Tax-deductible expenses for a Swiss LLC or corporation

What does deducting an expense actually mean?

Deducting an expense means subtracting it from the company’s income when calculating taxable profit. This reduces corporate income tax; it does not mean that the tax authorities refund the purchase.

Consider a simplified example. Your company has CHF 50,000 of profit before buying a fully deductible professional service costing CHF 1,000. Its profit falls to CHF 49,000. Assuming an effective tax rate of 15%, the tax saving is approximately CHF 150. The service therefore still costs around CHF 850 after this tax effect, leaving VAT aside.

The 15% rate is used only to illustrate the calculation. The actual rate depends, among other things, on the canton and municipality, as explained in our article on Swiss corporate income tax. If the company is making a loss, an additional expense does not necessarily produce an immediate tax saving.

The expense must have a business purpose

Swiss tax law refers to expenses that are commercially justified. In practical terms, the company must be able to explain why it bears the cost, how the expense serves its business and why the amount is appropriate. An advertising campaign can therefore be deductible even if it ultimately brings in no customers: a genuine business expense does not have to succeed to be justified.

Paying for an owner’s holiday with the company card, however, does not turn it into a business expense. The company’s assets are separate from its owner’s personal assets, even if that person owns all the shares. When dealing with a shareholder or a related party, also ask whether the company would accept the same terms with an independent third party.

This framework follows Articles 58 and 59 of the Federal Direct Tax Act (FDTA; LIFD in French). This article concerns LLCs and corporations. Personal deductions available to employees and sole traders follow different rules.

Common business expenses, with examples

There is no list that automatically makes every expense in a particular category deductible. A restaurant bill may relate to a business meeting or a family dinner. The circumstances determine the treatment.

Meals and travel: explain the circumstances

Lunch with a prospective client to discuss an assignment may qualify as business entertainment expenses (article in French). The director’s usual lunch alone near the office does not become a business meeting simply because it takes place on a working day. Meals during business trips and benefits provided to employees require treatment appropriate to their circumstances.

Similarly, if a conference lasts two days and you stay for another three days on holiday, private accommodation and leisure activities are not business travel costs. For shared costs such as the flight, consider the main reason for the trip and any additional private costs. Simply dividing the total according to the number of days is not always appropriate.

Taxes, fines and dividends are different

Corporate income tax and capital tax owed by the company are generally deductible under Article 59(1)(a) FDTA. This does not allow an owner’s personal taxes to be deducted as though they were taxes owed by the business.

A Swiss fine, such as a traffic fine incurred during a business trip, is not tax-deductible. However, the law distinguishes penalties of a punitive nature from measures intended solely to reduce a profit. It also provides specific exceptions for certain foreign penalties (Article 59(1)(f), (2) and (3) FDTA).

A dividend, meanwhile, rewards ownership of the shares and distributes profit. It is not a deductible expense, unlike a commercially justified salary. Our article on salary versus dividends explains the distinction.

Mixed expenses: accounting for private use

Some purchases serve both the business and an individual’s private needs. The private element must be identified and dealt with appropriately, rather than automatically deducting the entire invoice.

When the private portion is reimbursed

Imagine a subscription costing CHF 1,200, leaving VAT aside for this example. A review of its use shows that CHF 900 relates to the business and CHF 300 to the owner’s personal use. If the owner reimburses CHF 300, the company ultimately bears CHF 900 of business expenses.

The 75%/25% split is an illustrative assumption, not a standard tax allowance. The allocation must reflect actual use and be documented. For a workspace in the owner’s home, specify the areas genuinely used by the company, the terms under which they are made available and why the amount paid is appropriate.

When private use is part of remuneration

The position is different if the company grants a private benefit to an employee as part of their employment. This may constitute a benefit in kind, which must be valued and treated under the salary certificate and social insurance rules. Private use does not therefore automatically make the employer’s expense non-deductible. However, the overall remuneration must remain commercially justified, particularly for a shareholder-employee.

A company car is a common example. In the usual case where the employer bears all costs, apart from fuel or energy for longer private journeys, the standard valuation of the employee’s benefit is 0.9% per month of the purchase price excluding VAT, with a minimum of CHF 150. Conditions and alternatives are set out in paragraphs 21–25 of the FTA/Swiss Tax Conference salary certificate instructions for 2026 (French). This formula values an employment benefit; it is not a general percentage of vehicle expenses to disallow. VAT must also be assessed separately. Our salary certificate article also includes a worked example of calculating the private-use benefit for a company car.

Long-term assets and the year of deduction

An invoice may relate entirely to the business without being fully deductible in the year it is paid. The company’s accounting records (article in French) help allocate costs to the correct period and distinguish operating expenses from investments.

Machinery is generally deducted over several years

A subscription used during the year is normally an expense of that period. Machinery that will be used for several years is generally recorded as an asset on the balance sheet: this is called capitalisation. Its cost is then allocated over time through depreciation.

To understand the mechanism, take a machine costing CHF 15,000, excluding fully recoverable VAT. Assuming a useful life of five years and no value at the end of that period, straight-line depreciation amounts to CHF 3,000 for each full year. The company has paid CHF 15,000, but the annual expense in this example is CHF 3,000.

The five-year period illustrates the calculation; it is not a mandatory tax depreciation period for all machinery. The useful life, method, date the asset enters service and tax deductibility must be checked for the asset concerned. The legal bases are Article 960a of the Code of Obligations and Article 62 FDTA. Our article on depreciation in Switzerland explains the methods and usual rates.

Paying in December does not necessarily reduce that year’s profit

If you pay an insurance premium in December for cover that relates exclusively to the following year, the cost generally belongs to that following year. Paying early does not by itself create a December expense. This reflects the principle of allocating expenses to the relevant accounting period under Article 958b of the Code of Obligations.

Deducting an expense and recovering VAT

Corporate income tax and VAT answer two different questions. For corporate income tax, the issue is whether an expense can reduce taxable profit. For VAT, it is whether the company can deduct the VAT charged on its purchases, known as input tax.

Under the effective reporting method, a VAT-registered company can generally deduct input tax relating to activities that carry a right to deduction, provided it can substantiate the claim. Purchases used for VAT-exempt supplies without credit, where no option to tax has been exercised, generally do not carry that right. Mixed use may also require an adjustment (Articles 28–30 of the VAT Act).

Consider a business service invoiced at CHF 1,081 including CHF 81 of VAT. If the VAT is fully recoverable and the service is immediately expensed, the accounts distinguish CHF 1,000 of expense from CHF 81 of input tax. The CHF 81 reduces the VAT payable on the return; it is not deducted a second time as an expense.

If the VAT cannot be recovered, for example because the company is not VAT-registered, it generally forms part of the cost. The expense would then be CHF 1,081, provided the whole purchase qualifies for tax deduction. For a capitalised asset, non-recoverable VAT increases the asset’s cost to be depreciated.

The net tax rate method works differently. The business calculates VAT due by applying its authorised rate to turnover including VAT. That rate already accounts for input tax on a standardised basis, so VAT on individual purchase invoices is not deducted separately on the return. Our article on VAT in Switzerland compares the methods.

Private expenses: why a tax adjustment may not be enough

Suppose the company pays CHF 3,000 for an owner’s personal holiday and records it as business travel. If the payment is neither a business expense nor genuine and appropriate remuneration, it must not reduce taxable profit.

The tax authorities may add CHF 3,000 back to the declared profit. This is a tax adjustment: it reverses the unjustified deduction when calculating tax. It does not, by itself, settle the treatment of the benefit received by the owner.

If the benefit was granted because of the person’s shareholding, it may be classified as a hidden distribution of profits. In other words, the company has transferred value to its owner under the guise of an expense payment (Article 20 of the Withholding Tax Ordinance). This may trigger taxation for the shareholder and 35% Swiss withholding tax to be dealt with by the company. Any refund of withholding tax depends on the conditions applicable to the recipient.

If the payment genuinely remunerates the work of a shareholder-employee, its payroll treatment, social insurance contributions and appropriateness must instead be examined. The company cannot simply choose the cheapest label after the event: the contract, work performed and circumstances must support the classification.

When a private purchase has been paid by mistake, identify it promptly, correctly record the amount owed by the recipient and obtain reimbursement. Leaving the amount indefinitely in a shareholder current account does not make the purchase deductible and may raise further tax issues.

Supporting documents that explain the expense

An invoice shows what was bought. It does not always explain why the company should pay for it. The link is often clear for business software. For a meal or a trip, a short note made at the time avoids having to reconstruct the circumstances months later.

Keep the document and any useful context: the recipient, business purpose, participants for a meal, programme for a trip and calculation for mixed use. The bank statement supports the file, but on its own it does not describe what was purchased.

Accounting books and supporting records must be kept for ten years from the end of the financial year under Article 958f of the Code of Obligations. Electronic archiving is possible if the retention, traceability and readability requirements are met. Specific obligations, particularly relating to property and VAT, may require longer retention.

My advice
Give the whole team a simple rule: what evidence to attach, who approves the expense and how to flag a private element. For a director’s recurring expenses, agree the treatment with your accountant at the outset rather than discover an adjustment at the year-end closing.

Sound expense deductions start with understanding the costs

Before the company pays for something, ask what the purchase is for, who benefits from it and which accounting period it belongs to. These three questions help resolve most everyday cases. Private use, directors’ remuneration and VAT then need their own assessment.

The aim is to deduct costs legitimately borne by the business, with explanations and supporting records that remain clear over time. Spending solely to reduce tax still leaves a cost to fund.

Frequently asked questions