Companies: controlled foreign company rules and the relocation of companies

Swiss companies under §§ 7 to 13 AStG

Many German entrepreneurs who move to Zurich also establish companies there, whether as holding companies for their German interests, as operating companies for new ventures or as vehicles for the management of their private wealth. As long as the shareholders or some of them remain subject to unlimited tax liability in Germany, such companies may fall under the German controlled foreign company rules of §§ 7 to 13 AStG, known in German as Hinzurechnungsbesteuerung. The rules attribute the passive income of a foreign company to its German shareholders if persons subject to unlimited German tax liability control the company. Attribution further requires that the income is not derived from one of the active activities listed in § 8 paragraph 1 AStG and that it is subject to low taxation. The ATAD Implementation Act reformed the rules with effect from 2022 by introducing a shareholder-based concept of control, under which the German taxpayer together with related persons must hold more than half of the voting rights, capital or profit entitlements.¹

The threshold of low taxation has long been a sensitive point in the relationship with Switzerland. For decades § 8 paragraph 3 AStG defined low taxation as a burden of less than 25 per cent on the passive income. Since most Swiss cantons tax corporate profits at effective rates well below that level, Swiss companies with passive income regularly qualified as intermediate companies. The Minimum Taxation Directive Implementation Act of December 2023 lowered the threshold, now found in § 8 paragraph 5 AStG, to 15 per cent with effect from 2024.² The change has made the canton of Zurich, whose combined effective profit tax burden in the city lies at 19.47 per cent in 2026, largely safe from the controlled foreign company rules for ordinary profits.³ Companies in lower-tax cantons remain exposed where their effective rate falls below 15 per cent, which can occur in Zug, Lucerne or Nidwalden and in any canton where special deductions such as the patent box reduce the effective burden. The debate that preceded the reduction reflected the view that the former threshold of 25 per cent was out of line with international practice after the introduction of the global minimum tax of 15 per cent.

The motive test of § 8 paragraph 2 AStG, which allows a taxpayer to escape the controlled foreign company rules by proving that the foreign company carries on a genuine economic activity, applies only to companies in the European Union and the European Economic Area. Swiss companies cannot rely on it, a consequence of Switzerland’s status as a third country in the sense of European law.⁴ For a Swiss company with passive income, the only protection against attribution is therefore an effective tax burden of at least 15 per cent, or the absence of German control.

For the typical relocation, the controlled foreign company rules matter mainly during a transitional period. As long as the entrepreneur remains subject to unlimited tax liability in Germany, for instance because his family has not yet moved or because Article 4 paragraph 3 applies, a Swiss company controlled by him can generate attributable income. Once he has become fully resident in Switzerland and no other German resident family member holds a significant interest, the rules cease to apply. Families in which some members remain in Germany must keep this in mind when they plan the ownership of Swiss holding companies.

Moving a German company

Entrepreneurs frequently ask whether they can take their German company with them. Two approaches must be distinguished. The first is the move of the place of management of a German corporation to Switzerland while its registered office remains in Germany. The company then remains subject to unlimited German corporate tax liability under § 1 of the Körperschaftsteuergesetz (KStG), which attaches to either the registered office or the place of management. The convention, by contrast, allocates its residence to the state of the effective management under Article 4 paragraph 8. Paragraph 9 of Article 4, however, preserves Germany’s right to tax such a company under its rules on unlimited tax liability, with a credit for Swiss tax.⁵ The German–Swiss convention thus extends the idea of the überdachende Besteuerung from individuals to companies. A German GmbH cannot escape German tax simply because its managing director now lives and works in Zurich.

The second approach is a genuine transfer of the business to Switzerland. German law treats the loss or restriction of the German taxing right over the assets of a company as a deemed disposal at fair market value under § 12 paragraph 1 KStG and, for individual and partnership businesses, under § 4 paragraph 1 sentence 3 EStG. The deferral of the resulting tax in five annual instalments under § 36 paragraph 5 EStG and the equivalent rule for corporations are available only for transfers within the European Union and the European Economic Area. A transfer to Switzerland therefore leads to immediate taxation.⁶ In practice, the relocation of an operating German company to Zurich is therefore rare. Entrepreneurs usually leave the German company in Germany, with its management in German hands, and exercise their rights as shareholders from Zurich. New activities are established in new Swiss companies, whose value then accrues outside the German tax net from the outset.

Substance in Switzerland

Whichever approach is chosen, the Swiss company must have real substance if it is to be respected by the German tax authorities. The German courts and administration examine whether the Swiss company has its own premises, staff and management capable of taking the decisions attributed to it. A Swiss company whose board consists of a local fiduciary who follows instructions from Germany is likely to be treated as managed in Germany. Its profits would then be taxable there under the rules on the place of management. The German anti-abuse provision of § 50d paragraph 3 EStG may deny it the treaty benefits on German withholding taxes. The protocol of 2023 has added the principal purpose test of the BEPS project to the convention, which gives both states a further instrument against arrangements whose principal purpose is to obtain treaty benefits.⁷ The substance requirements coincide with the regulatory expectations described in the earlier chapters on asset management and family offices. A family office in Zurich that actually manages the family’s wealth with its own employees is also the best evidence of the Swiss residence of the family’s companies.

Notes

1. § 7 para. 2 AStG, https://lxgesetze.de/astg/7: control exists where the taxpayer, alone or together with related persons (nahestehende Personen), holds more than half of the voting rights or of the nominal capital or is entitled to more than half of the profit or liquidation proceeds. Under § 21 para. 4 AStG, https://lxgesetze.de/astg/21, the new rules apply to income arising in fiscal years of the intermediate company beginning after 31 December 2021. Before the reform, control was determined by adding up the holdings of all persons with unlimited German tax liability, whether or not related to each other. ↩
2. Tax Call GmbH, “Hinzurechnungsbesteuerung gem. §§ 7–14 AStG entschärft – Niedrigsteuergrenze des § 8 Abs. 5 AStG auf 15 % herabgesetzt”, https://taxcall.de/hinzurechnungsbesteuerung-gem-paragraphen-7-14-astg-entschaerft-niedrigsteuergrenze-des-paragraph-8-abs-5-astg-auf-15-herabgesetzt/, quoting the change in the understanding of low taxation from less than 25 per cent to 15 per cent and linking it to the act implementing Directive (EU) 2022/2523. ↩
3. KPMG Switzerland, Clarity on Swiss Taxes (May 2026), as cited in Chapter H.V. ↩
4. Tax Call GmbH, cited above, noting that § 8 paragraph 2 AStG refers to companies in the EU and the EEA and does not cover Switzerland. ↩
5. Fedlex, SR 0.672.913.62, consolidated version of 27 November 2025, cited above, Article 4 paragraphs 8 and 9, which provide that a company with its place of effective management in one state is deemed resident there but that Germany may nevertheless tax a company with unlimited tax liability in Germany, with a credit for Swiss tax. ↩
6. § 36 para. 5 EStG, https://lxgesetze.de/estg/36, allows payment in five equal annual instalments only where the assets are attributable to business assets of the taxpayer in another member state of the EU or of the EEA. § 4g EStG, https://lxgesetze.de/estg/4g, permits a compensating item released over five years for transfers in favour of such a state. For corporations, § 12 para. 1 KStG, https://lxgesetze.de/kstg/12, treats the exclusion or restriction of the German taxing right as a disposal at fair market value and declares § 4g EStG applicable accordingly. ↩
7. SIF, “Inkrafttreten des Änderungsprotokolls zum Doppelbesteuerungsabkommen mit Deutschland”, cited above. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.