Grösse A4 (x=6.8 mm)

Small, yet attractive. Tax guidelines for Appenzell Ausserrhoden

1 General comments on the tax location 4

Taxation of legal persons 5

Taxation of natural persons 8

Further taxes at federal level 9

Example of taxation in the municipalities 10

Contact addresses and how to reach us 11

Business Promotion Tax Department

Appenzell Ausserrhoden Appenzell Ausserrhoden Wirtschaftsförderung Steuerverwaltung Regierungsgebäude Gutenberg-Zentrum CH - 9102 Herisau CH - 9102 Herisau Switzerland Switzerland

Tel : +41 ( 0 )71 353 64 43 Tel : +41 ( 0 )71 353 62 90 Fax : +41 ( 0 )71 353 62 59 Fax : +41 ( 0 )71 353 63 11 [email protected] [email protected] www.ar.ch /wirtschaft www.ar.ch /steuern

© Canton Appenzell Ausserrhoden, Switzerland, March 2015 The information in this guide to taxation is based on the most recent data available at the time of printing. Up-to-date information is available on the websites given above.

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Small, yet highly efficient. Appenzell Ausserrhoden as a tax location

Word has got around internationally that besides being a charming country, Switzerland has a nice and favourable tax system. But not everyone knows that Appenzell Ausserrhoden is one of the most attractive tax locations within Switzerland, both for companies and for private individuals alike.

As one of the smallest cantons, our hallmark is our very efficiently organised administration. Our citizens ensure that a high level of tax stability prevails, and they place great value on a lean state, regularly opposing superfluous state expenditure and advocating tax reductions.

The following pages set out the most important information about Appenzell Ausserrhoden as a tax location. Is this the ideal location for you, too ? The business promotion department and tax department of our canton have proficient contacts to provide you with further assistance swiftly and unbureaucratically.

Whether you settle in our municipality as a private individual or in a business capacity, tax efficiency starts with Appenzell Ausserrhoden.

Small, yet online : www.ar.ch / steuern With practical online tax calculation

3 General comments on the tax location

In Switzerland, there are three tax levels : the federation, the cantons and the municipalities. What differs from Germany, for example, is that both the cantons and the municipalities are in tax competition. When deciding on a location for a company or a place of residence, conducting a thorough exam­ination of the regulatory tax framework is therefore recommended.

The most attractive tax locations ( tax liability of companies )

With the revised tax law of 2008, Appenzell Ausserrhoden has enormously enhanced its attractiveness as a location for companies. The canton has thus already anticipated national and international developments and fulfilled its task. With the low tax rate, Appenzell Ausserrhoden has established itself in the top tier in Switzer- land and across the globe.

Hong Kong, HK 9.9 Source : BAK Taxation Index 2013 for companies Appenzell Ausserrhoden, CH 10.0 Nidwalden, CH 10.1 Lucerne, CH 10.2 Obwalden, CH 10.8 Schwyz, CH 11.3 Zug, CH 12.2 Thurgau, CH 13.2 Dublin, IE 14.1 St.Gallen, CH 14.4 Prague, CZ 16.2 Zurich, CH 17.5 Basel-Landschaft, CH 18.1 Vaud, CH 18.8 Budapest, HU 18.9 Basel-Stadt, CH 19.6 Geneva, CH 21.4 Vienna, AT 22.4 London, UK 23.8 Bruxelles, BE 24.7 Luxembourg, LU 24.8 New York, US 41.1

0 5 10 15 20 25 30 35 40

In the case of legal persons, Appenzell Ausserrho- As a rule, branches of foreign private or limited com- den levies tax on profits and capital (or minimum panies are subject to taxation mainly in the same taxes on investment properties). At national level manner as legal persons. ( federal tax ), only profit tax is levied. For natural persons, Appenzell Ausserrhoden levies tax on income and wealth. At federal level, only income tax is levied.

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Taxation of legal persons

Ordinarily taxed companies As well as low rates of taxation and the options al- ready mentioned of keeping the assessment principle Tax on profits and capital of profits tax to a minimum, tax is reduced on the basis of the ratio between net share proceeds to total Throughout Switzerland, Appenzell Ausserrhoden is profits. The share proceeds include all proceeds from one of the most tax-favourable locations for com­ definitive share interests ( share interest with a quota panies. Tax liability ( federation, canton and municipal- of 10 % or more or an absolute trade-in value ity ) is 13.04 % on profits ( pre-tax, “flat tax” without exceeding CHF 1 000 000 ). Capital gains resulting tax base ) and 0.072 % on capital ( tax liability on capi- from the sale of share proceeds are likewise valid tal depends on the annual tax base ), whereby tax as share proceeds unless these have been held for on capital in this case amounts to a minimum of less than one year. CHF 900.– (minimum tax). Taxable capital includes the paid-in basic capital of Net profits of legal persons are liable to tax and in- a share company, limited share company, limited clude all earnings minus justified expenditure for company ( GmbH ) or cooperative, the open reserves business purposes ( e. g. also taxes ). If necessary, the and the undisclosed reserves taxed as profits as balance of the profit and loss account is adjusted well as any hidden equity. by the necessary offsetting of tax and by specific further deductions. Example : legal person with headquarters in Appenzell Ausserrhoden ( in CHF, status 2015 ) What carries weight is not only the rate of taxation that is mostly significantly lower than in Switzerland Taxable pre-tax profits 1 000 000 Taxable capital 3 000 000 and abroad. The assessment principle for the 13.04 % profits tax including federal tax 130 400 calculation of tax on profits shows that tax liability 0.072 % capital tax 2 160 compared with other countries is effectively even Tax liability 132 560 lower than is suggested by the rate of taxation. ( 13.26 % of taxable profits ) In concrete terms, this concerns the option of already fully amortising movable capital in the year of pur- chase, and amortising 30 % of real estate property in the year of purchase or construction. In addition, there is the guarantee of flat-rate accrued liabilities for various areas such as research and development costs as well as the option of providing an attractive business expenses provision for employees. All these elements affect fundamental tax assessment and thereby tax liability.

5 Double taxation agreements ( DTA )

To avoid double taxation, Switzerland has agreed bilateral treaties with around 110 countries as well as exemptions or allowances. With an exemption, the state in which the citizen is domiciled renounces taxation of taxable income or capital in the country of origin or temporary state ( but with a progression advantage ). In the event of an allowance, both countries levy tax ; however, where the primary right to levy tax lies with the country of origin, the country of residence offsets the tax of the country of origin against its own.

Tax relief at cantonal level

Appenzell Ausserrhoden can guarantee a maximum of ten years’ tax relief for new companies that serve the economic interests of the canton. The level of tax relief depends, in particular, on the number and quality of jobs created. After a consultation with the tax department of the canton and the office for eco- nomics, an informal application can be submitted along with a business plan for closer evaluation.

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Tax-privileged companies in the Mixed companies canton1 In Appenzell Ausserrhoden, the tax liability on profits Domiciled companies for mixed companies is 8.44% to 9.67%, and tax on capital 0.015%. Unlike domiciled companies, mixed In Appenzell Ausserrhoden, tax liability on profits for companies need only undertake predominantly for- domiciled companies (as long as no Swiss income eign business activity, enabling a low level of business exists) is 8.44 % to 9.06 %, with capital tax at activity in Switzerland in the order of no more than 0.015 %. Income from Swiss sources is subject to 20 % of the total volume of business. Income from ordinary taxation. Domiciled companies can be Swiss business activity must be ordinarily taxed, recognised as limited companies, cooperatives, with foreign earnings depending on the affinity to foundations and foreign companies with premises in ­Switzerland at a quota between 10 % and 30 %. Switzerland if they operate in Switzerland only in a management capacity and not commercially Holding companies ( production, trade, service provision, trust, acquisi- tion, advertising and transaction brokerage ). Profits gained by holding companies, with the ex- ception of proceeds from Swiss real estate, are A permitted management activity is the administra- tax-free at canton level, with 0.015 % being levied tion of company assets that are acquired without on capital. Limited companies or cooperatives can active commercial activity. Also permitted are be recognised as a holding if they principally and business activities carried out by staff domiciled continually administer share interests, have no abroad. Since the place of activity is the deciding business activities in Switzerland and shares or factor, this also applies to so-called foreign-foreign proceeds from individual share interests constitute business transactions. With services, the deciding at least 65 % of the total assets or yields over the factor is the location where these are performed. long term.

Residual Swiss income is that such as from property, Diversified holdings are also taken into account when management activity ( e. g. income from bonds from calculating the necessary quota. Share interests are Swiss debtors, compensation from inland subsid­i- the basic capital of limited companies, share and aries for the implementation of ancillary functions and participation certificates of cooperatives. Prohibition royalties from Swiss sources ), earnings and profits on business activity in Switzerland forbids a holding from capital from debtors domiciled in Switzerland, from undertaking any activity which aims to create its if these do not extend to share interests. Net losses own added value. On the other hand, activities that can be offset against the taxable portion of profits serve successful share interest management are from foreign activity. permitted. At federal level, the share interest deduction is taken into account with proceeds from holdings ( see tax on profits and capital ), which de facto results in tax exemption for a 100 % share in total profits.

1 Please note the developments in the corporate tax reforms (CTR III), available at www.efd.admin.ch/themen/steuern

7 Taxation of natural persons

Income base, deductions and assets Tax on inheritance and gifts

All incoming assets during the tax period are taxed In Appenzell Ausserrhoden, all gifts and bequests are as income. In the case of natural persons, business tax-free if they are made to spouses, parents, chil- expenses, child deductions, insurance contributions, dren, grandchildren, stepchildren and foster children. support contributions in addition to interests on If in the case of a company succession, a third party savings and debts are deducted from gross earnings. is the beneficiary, then tax relief will as a rule be Relevant for calculation of wealth tax is the simple 90 %, to the extent that the company assets trans- tax and the tax units of the municipality. For the first ferred serve predominantly independent gainful CHF 250 000, the simple tax is 0.5 ‰, with 0.55 ‰ activity, or to the extent that the transferred defini- on higher levels of assets. tive share interest involves a leading function in the business operation. Example : residence in the municipality of Teufen, married, Protestant ( in CHF, status 2015 ) Taxation of capital gains1

Taxable income 250 000 The tax law provides for capital gains from private Tax liability at cantonal / municipal level 40 535 assets to be explicitly tax-free. An exception applies Tax liability at federal level 19 062 Estimated total tax liability 59 597 to gains made from land and property sales : if capital ( corresponds to 23.8 % of taxable income ) gains accrue during the course of a business activity, then these are subject to ordinary income tax. Taxable assets 3 000 000 Tax liability at cantonal / municipal level 10 971 Tax at source on income and assets Tax liability at federal level 0 Estimated total tax liability 10 971 Foreign workers and Swiss citizens with their main place of residence abroad are taxed at source. Partial rate method for dividends1 Their employers register these persons when they commence their employment with the cantonal The tax on distributed profits from limited companies tax administration, retain the source tax from their with their headquarters in Switzerland is calculated salary and settle this with the cantonal tax ad- at 60 % of the rate of total taxable income to the ministration. Further information is available at extent that the taxpayer holds a share interest quota www.ar.ch / quellensteuer. The Tax at Source of at least 10 % in the capital. Department would be pleased to provide you with further information.

1 Please note the developments in the corporate tax reforms (CTR III), available at www.efd.admin.ch/themen/steuern

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Further taxes at federal level

Value added tax Stamp duty1

The normal rate is 8 %. For certain goods ( especially This accrues during the course of legal matters foodstuffs and everyday consumables ) only 2.5 % ( capital acquisition, turnover of securities and VAT is charged, and for accommodation services payment of insurance premiums ) and includes only 3.8 %. three types of levies : • Stamp duty on new issues of inland certificates Persons subject to VAT are those whose turnover ( shares, share certificates, participation certificates, from shipments, services and own use exceeds profit-sharing certificates, stocks / fixed interest CHF 100 000 a year. The same applies to persons certificates, debt securities ). The levies to be paid who claim more than CHF 10 000 a year for services by the issuers amount to 1% ( with the first million abroad or for services subject to customs duty. being tax-free in the case of foundation or capital The basis of assessment for inland shipments and increase ).1 services is the agreed or received gross • Turnover tax levy on Swiss and foreign securities­ / ­remuneration. shares when sold by Swiss stockbrokers. The levy must be settled by the stockbroker. Free VAT-exempt are payments for health care, welfare from levies is the issue of euro stocks, stock provision, social security, education, tuition, care trading in foreign-foreign business and commercial of children and adolescents, culture, insurance stocks of stockbrokers. turnover, turnover of money and capital transactions • Insurance premium contributions such as general ( excluding asset management and encashment ), liability and comprehensive and property-damage changing hands and long-term letting of land and insurance. Unaffected are accident and sickness property, betting, lotteries and games of chance, in insurance in addition to certain types of life addition to supplies of official securities used as insurance. The party liable for levies is usually the such in Switzerland. insurer.

Also exempt is turnover related to exports, cross- Anticipatory tax border transportation or performance of services for use or evaluation abroad. Input tax can be Anticipatory tax is a tax at source of 35 % on the deducted for goods and services that are necessary proceeds from movable capital assets ( especially to achieve such turnover. interest and dividends, lottery winnings and insurance payments ). The taxpayer is the debtor, who must pass on the tax to the recipient. If the payment recipient has a place of residence in Switzerland, reimbursement or an allowance can be applied for. Investors who are domiciled abroad can apply for reimbursement of the anticipatory tax in whole or part if a double taxation treaty exists between Switzerland and the country of origin concerned.

1 Please note the developments in the corporate tax reforms (CTR III), available at www.efd.admin.ch/themen/steuern See also www.estv.admin.ch

9 Example of taxation in the municipalities ( in CHF )

Taxation levels Teufen 6,70 6,20 Trogen 8,05 7,30 Income tax is charged both at cantonal and munici- Urnäsch 8,20 7,50 Wald 8,00 7,30 pal level as well as at confederate level (direct tax Waldstatt 8,45 7,70 at federal level). Different levels of taxation apply to Walzenhausen 7,70 7,00 single and married persons. Wealth tax is only Wolfhalden 7,95 7,20 charged at cantonal and municipal level. Depending * Denomination tax base for 2014; 2015 tax base unknown at the on denomination, church tax is also levied. time of going to print.

A. Cantonal and municipal taxes B. Direct tax at federal level Unlike legal persons, taxation of natural persons is governed by their residential municipality. Calculation For calculation of direct federal tax, there is a separate of income tax and wealth tax therefore takes place tax scale. Here too the various tax scales for single in two stages : or married persons must be taken into account. 1. Calculation of simple tax according to taxable Unlike the cantonal and municipal tax, multiplication income and assets of taxable income by the rate of taxation produces 2. Multiplication by the tax unit of the respective the total tax. residential municipality and of the canton Example : married couple, resident in Speicher, With income tax, the tax unit to determine the tax Protestant ( in CHF, status 2015 ) burden varies from municipality to municipality. With wealth tax, the rate of taxation for simple tax Taxable income 200 000 Taxable assets 900 000 is governed by the level of assets : for the first CHF 250 000, the simple tax is 0.5 ‰, with 0.55 ‰ Cantonal and municipal tax on income on assets exceeding CHF 250 000. Simple tax : 2.3 % × 200 000 = 4 600 Total tax for Speicher : 7.4 × 4 600 34 040

Tax units of the canton and municipalities Cantonal and municipal tax on assets Simple tax : 482.50 ( status 2015 ) Total tax for Speicher : 7.4 × 482.50 3 571 With denomination Without ( Protestant ) denomination Direct tax at federal level on income Bühler 8,30 7,50 6.3295 % × 200 000 12 562 Gais 7,40 6,85 Total tax liability 50 173 Grub 8,05 7,30 ( corresponds to 25.9 % of taxable income ) Heiden 7,60 6,90 Herisau 7,80 7,30 Hundwil 8,65 7,90 Automatic calculation on the Internet Lutzenberg 7,75 * 7,00 Rehetobel 8,20 7,50 Based on taxable income and assets, tax liability Reute 8,05 * 7,30 Schönengrund 7,70 * 6,90 can be calculated online at www.ar.ch / steuern Schwellbrunn 8,20 7,40 ( click on menu item “Steuerberechnungen” ). Speicher 7,40 6,80 Stein 7,60 6,90

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Would you like to head for Appenzell Ausserrhoden ? The business promotion and tax management teams are ready when you are.

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1 Government building 3 Protestant church 5 Post office (village) 2 Gutenberg Centre 4 Municipal administration centre P Gutenberg Centre

11 Growth starts with

Appenzell Ausserrhoden Appenzell Ausserrhoden Wirtschaftsförderung Steuerverwaltung Regierungsgebäude Gutenberg-Zentrum CH - 9102 Herisau CH - 9102 Herisau Switzerland Switzerland

Tel : +41 ( 0 )71 353 64 43 Tel : +41 ( 0 )71 353 62 90 Fax : +41 ( 0 )71 353 62 59 Fax : +41 ( 0 )71 353 63 11 [email protected] [email protected] www.ar.ch /wirtschaft www.ar.ch /steuern

12 Rembrand AG Rembrand