Business succession often only becomes a concrete issue when the sale or handover is imminent. By that point, there is little or no scope left for a solution that is optimised from a tax and financial perspective.
It is particularly worthwhile for business owners with substantial assets in their own companies to begin planning several years before the intended succession. The question is not merely who will take over the business in the future. It is equally important to consider how funds not required for business operations can be withdrawn from the company in good time, how tax risks can be avoided and, at the same time, how personal retirement provision can be strengthened.
A 1e pension solution offers a unique feature within the framework of supplementary occupational pension provision. It enables business owners and senior staff on higher incomes to insure part of their non-mandatory salary on an individual basis and, depending on their pension situation, to create additional opportunities for making supplementary contributions.
The first step is to examine the company’s balance sheet. What funds does the company actually need for day-to-day operations, investments or financing over the coming years? And which funds are, from a financial perspective, no longer essential to the business and could therefore already be gradually transferred to private assets?
It is precisely this distinction that becomes relevant when the business is subsequently sold. Anyone who only begins to adjust the balance sheet shortly before the sale often has considerably less scope for manoeuvre. Early planning, on the other hand, makes it possible to coordinate distributions, pension provision, taxes and the subsequent sale in terms of timing.
We shall therefore begin by looking at the risks and explaining one of them in more detail:
Indirect partial liquidation under Article 20a(1)(a) of the Federal Tax Act
If shares in a company are sold from private assets, the resulting private capital gain is, in principle, tax-free. However, this tax treatment may change if the conditions for an indirect partial liquidation are met.
This issue is particularly relevant where the company holds significant funds that are not required for its operations. If such funds are distributed following the sale and the other statutory conditions are met, part of the originally tax-exempt capital gain may be treated as taxable investment income for the seller.
Put simply: any excess liquidity currently held within the company may have tax implications in the event of a future succession if the buyer withdraws these funds following the takeover.
Let’s explain this with an example:
Mr Berg owns 100 % shares in his public limited company. The company holds a substantial amount of cash and cash equivalents that are not required for its operations.
| Assets | CHF | Liabilities | CHF |
|---|---|---|---|
| Cash and cash equivalents | 900’000 | Trade creditors | 300’000 |
| 1 of which not essential for operations |
400’000 | Other liabilities | 300’000 |
| Claims | 400’000 | Share capital | 200’000 |
| Stocks | 200’000 | Statutory reserves | 100’000 |
| Fixed assets | 200’000 | Unrestricted reserves / Retained profits | 1’200’000 |
| Total assets | 2’100’000 | Total liabilities | 2’100’000 |
As part of his retirement, he is now selling his shares to a successor. In the first few years following the sale, these very funds will1 distributed from the company and used by the purchaser to finance the purchase price.
In certain circumstances, this may now trigger an indirect partial liquidation. Part of the originally tax-exempt private capital gain will then be treated as taxable investment income for the seller.
In practice, this means that the balance sheet should be reviewed several years before the planned succession to determine which assets are actually required for the business and which are not. Indirect partial liquidation is therefore not a matter that should only be considered once the contract has been signed. The earlier this analysis is carried out, the more time there is for a controlled and tax-optimised reduction in assets not required for business operations.
In addition to indirect partial liquidation, consideration must also be given to transposition in accordance with Section 20a(1)(b) of the Federal Tax Act should be noted.
Why an early dividend strategy can make sense
If it becomes clear several years before the planned sale that part of the assets is no longer required for the business, a phased distribution may be advisable.
The aim here is not to withdraw as much money as possible from the company as quickly as possible. Rather, you should work with your trustee and financial planner to assess which portion of the company’s liquidity is not actually required for business operations, and over what period a distribution could be made sensibly.
In the case of a qualifying holding of at least 10 %, dividends are taxed as income at a preferential rate of 70 % for the purposes of direct federal tax. Cantonal regulations must also be taken into account.
However, our entrepreneur, Mr Berg, had made provisions for this and, following consultation with his trustee and financial planner, began paying himself an annual dividend of CHF 80,000 for five years whilst he was still only 58 years old.
As a result, a total of CHF 400,000 was transferred from the company to private assets.
The question now is: what happens to the money once it has been withdrawn from the company? This is where occupational pension schemes come into play:
Combining dividends and pension scheme top-ups
At the age of 58, Mr Berg had purchase options totalling CHF 400,000 with his pension fund.
He used the annual dividend of CHF 80,000 to make voluntary contributions to his pension fund, thereby reducing his tax liability each year.
This allows three objectives to be achieved simultaneously: funds not required for business operations are gradually withdrawn from the company, whilst at the same time personal pension provision is strengthened and the tax burden is reduced.
Timing is crucial: in accordance with Article 79b(3) of the BVG, a three-year objective waiting period generally applies to lump-sum withdrawals following a top-up contribution. The top-up contribution, the planned retirement date and any lump-sum withdrawal must therefore be coordinated.
This, too, illustrates why the individual measures should not be considered in isolation. A dividend can reduce a company’s balance sheet total, whilst the subsequent purchase can bolster personal retirement provision and, at the same time, provide a tax deduction. However, the specific sequence and amount must be planned on a case-by-case basis.
Maximum optimisation: The 1e pension solution
For business owners on higher incomes, a 1e pension scheme may be another attractive option.
1e plans relate to the extra-mandatory part of occupational pension provision, which covers incomes exceeding CHF 136,080 (as of 2026).
What makes a 1e solution so special?
Among other things, a 1e solution offers insured employees greater individuality and control over their own pension provision. Depending on their pension plan, they can choose between different investment strategies and tailor these to their personal investment horizon and risk tolerance. This offers the opportunity, particularly with a long-term investment horizon, to opt for a higher proportion of equities and thereby increase the long-term return potential. At the same time, the insured bear the corresponding investment risk themselves. The 1e supplement can also significantly increase the potential for making additional contributions. This allows the 1e pension scheme to be integrated individually into personal financial and pension planning.
Benefits for businesses and business owners
A 1e scheme can also be attractive for the company itself. It allows for a clear separation of supplementary pension provision and, in principle, transfers the investment risk associated with the 1e pension assets to the insured person. This makes the pension scheme more predictable for the employer. At the same time, a 1e plan offers the opportunity to provide employees on higher incomes with a flexible and customisable pension solution. This can be an additional advantage, particularly when it comes to attracting and retaining qualified specialists and managers.
Take your investment horizon into account. A higher proportion of shares may offer additional potential for returns over long periods, but may also lead to volatility. The choice of investment strategy should therefore not be based solely on expected returns.
Holistic planning rather than an isolated, piecemeal approach
Despite the interesting options available, it is important to bear in mind that not every dividend is automatically a good idea, and not every purchase is the best choice.
Furthermore, social security contributions must always be taken into account when devising a dividend strategy. Dividends are generally regarded as investment income and do not constitute wages subject to AHV contributions. However, in the case of business owners who also work for their own company, a reclassification under social security law may be considered if there is a clear discrepancy between the work performed, the salary and the dividend.
Business succession is more than just a transaction between a seller and a buyer. It is also an opportunity to align the company’s structure, private assets and personal pension provision.
If you start planning several years before the intended sale, you can combine various aspects:
Early collaboration between the trustee, the pension scheme and the financial planner lays the groundwork for ensuring that business succession, taxation and personal pension provision are not considered in isolation, but as part of an overall plan.