New corporate tax reform to strengthen Switzerland as a top corporate locationMonday, 20 May 2019
On 19 May 2019, Swiss voters largely accepted a new corporate tax reform, scheduled to enter into force in 2020. Switzerland continues to offer a stable and reliable tax environment and remains one of the most competitive business and tax locations.
With a majority of 66.4%, Swiss voters approved the Federal Act on Tax Reform and AHV Financing (TRAF) in a public vote on 19 May 2019. The new tax provisions are intended to achieve international acceptance, while safeguarding and enhancing Switzerland’s appeal for multinationals and SMEs. Tax privileges for companies that operate predominantly internationally will be abolished. The same favorable tax rates will apply to all companies and an array of possible deductions will be available, with an emphasis on R&D and innovation.
The reform is expected to come into effect at federal level on 1 January 2020. However, its effective implementation will take place at cantonal level, particularly with regard to the cantonal tax rate reductions, which are also part of the reform strategy but not formally part of the federal bill. The cantons have already announced, and in some cases adopted, their new applicable ordinary corporate tax rates, along with other implementation parameters.
Overview of the tax measures for companies
Source: Federal Department of Finance
- Abolition of cantonal tax privileges
At federal level, status companies (e.g. management companies) will continue to pay the full profit tax. At cantonal level, they previously paid only a reduced profit tax or none at all. The new corporate tax reform abolishes this tax privilege. Temporary transitional provisions will mitigate the effects of this abolition.
- Patent box
Profits from patents and similar rights will be taxed at a reduced rate at cantonal level. However, the cantons must tax at least 10% of these profits.
- Deductions for research and development
The cantons may give a higher weighting to R&D expenditure in order to promote research and development. A deduction of no more than one and a half times is permitted.
- Deduction for self-financing
The cantons may permit an interest deduction on equity capital if the cantonal capital's effective profit tax burden imposed by the Confederation, canton and commune is at least 18.03%.
- Relief restriction
The tax relief based on the patent box, additional deductions for research and development and the deduction for self-financing may not exceed 70%. If the cantonal practice provides for transitional provisions for status companies, the depreciation in this regard will also come under the relief restriction.
- Capital tax adjustments
The cantons may include the capital attributable to financial interests, patents and similar rights as well as intra-group loans at a reduced rate in the capital tax calculation.
- Disclosure of hidden reserves
Companies that relocate their headquarters to Switzerland can benefit from additional depreciation in the first few years. If companies relocate their headquarters abroad, an exit tax will be due, as is already the case at present.
- Extension of the flat-rate tax credit
The flat-rate tax credit prevents international double taxation. Swiss permanent establishments of foreign companies should now be entitled to it as well.