Where companies fit in a letterbox

Letterbox companies are one of the tax avoidance strategies used by some businesses. International organisations would like to see them banned. While the trend may not last for long, in Switzerland they are still setting records. (SRF/swissinfo.ch)

The term letterbox companies, also known as domiciled companies, refers to businesses that establish their domicile in a tax friendly country with the aid of only a mailing address, even though the bulk of their commercial activities are conducted in another country. This is done to minimise their tax liabilities.

These companies often do not employ any staff where they are domiciled, as their real place of business is elsewhere. Therefore letterbox companies are seen as a legal loophole to reduce the tax burden on companies.

For quite some time, Switzerland has been under increased pressure from international organisations, like the European Union and the Organisation for Economic Co-operation and Development who have criticised its cantonal and federal tax regimes that permit letterbox companies.

The federal and cantonal governments have reacted and are currently reshaping the Swiss tax legislation. 

Since 2010, the federal government has been working on restructuring Swiss corporate tax law with its Corporate Tax Reform III. Through this comprehensive reform package, authorities aim to maintain Switzerland’s international competitiveness by striking a balance between international acceptance of the country’s corporate taxation system and a balanced flow of tax revenues.