Taxation of sole proprietorships and partnerships

The taxation of sole proprietorships and partnerships is not at the level of the company but at the level of the partners. The company as such is not liable for taxes.

Taxation of sole proprietorships and partnerships in Switzerland

In Switzerland, sole proprietorships and partnerships are not taxed directly. This means that sole proprietorships, general partnerships, and limited partnerships are not taxable as companies. The reason is that these associations are not legal entities. However, these partnerships are not tax-exempt. The taxation is carried out at the level of the partners, or the sole proprietor.

For sole proprietors and partners in partnerships, the income consists of all earnings from the company, such as profit, salary, or interest, and from other income. This income must be taxed by the natural person at the federal, cantonal, and municipal level. However, it is advantageous that production costs and potential losses incurred by the business activity can be offset against the income.

The legal situation is different for private and business assets. Private and business assets only need to be taxed at the cantonal and municipal level, not at the federal level.

Opportunities for tax optimization

In order to keep the tax burden low, various legal measures can be taken. For example, depreciations can be deducted from the revenue. There are depreciation regulations and the possibility to depreciate either on a declining balance or straight-line basis. Furthermore, the inventory can be written down to a certain point (so-called inventory third). Provisions can also be made for possible risks. The allowance for doubtful accounts can vary depending on the type of claim and the likelihood of payment. Additionally, the regulations of the individual cantons must be considered, which sometimes provide different depreciation options.

Important: At the federal and cantonal levels, business-related losses from the last 7 years can be deducted.