As KPMG’s Swiss Tax Report 2019 shows, the cantons of Vaud and Basel-Stadt are bringing some movement into the corporate tax rate situation for companies, which has been stagnating for years. These two cantons might be the first harbingers of a trend that could potentially usher in fundamental changes to the Swiss corporate tax landscape in the near future.
KPMG's Swiss Tax Report 2019 compares corporate and income tax rates in 130 countries as well as all 26 cantons. For years, now, regular corporate tax rates have been stagnating and last year was no different – with two big exceptions: The cantons of Vaud and Basel-Stadt reduced their corporate tax rates substantially, from 21.37% to 14% in the Canton of Vaud and from 22.18% to 13.04% in the Canton of Basel-Stadt.
The average regular corporate tax rate for Swiss companies has declined by 3.70 percentage points since KPMG first began tracking these rates in 2007. Several fiscal reform endeavors in Switzerland and abroad, with one example being the AHV tax proposal, will shake up the tax competition situation considerably in the years to come.
Ranked by regular corporate tax rate, the cantons of Central Switzerland and the Canton of Appenzell-Ausserrhoden still come out on top with the lowest rates. On average, corporate tax rates for companies were only reduced marginally year over year, as was the case in the cantons of Zug, Schwyz and Glarus. Only the cantons of Vaud and Basel-Stadt made substantial cuts to their tax rates this year. These two cantons are harbingers of a trend that could potentially usher in fundamental changes to the Swiss corporate tax landscape in the near future.
Viewed over the long term, the average corporate tax rate in Switzerland has declined by 3.70 percentage points since 2007, yet the long-term trend points toward a stagnation in these rates. Steady, substantial reductions over the past few years were only seen in the rates levied by the cantons of Grisons (-12.94 percentage points), Schaffhausen (-7.02), Lucerne (-6.58) and Neuchâtel (-6.57). In practice, the 12% mark has established itself as a de facto floor – the cantons probably cannot afford to let regular corporate tax rates for companies drop any lower than this.
A comparison of European countries found nearly no changes among the top-ranked locations with very low tax rates. The cantons of Central Switzerland were extremely well positioned in this segment in 2018, as well. Regular corporate tax rates were only lower in the Channel Islands (0%) and a few counties in (South-)Eastern Europe. In Europe, the most competitive location is still Ireland with a corporate tax rate of 12.5%.
Coming in last in terms of their tax appeal were several countries in Northern, Western and Southern Europe. There, moderate cuts were seen in the rates levied by Norway and Greece (-1 percentage point) and Sweden (-0.60) for 2019. France is planning to gradually reduce its regular corporate tax rate to 25% by 2022 and has already cut its regular corporate tax rate by 2 percentage points to 31% compared to 2018.
Several different offshore domiciles as well as Hong Kong, Qatar and Singapore maintained their standing as the world’s most tax-competitive locations. Globally, Switzerland continues to rank among the top third in terms of its fiscal policies.
The cantons of Central Switzerland also topped the charts in an intercantonal comparison of individual tax rates - together with the Canton of Appenzell-Innerrhoden. The individual rates levied in the cantons of Western Switzerland, Ticino and the Mittelland region took last place again.
After a gentle downward trend, the average top income tax rate over the past 10+ years has settled at just below the 34% mark. The cantons of Central Switzerland and Appenzell-Innerrhoden have topped the rankings since 2007. All in all, the cantons only made minor cuts to tax rates for individuals with the exception of the Canton of Uri, which has reduced its income tax rate from 33% in 2007 to the current level of 25.35% (2019).
Similarly, the high-tax cantons, where tax rates vary just slightly, have not seen many changes since 2007. This does not hold true for Aargau and the cantons of Solothurn and Jura, however, which have made significant, long-term cuts to their rates. Individual taxation in the cantons of Bern, Vaud and Geneva, on the other hand, has remained unchanged for over ten years.
In a continental comparison, countries in (South-)Eastern Europe still have the lowest tax rates for high incomes – in part due to flat tax systems. The tax rates levied on high incomes in most Swiss cantons are in line with the European average. Extremely high income tax rates can still be found in the countries of Western Europe and Scandinavia.
A global comparison of income tax rates paints a somewhat mixed picture: While well-known offshore domiciles and a few isolated Middle East countries continue to waive income taxes entirely, some countries such as South Africa, Australia, China and Japan have extremely high top tax rates in place.
Over the long term (2007-2019), the tax cuts introduced by Central and Eastern European countries for high incomes stand out most prominently: Hungary has lowered its top rate by 21 percentage points since 2007, Bulgaria by 14 and the Czech Republic by 10. These stand in stark contrast to those Western European countries which have increased their tax rates in the past 10+ years, in some cases significantly, whereby the largest hike was in Iceland where it rose from 35.70% (2007) to its current level of 46.24%.