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Every sole proprietorship that does well eventually asks the same question: should I incorporate? The answer does not come from instinct. It comes from a calculation, then from three or four factors that have nothing to do with tax.
Here is the threshold above which incorporating pays off, a worked example, the legal thresholds people often confuse, and a checklist to decide. If you are looking for the formation steps instead, see our guide to starting a company and hiring your first employee.
The two forms at a glance
Sole proprietorship and GmbH/Sàrl: what really differs (2026)
| Criterion | Sole proprietorship | GmbH/Sàrl |
|---|---|---|
| Start-up capital | None | CHF 20,000, fully paid up |
| Liability | Unlimited, on your private assets | Limited to the share capital |
| Commercial register | Mandatory from CHF 100,000 of turnover | Mandatory in every case |
| Accounting | Simplified below CHF 500,000 of turnover | Double-entry, no exception |
| Status of the owner | Self-employed | Employee of their own company |
| Social contributions | Up to 10.0% of net income (AHV/IV/EO) | Around 12.8% of salary, employer share and unemployment included |
| 2nd pillar (LOB) | Optional | Mandatory from CHF 22,680 of annual salary |
| Unemployment insurance | No contribution, no cover | Contribution due, benefits excluded for the managing owner |
| Pillar 3a | Up to CHF 36,288 per year | CHF 7,258 per year |
| Formation costs | CHF 0 to 900 | CHF 2,000 to 4,000 |
| Annual running costs | CHF 500 to 2,000 | CHF 3,000 to 8,000 |
The threshold: between CHF 80,000 and 120,000 of profit
In a sole proprietorship, the whole profit is your income. It is taxed once, at the progressive income tax rate, and carries the AHV contributions of the self-employed, which reach 10.0% from CHF 60,500 of annual income. As long as the profit stays modest, this is unbeatable: a single layer of taxation and almost no structural costs.
In a GmbH, the profit is first taxed at company level, at a flat rate ranging in 2026 from 11.85% in Zug to 19.60% in Zurich, federal tax included. What then reaches you takes two routes: a salary, taxed and charged like any other salary, and a dividend, exempt from social contributions and only partly taxed, at 70% federally and between 50% and 70% depending on the canton, as soon as you hold at least 10% of the capital.
The crossover happens when the progressive income tax rate becomes heavier than the combination of profit tax and partial dividend taxation. In practice, between CHF 80,000 and 120,000 of net profit, earlier in Zug or Valais, later in Bern or Zurich.
A worked example
Take a single person with no children living in the canton of Fribourg, comparing both structures at the same profit. On the GmbH side, a reasonable salary is topped up with a dividend.
Total annual load (taxes and social contributions), order of magnitude
| Net profit | Sole proprietorship | GmbH (salary + dividend) | Difference |
|---|---|---|---|
| CHF 60,000 | about CHF 22,000 | about CHF 23,400 | Sole proprietorship cheaper by CHF 1,400 |
| CHF 100,000 | about CHF 42,000 | about CHF 37,200 | GmbH cheaper by CHF 4,800 |
| CHF 200,000 | about CHF 99,000 | about CHF 80,000 | GmbH cheaper by CHF 19,000 |
These amounts are orders of magnitude computed for a single person with no children in the canton of Fribourg. The real outcome depends on your municipality, your marital status, your pension arrangements and the salary/dividend mix you choose. They show a trend, not your tax return.
Two readings stand out. At CHF 60,000, the gap in favour of the sole proprietorship looks small, yet the structural costs of a GmbH (CHF 3,000 to 8,000 per year) widen it further. And the advantage of the GmbH only becomes clear above CHF 100,000, after which it grows very quickly.
That advantage rests entirely on the dividend, which escapes social contributions. The room for manoeuvre is not unlimited: if you pay yourself an abnormally low salary and a dividend exceeding 10% of the tax value of your shares, the compensation office can requalify part of the dividend as salary and claim the contributions, with late interest.
Three thresholds not to confuse
Many self-employed people believe that CHF 100,000 of turnover forces them to create a GmbH. It does not. Three thresholds coexist and none of them concerns the legal form.
What really decides, beyond tax
The tax calculation only settles the clear-cut cases. In practice, other reasons often trigger the switch, sometimes well before the threshold.
- Liability. In a sole proprietorship, a dispute, a failed delivery or an unpaid debt is settled out of your private assets, your home included.
- The size of your commitments. A single CHF 50,000 mandate, stock to finance or a heavy investment change your risk profile far faster than profit does.
- Bringing in partners or investors. A sole proprietorship cannot be shared, it has a single owner.
- Sale or succession. Transferring shares in a GmbH is simple, selling a sole proprietorship means selling assets one by one.
- Market perception. Some large clients and some banks remain more comfortable with a company than with a personal name.
The blind spot: pensions and unemployment
Comparisons often forget social cover, which is nonetheless the most structural gap between the two forms.
The self-employed have no mandatory 2nd pillar, but they get the large pillar 3a, up to 20% of net income and a maximum of CHF 36,288 per year, fully deductible. Since 2026 they can also close past gaps, as we explain in our article on retroactive pillar 3a buy-backs.
The managing owner of a GmbH, by contrast, becomes an employee again: mandatory occupational pension from CHF 22,680 of annual salary, pillar 3a ceiling cut to CHF 7,258, but access to pension buy-backs that are often more powerful for tax. They also pay unemployment contributions without being able to draw benefits while holding a position comparable to that of an employer (art. 31 para. 3 let. c UIA).
Your decision checklist
Invoicing stays the same, before and after
Changing legal form changes your articles, your letterhead and your UID number, not the way you invoice. With Bill Alps, you update the company details and carry on issuing your QR-bills with the same clients and the same numbering, as a sole proprietorship or as a GmbH.
- The switching point sits between CHF 80,000 and 120,000 of net profit, depending on the canton.
- A sole proprietorship is taxed once, a GmbH pays profit tax and then taxes you on salary and dividend.
- The advantage of the GmbH comes from the dividend, free of social contributions and only partly taxed.
- CHF 100,000 of turnover triggers commercial register entry and VAT, never a GmbH.
- Unlimited liability remains the first reason to switch, well ahead of tax optimisation.
- The managing owner of a GmbH pays unemployment contributions without being entitled to benefits, and loses the large pillar 3a.