As the Federal Act on Tax Reform and AHV Financing (TRAF) was recently accepted at the ballot box, the tax laws at federal as well as at cantonal level are undergoing significant changes. Even though TRAF mainly focuses on corporate taxation, the new tax regime also has ramifications for some individuals.

Private "qualifying shareholders", i.e. those holding at least 10% of the share capital, used to benefit from a privileged dividend taxation at both cantonal and federal level. As of 1 January 2020, such dividend income will now be taxed 70% (previously: 50% or 60%) at federal level, regardless whether the shares are held as a private or as a business asset. On a cantonal level, the taxation of qualifying dividends ranges between 50% and 70%.

Up to now, companies were free to decide whether they want to distribute "normal" reserves or capital contribution reserves as dividends to their shareholders. While dividends in the form of normal reserves were subject to income and withholding tax, dividends paid out of capital contribution reserves were not taxed. As of 1 January 2020, companies listed on a Swiss stock exchange may only distribute capital contribution reserves to its shareholders if they distribute dividends from the "normal" reserves in the same amount. As a result of this adjustment, dividends paid by listed companies are now always subject to income tax - at least partially.

The third major change that will affect individual taxation is the tightening of the transposition rule. According to the new conditions, the transfer of a single share from a private portfolio to a self-controlled company may be qualified as taxable income if the transfer price exceeds the nominal value. Under previous law, a taxable individual had to sell off 5% or more of the assets held personally to a legal entity held by this same person before this rule kicked in.

Click here to download the new tax law of the Canton of Zug along with a German and English summary of the most significant changes in our KPMG publication "Tax Law of the Canton of Zug". If you prefer a hard copy, please send us an e-mail to infozentralschweiz@kpmg.com.