What is a small business in Switzerland?

The dream of owning your own company, of entrepreneurial freedom and realizing personal ideas inspires many people in Switzerland. However, the thought of complex formations and high capital costs often deters them. This is precisely where a so-called small business ("Kleingewerbe") offers an ideal and simple entry into self-employment. It is the most common path for freelancers, craftsmen, and consultants to take their first step as an entrepreneur.

What is a small business in Switzerland?

First, an important clarification is necessary: the term "small business" (Kleingewerbe) is not an official legal form in Swiss law like a GmbH or an Aktiengesellschaft (AG). Rather, it is an informal term describing self-employment that is usually run by a single person with low risk and manageable turnover.

Legally speaking, a small business is almost always a sole proprietorship. The decisive factor that often defines a sole proprietorship as "small" is its annual turnover. The most important threshold here is CHF 100,000. Below this turnover, simplified administrative rules apply, especially regarding entry in the commercial register and VAT liability.

Characteristics of a small business

If you set up a small business in the form of a sole proprietorship, it has clear characteristics. As the owner, you are the only person running the company. There is no separation between your personal assets and business assets. This leads directly to the most important and at the same time riskiest characteristic: unlimited liability. You are liable for all business debts not only with your business assets, but usually also fully with your entire personal assets. In return, no legally prescribed minimum capital is required for the foundation. The name of the company must absolutely contain your family name. Additions such as "Max Muster, Marketingberatung" are possible and recommended.

Weighing the advantages and disadvantages

Choosing a sole proprietorship as the form for your small business brings significant advantages. Setting it up is uncomplicated, fast, and extremely cost-effective, as in many cases no notary and no expensive registration in the commercial register are necessary. You have full entrepreneurial control and freedom of decision-making, without having to coordinate with partners or a board of directors. Depending on turnover, simplified bookkeeping can be maintained, and there is no obligation to keep double-entry bookkeeping below CHF 500,000 in turnover. Another key advantage lies in the tax treatment, as there is no double taxation of company profits and private income, as can be the case with a GmbH.

However, these advantages are offset by disadvantages that must be carefully considered. The previously mentioned unlimited personal liability is the greatest risk. Business failures can directly impact your private financial existence. Financing options are often limited, as banks are more cautious when granting loans to sole proprietorships and shares cannot be sold to investors. The close connection of the company name with your person can limit anonymity, and the sale or succession planning of the business is often more difficult than with a corporation.

The process: Foundation and registration

How do you set up your small business now? The process is pleasantly pragmatic. Formally, your sole proprietorship exists from the moment you start your self-employed activity. However, the subsequent administrative steps are essential.

Step 1: Recognition by the OASI compensation office (AHV)

As a self-employed person, you are responsible for your own social security contributions (AHV/IV/EO). You must therefore register with the compensation office responsible for you. It will check whether you actually qualify as self-employed based on various criteria. These include, among other things, operating under your own name, acting on your own account, and bearing your own economic risk. Ideally, you already have your first orders or invoices to prove your activity.

Step 2: Registration in the commercial register (if necessary or desired)

An entry in the commercial register is only mandatory for sole proprietorships from an annual turnover of CHF 100,000. However, many founders opt for voluntary registration even if they are below this threshold. This has the advantage that the company name is protected at the company's domicile and the presentation to customers, suppliers, and banks appears more professional and credible.

Step 3: Registering for Value Added Tax (VAT)

The obligation to settle VAT also only starts from an annual turnover of CHF 100,000. If your turnover is below this, you are not subject to VAT. This simplifies bookkeeping considerably. However, please note that in this case you cannot deduct input tax on your own purchases and investments either. Voluntary registration can be worthwhile if you have high initial investments or mainly deal with business clients who can deduct the VAT themselves.

Costs and taxation of a small business

The setup costs for a small business are minimal. If a mandatory commercial register entry is not required, setup is basically free. A voluntary entry costs a few hundred francs. The ongoing costs mainly comprise your OASI (AHV) contributions, which are calculated as a percentage of your income, as well as costs for any bookkeeping, a business account, and necessary insurance policies such as professional liability insurance.

The taxation of a small business is a central point that often raises questions. Since there is no legal separation between you and your business, there is also no separate corporate tax. The profit you generate with your small business is added to your other private income (e.g. from part-time employment or your spouse's income). You declare this total income in your personal tax return. You then pay regular income tax on this to the federal government, canton, and municipality. At the same time, your business assets (e.g. bank balances, machinery) are taxed together with your private assets as total wealth.

Conclusion

A small business in the form of a sole proprietorship is an excellent and unbureaucratic way to take the step into self-employment in Switzerland. The advantages of simple setup, full control, and tax simplicity are compelling. On the other hand, the greatest risk is unlimited personal liability. Careful consideration of these aspects, good planning, and knowledge of the administrative steps regarding OASI (AHV), the commercial register, and VAT are the keys to a successful start. In this way, a good idea becomes a solid foundation for your entrepreneurial future.