As of 1 January 2020, the new Federal Act on Tax Reform and AHV Financing (TRAF) will enter into force. The new legislation not only has an impact on taxes, but also on payroll.
Following the rejection of Corporate Tax Reform III as well as the reform of the old-age insurance system (AHV) by the Swiss people in 2017, the Federal Council and the Swiss Parliament developed TRAF, which was accepted by popular vote in May 2019.
TRAF abolishes tax privileges mostly for international companies, such as holding status, domiciliary or mixed company status. It also introduces new measures such as patent box, deduction of research and development expenses etc. as well as new rules regarding taxation of dividend payments. The aim of TRAF is to ensure that Switzerland remains attractive as business location, to gain international acceptance of the Swiss tax legislation and to ensure sufficient tax revenues.
At the same time, TRAF deals with the need for action regarding AHV, since revenues and expenditures are increasingly falling out of balance. TRAF aims to strengthen the old-age insurance, by increasing contributions rates and introducing a higher contribution by the Federation. It is estimated that additional revenues of CHF 2 billion will flow into the AHV as of the year 2020, of which CHF 800 million will be funded by the Federation and the rest of CHF 1.2 billion will be funded by employers and employees.
Due to the additional AHV financing following TRAF, old-age insurance contributions will increase as of 1 January 2020. This is the first increase of AHV contributions in over 40 years. The contribution rate will change from 8.4% to 8.7%. Therefore, contributions will increase by 0.15% for employees as well as employers. Detailed information can be found in this overview of social security contributions as of 1 January 2020.
The implementation of TRAF as of 1 January 2020 means there is not much time left to prepare.
Many companies are affected and should act now to take the necessary steps. The new contribution rates must be implemented in all payrolls as of 1 January 2020. The rates for AHV/IV/EO-insurance of 5.275% for employees and 5.275% for employers must be recorded in your payroll system on time to ensure correct deductions.