. It comes from the interplay of three mechanisms that only work together.
First, the corporate tax rate itself. In the canton of Zug, which we’re using here as our worked example because it ranks among Switzerland’s most tax-friendly cantons, the effective corporate tax rate sits at around 11.9%, combining federal, cantonal and communal levels. For comparison: Zurich comes in around 19.7%, Geneva around 14%. That’s already well below the top marginal rate on personal income tax, which in Zug reaches roughly 22 to 23% and only kicks in above a taxable income of around CHF 147,700 for a single person.
Second, social security, and this is the point most people underestimate. As a self-employed person, you pay AHV, IV and EO contributions on almost your entire profit, currently around 10% above a certain income level, with a sliding scale for smaller profits. As a shareholder-director of a GmbH or AG, by contrast, you pay these contributions only on the salary you actually draw, not on dividends. And the salary portion also carries unemployment insurance of 2.2% up to a current threshold of CHF 148,200 in annual salary. So if you pay yourself a moderate salary and take the rest as a dividend, you no longer pay AHV on that dividend portion at all, which adds up to a noticeable amount once profits get larger.
Third, the partial taxation of dividends from qualifying shareholdings, meaning you hold at least 10% of your own company, which applies to the vast majority of our clients. At the federal level, only 70% of the dividend is taxed at all; in the canton of Zug, only 50%. This meaningfully softens the double taxation of corporate and dividend profit, even if it doesn’t eliminate it entirely.
A worked example, because abstract percentages help no one
Let’s take a single person in Zug with an annual profit of CHF 200,000 from self-employed or entrepreneurial activity.
As a freelancer, after income tax and the full self-employed social security contributions on the entire profit, roughly just over CHF 118,000 net is left at the end of the day.
With a GmbH, the math looks different: say a director’s salary in the range of CHF 100,000 to 120,000, which is subject to the full payroll levies and personal income tax, while the remaining profit sitting inside the company is initially taxed at only around 11.9% corporate tax. If a dividend is then distributed from that, partial taxation kicks in, without any further AHV due on it. In the end, this profile, including the share of profit still held inside the company, tends to leave noticeably more on the table than the freelancer model, in the order of CHF 20,000 to 25,000 a year, depending on the exact salary-dividend split.
At a profit of CHF 80,000, the picture flips. Personal tax progression hasn’t really kicked in yet at this income level, so the benefit of the low corporate rate stays small, while the GmbH brings additional running costs with it: bookkeeping, limited statutory review or audit, and more formal requirements around salary certificates and social security filings. Here, the sole proprietorship is, as a rule, simply the cheaper and less complicated choice.
In between, roughly in the CHF 120,000 to 150,000 range, we’re in genuine grey-zone territory. Whether a capital company already pays off at that point depends less on the pure tax math and more on factors like marital status, canton, planned investments, succession planning, or the desire for discretion we touched on earlier.
Why this is a Zug calculation, not a universal one
One important caveat here: the figures above apply to Zug, one of the most tax-friendly cantons there is. In a canton like Zurich, Bern or Geneva, with noticeably higher corporate tax rates and sometimes different rules on dividend partial taxation, the threshold at which a GmbH pays off shifts upward, sometimes considerably. When choosing a location within Switzerland, it’s worth looking at the canton and the specific legal form together, not one after the other.
A practical point that gets overlooked internationally
Both the GmbH and the AG need at least one person with sole signing authority, or two people with joint signing authority, who are resident in Switzerland. This is about residency, not nationality. For clients who want to run their operations entirely remotely from another country and don’t (yet) have anyone with Swiss residency inside the company, this is often the first practical hurdle, well ahead of any tax question. For exactly these cases, we can provide the local signing authority through Singabiz, so that incorporation still works even if you yourself aren’t (yet) resident in Switzerland.
Conclusion
Sole proprietorship, GmbH or AG isn’t a question of „better“ or „worse,“ but one of profit level, liability exposure, canton, your need for privacy, and how much administrative effort you’re willing to carry. The liability question in particular tends to be underweighted in the purely tax-focused discussion, even though, depending on the business, it can end up mattering more than any tax saving. Below roughly CHF 80,000 in profit, there’s usually little case for a capital company; above CHF 150,000 to 200,000, there usually is; and in between, it comes down to details that simply don’t fit into a rule of thumb, however much online guides try to force them into one.
Which canton and which legal form ultimately fit you isn’t something we can answer in general terms, as you’ve probably gathered by now. That’s exactly where we come in: we help you choose the right canton and work through your individual numbers concretely. Feel free to get in touch, and we’ll look together at what actually pays off for you.
