Tax optimisation: preparing the sale 5 years in advance

Why tax optimisation requires 5 to 10 years of preparation

Swiss taxation imposes strict deadlines to prevent abuse of law. Tax authorities carefully examine operations carried out in the years preceding a sale.

An indirect partial liquidation generally requires 5 years of ownership to be recognised for tax purposes. Holding restructurings or structural changes also require several years to be considered legitimate.

Last-minute tax optimisation is not only ineffective, but can lead to costly tax reclassification. Post-sale tax audits can go back up to 10 years in case of suspected fraud.

Anticipating allows you to maximise tax savings whilst respecting the legal framework. This is why it is essential to integrate tax planning as soon as you consider a future sale, even a distant one.

The basic principles of taxation during a sale in Switzerland

In Switzerland, business sale taxation depends on your status and ownership structure. For an individual holding shares privately, capital gains are generally exempt from tax.

However, the tax authorities can reclassify the sale as taxable income if certain criteria are met: repeated commercial activity, significant debt financing, or short-term ownership.

For companies, sale profits are taxed at cantonal and federal level. Rates vary significantly by canton, from 12% to 21% on average.

Understanding these mechanisms is essential to anticipate the tax burden and implement the right strategies. Succession costs include much more than just taxes.

Capital gain vs taxable income

The tax authorities apply several criteria to distinguish an exempt capital gain from taxable income:

• Ownership duration: Ownership of less than 5 years increases the risk of reclassification
• Financing: A loan exceeding 50% of the acquisition value can be problematic
• Repetition: More than 2-3 property or business transactions over 10 years raise suspicions
• Commercial activity: Any active improvement of the business with a view to resale

Concrete example: an entrepreneur who buys an SME with 70% debt financing, actively restructures it for 2 years then resells it faces a high risk of reclassification as taxable income, with rates potentially reaching 40-45%.

Strategy 1: Indirect partial liquidation

Indirect partial liquidation is one of the most effective tax optimisations in Switzerland. It allows you to distribute part of the company's reserves before the sale, thus reducing the taxable sale value.

Principle: you proceed with a capital reduction or dividend distribution several years before the sale. These amounts are taxed as income (income tax + social contributions), but often at a lower rate than a reclassified gain.

Numerical example: A company valued at 2 million CHF with 500,000 CHF in reserves. By distributing these reserves 5 years before the sale, you reduce the sale value to 1.5 million CHF.

This strategy requires rigorous planning and strict compliance with deadlines to avoid any tax reclassification.

Conditions and deadlines to respect

For indirect partial liquidation to be recognised for tax purposes, several conditions must be met:

• Minimum period: Generally 5 years between distribution and sale (varies by canton)
• Compliant reduction: The capital reduction must comply with company law (creditor protection, general meeting)
• Complete documentation: Minutes, tax certificates, proof of tax payment on distributions
• Economic substance: The company must maintain real activity after the distribution

Failure to comply with these conditions can result in tax reclassification with tax recovery, interest and penalties. Support from a tax expert is strongly recommended for this complex operation.

Strategy 2: Optimisation of ownership structure

The ownership structure of your business has a major tax impact during the sale. Several options exist:

Direct ownership: Administrative simplicity, but gain potentially reclassifiable as taxable income according to the criteria mentioned.

Personal holding company: Allows you to benefit from the participation deduction (tax reduction on dividends and sale gains at holding level). Ideal for holding multiple participations.

Simple partnership: Fiscally transparent structure, used for family ownership. Limited advantages but flexibility in succession.

Warning: any restructuring must be carried out at least 5 years before the sale to avoid suspicions of abusive tax optimisation. Authorities examine the economic substance of these structures.

Strategy 3: Occupational pension planning (second pillar)

Buy-ins to the second pillar offer a tax optimisation opportunity often underexploited by sellers. Contributions are deductible from taxable income, thus reducing your tax burden in the years preceding the sale.

Concrete strategy: Make maximum buy-ins in the 5 years preceding the sale. This reduces your annual taxable income whilst building up pension capital.

Important constraint: amounts bought in are locked for a minimum of 3 years before they can be withdrawn. Therefore plan your buy-ins accordingly.

Example: A buy-in of 100,000 CHF with a marginal tax rate of 35% generates a tax saving of 35,000 CHF. Over 5 years, the saving can reach 150,000-200,000 CHF depending on your situation.

Strategy 4: Payment staging and earn-out clauses

Structuring the payment of the sale price allows you to smooth the tax burden and reduce the overall tax impact, particularly if the sale risks being reclassified as taxable income.

Staged payment: Spreading the price over several years allows you to benefit from tax progressivity. Some cantons offer reduced rates for exceptional income.

Earn-out clauses: Part of the price depends on the company's future performance. For tax purposes, these price supplements are taxed in the year they are received, allowing natural spreading.

Advantages for the seller: tax optimisation and partial price security. For the buyer: reduction of initial financial risk.

These mechanisms must be clearly documented in the sale contract to avoid any subsequent disputes.

Tax pitfalls to absolutely avoid

Certain mistakes in sale tax optimisation can be very costly:

• Last-minute operations: Distributions or restructurings in the 12 months preceding the sale are systematically scrutinised
• Insufficient documentation: Absence of minutes, supporting documents or complete tax returns
• Non-compliance with legal deadlines: Ownership periods too short, recent second pillar buy-ins
• Artificial structures: Holdings without economic substance, fictitious domiciliations

Post-sale tax audits are frequent, especially for significant transactions. The limitation period is 10 years in case of tax fraud.

Avoid common mistakes when selling by surrounding yourself with the right experts from the start.

When to call on a tax expert

Support from a specialist becomes essential in several situations:

• Valuation exceeding 1 million CHF: The tax stakes amply justify the investment in expert advice
• Complex structures: Holdings, multiple participations, family shareholding
• International situations: Foreign shareholders, cross-border activities, double taxation conventions
• Reclassification risks: Short ownership, significant debt financing

Experts to consult: fiduciary specialised in corporate taxation, tax lawyer, M&A expert for complex transactions.

Leez provides you with a network of qualified partners to support you through all stages of your sale, without obligation.

Checklist: actions to take according to your timeline

Here is a practical calendar to prepare the tax optimisation of your sale:

10 years before: Assess the optimal ownership structure, consider creating a holding company if relevant

5 years before: Implement indirect partial liquidation if applicable, start second pillar buy-ins, consult a tax expert for a preliminary audit

3 years before: Finalise second pillar buy-ins, obtain a professional valuation of the business, prepare financial and legal documentation

1 year before: Avoid any significant tax operations, structure payment clauses with the buyer, prepare the file for tax authorities

This planning integrates into the overall sale process of your business.

Tax optimisation of a business sale cannot be improvised. As we have seen, the most effective strategies, indirect partial liquidation, ownership restructuring, second pillar planning, require between 5 and 10 years of preparation. Every year counts to respect legal deadlines and maximise tax benefits.

The pitfalls are numerous: classification as taxable income, violation of ownership deadlines, structural errors. Specialised tax support is not a luxury, it is a necessity to secure your succession and preserve the fruit of decades of work.

If you are considering selling your business in the coming years, start today. Our network of tax and legal experts can support you in this strategic planning. And when you are ready to take action, estimate the value of your business free of charge to start your succession project in the best conditions.