Branch office or representative office: which is better for a Hungarian company in Switzerland?

What is the difference, from a legal and practical perspective, between a branch office and a representative office?

Swiss law defines a branch office (Zweigniederlassung) as a legally non-independent unit of the parent company that is organizationally separate. Under Article 935 of the Obligationenrecht (OR, Code of Obligations), a branch office has its own name, its own business operations, and management that is at least partly independent. It must be entered in the commercial register (Handelsregister) of the canton where it is located, and the parent company is liable for the branch office’s obligations with all of its assets.

A representative office (Repräsentanz), by contrast, is not an independent business unit but operates as an office acting on behalf of the parent company. Its main characteristics are:

• It may not carry out independent commercial activities – it may not conclude contracts in its own name or issue invoices to Swiss clients.

• As a rule, it does not have to be registered in the Handelsregister if it truly performs only preparatory, informational, or coordination tasks.

• However, obligations arise if it employs staff: if the representative office employs staff in Switzerland, reporting and contribution obligations under AHV/AVS (old-age and survivors’ insurance), ALV (unemployment insurance) and UVG (accident insurance) apply immediately.

How can a branch office be established in Switzerland – step by step?

The establishment of a branch office is carried out through the Handelsregister office of the canton where it will be based. The main steps are:

1. Preparation and document compilation

The parent company must prove that it exists and operates lawfully. The required documents typically include:

• The parent company certified extract from the commercial register (in the case of Hungary: a commercial register extract issued by the Court of Registration, certified with an apostille, not older than 3 months).

• The parent company’s articles of association / partnership agreement (with apostille and a certified translation – in one of the languages accepted by the Swiss canton: German, French or Italian, depending on the canton).

• Proof of the branch office’s registered office in Switzerland (lease agreement or registered office service agreement).

• The branch manager (Filialleiter)’s identity details and proof of signing authority. The branch manager must have a place of residence in Switzerland – this is one of the most common obstacles for Hungarian businesses.

2. Submission of the registration application

The application must be submitted to the competent cantonal Handelsregister office. Switzerland has 26 cantons, each with its own Handelsregister office. Registration is coordinated within a unified system by the Eidgenössisches Amt für das Handelsregister (EHRA, Federal Commercial Register Office).

Online registration portal: www.easygov.swiss – through this portal, many cantons accept electronic applications, but the original documents usually also have to be sent by post.

3. Registration and publication

The registration is published in the Schweizerisches Handelsamtsblatt (SHAB, Swiss Official Gazette of Commerce). The process typically takes 2–4 weeks, counted from the submission of complete documents, but this may vary depending on the canton and the workload of the office.

4. Tax registration

After the branch office has been registered – if annual turnover is expected to reach CHF 100,000 – VAT registration (Mehrwertsteuer / MWST, or TVA) with the Eidgenössische Steuerverwaltung (ESTV, Federal Tax Administration) is mandatory. The standard Swiss VAT rate has been 8.1%.

Under what conditions can a representative office be established?

There is no mandatory registration procedure for establishing a representative office, provided that the activity remains genuinely preparatory in nature. However, several conditions must be met:

• The activity must not be aimed at generating direct revenue in Switzerland. Typical permitted activities include market research, customer relationship management, event organization, and preparing negotiations.

• If employees are hired, registration must be made with the competent cantonal AHV compensation fund (Ausgleichskasse), and accident insurance under the UVG must be arranged (typically with SUVA or a private insurer).

• In the case of a sustained presence in Switzerland, the Swiss tax authorities may examine whether a de facto taxable permanent establishment (Betriebsstätte) has arisen. If so, the representative office automatically gives rise to branch-like tax obligations.

The distinction between a representative office and a branch is critical under Swiss tax law and double taxation agreements, including the Hungarian–Swiss double taxation agreement, 1981, as amended). Under the OECD Model, a permanent establishment is any fixed place of business through which the business of the parent company is carried on, in whole or in part.

What registration costs, tax obligations, and insurance obligations should be expected?

Registration fees

The fee for entry in the Handelsregister varies by canton. For guidance:

• Basic registration fee: typically 200–600 CHF depending on the canton and the registered capital.

• Notary involvement (Notar) is mandatory in some cantons, which can add 500–1500 CHF in additional costs.

• Translation and apostille costs (in Hungary): around 50 000–150 000 HUF (approximate, at 2025 exchange rates).

• Legal / advisory fees (if used): 1500–4000 CHF for full incorporation support.

Tax obligations

The branch is subject to profit tax (Gewinnsteuer / impôt sur le bénéfice) in Switzerland. The effective tax rate also varies by canton and municipality:

• Federal level: 8,5% after profit (effectively around 7.8%, since the tax itself is deductible).

• At cantonal and municipal level: 5–15% ranges, so the combined effective rate is typically 12–21%.

• The canton of Zug has one of the lowest combined rates (around 11.9%), while Geneva and Zürich are higher (around 19–21%).

The branch office may also be subject to capital tax (Kapitalsteuer), levied on the branch’s own equity — this varies by canton and typically ranges from 0.001–0.5% per year.

Social contributions

For every employee working in Switzerland — whether through a branch or a representative office — the following contributions are payable (employer + employee combined, based on 2025 data):

BVG (the second pillar) is mandatory if the employee’s annual salary exceeds the entry threshold of CHF 22,050 (2025 figure, indexed annually).

How can the branch office employ staff in Switzerland?

The branch office is fully subject to Swiss employment law (the employment-law provisions of the Code of Obligations, OR Articles 319–362, as well as collective agreements supplementing the OR). For Hungarian entrepreneurs, this creates several material differences compared with Hungarian employment law:

• Probation period: as a rule, up to 3 months (OR 335b).

• Notice period: the statutory minimums apply, which a collective labour agreement (Gesamtarbeitsvertrag / GAV) may extend.

• Minimum wage: there is no federal minimum wage in Switzerland, but some cantons (e.g. Genève, Neuchâtel, Jura, Tessin) have introduced their own minimum wage; in Genève, in 2025 it is above 24 CHF/hour .

• Working time: industry GAVs typically provide for a 40–42-hour working week.

• EU/EFTA citizens (including Hungarian employees) may work in Switzerland without a work permit under the Agreement on the Free Movement of Persons (Freizügigkeitsabkommen / FZA, 1999), but short-term work must be reported to the competent cantonal authority if the stay exceeds 90 days.

What accounting and reporting obligations does the branch office have?

As the branch office is part of the parent company, it does not have to publish a balance sheet as an independent legal entity; however, it must keep separate Swiss accounting records for the Swiss tax authorities (cantonal Steueramt), on the basis of which the branch office’s taxable profit in Switzerland can be determined.

Main obligations:

• Annual tax return to the cantonal tax office of the registered office canton (the deadline varies by canton, typically within 3–6 months after the end of the financial year, and can be extended).

• MWST return quarterly or annually, to the ESTV (if the VAT threshold is met).

• AHV/ALV settlement to the Ausgleichskasse, typically on a quarterly basis.

• BVG records to the selected pensionskasse (pension fund).

The Hungarian accounting obligations of the parent company remain in parallel. Under the Hungarian–Swiss double taxation agreement , the branch office’s Swiss profit is taxed in Switzerland and is taken into account in Hungary under the exemption method – but for the specific application of the treaty, consultation with a tax advisor is recommended.

What typical risks and mistakes occur at Hungarian companies?

The following mistakes are the most common among Hungarian businesses:

1. “Overloading” the representative office: commercial activities are actually carried out within the framework of the representative office (e.g. invoicing Swiss clients), which may result in retroactive branch taxation if the tax authorities make such a determination.

2. No branch manager with Swiss residence: Article 935 of the OR requires that at least one authorised signatory representative must have Swiss residence. Without this, registration may be refused.

3. Missing or outdated apostille and translation: The Commercial Register only accepts valid, certified documents. A company extract older than 3 months is generally not accepted.

4. Ignoring BVG obligations: failure to comply with the mandatory occupational pension scheme under the second pillar can lead to employment-law and criminal-fine consequences.

5. Ignoring cantonal differences: tax rates, minimum wages and certain procedural rules vary from canton to canton. The tax burden for a branch office operating in Zürich is significantly different from that of a branch office in Zug.

6. Failing to clarify Hungarian social security status: if the branch employs a Hungarian citizen, the applicable legislation must be clearly determined under Swiss–Hungarian social security coordination (based on EU Regulation 883/2004 on social security coordination, which Switzerland applies via the FZA). Failure to do so can result in double social security contributions.

When is it worth setting up a separate Swiss company instead of a branch office or representative office?

If the business plan assumes a long-term, independent presence in Switzerland, it is worth considering setting up an independent Swiss legal entity – typically a GmbH (Gesellschaft mit beschränkter Haftung, limited liability company) or an AG (Aktiengesellschaft, public limited company). The advantages of an independent Swiss company are:

• Limited liability: the parent company's assets are not liable for the obligations of the Swiss subsidiary (unlike with a branch office).

• Independent creditworthiness and banking relationships: Swiss banks are generally more willing to open an account for an independent Swiss legal entity.

• More flexible capital repatriation and dividend policy.

• A more favourable perception among certain Swiss clients and partners.

The minimum share capital for a GmbH is 20 000 CHF, and for an AG it is 100 000 CHF (of which at least 50 000 CHF must be paid in at incorporation).

At the same time, setting up an independent Swiss company is a more complex and costly process, and transactions between the Swiss subsidiary and the Hungarian parent company are subject to transfer pricing rules.

Sources

• Swiss federal information portal: https://www.ch.ch

• Eidgenössisches Amt für das Handelsregister (EHRA): https://www.ehra.admin.ch

• Schweizerisches Handelsamtsblatt (SHAB): https://www.shab.ch

• EasyGov – business administration portal: https://www.easygov.swiss

• Eidgenössische Steuerverwaltung (ESTV – Federal Tax Administration): https://www.estv.admin.ch

• AHV/IV – federal social insurance information: https://www.ahv-iv.ch

• SUVA (accident insurance): https://www.suva.ch

• Obligationenrecht (OR) – text of the Swiss Code of Obligations: https://www.fedlex.admin.ch

• Hungarian–Swiss double taxation agreement (1981): available on the websites of the National Tax and Customs Administration (NAV) and ESTV

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