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Switzerland: Tax reform in the canton of Zurich

Switzerland: Tax reform in the canton of Zurich

Zurich voters on 1 September 2019 approved by a 55.95% majority a proposal adopted by the Zurich Cantonal Council for implementation of the tax reform plan (TRAF*) in the canton of Zurich.

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*Tax Reform and AHV Financing


Corporate tax changes in the canton of Zurich

With approval by the electorate, the amendment to the cantonal tax law will be effective 1 January 2020, and corporate taxation in the canton of Zurich will be adjusted as follows:

  • The effective income tax rate at all levels (federal, cantonal and municipal) will initially decrease to 19.70% as of 1 January 2021 (capital city, previously 21.15%). However, a further reduction of the effective income tax rate from 19.70% to 18.19% as of 1 January 2023 is planned within the framework of a new bill, which would be subject to the legislative process.
  • Net profits from patents and similar rights will be eligible for the “patent box” and taxed after a maximum reduction of 90%.
  • An additional deduction of 50% could apply for expenses relating to research and development (R&D) conducted in Switzerland.
  • A notional interest deduction (NID) provides for an imputed interest deduction on surplus equity. Surplus equity includes equity capital which, in the long term, exceeds the equity capital required for business operations. This measure is expected to be introduced only in the canton of Zurich.
  • Tax privileges for holding, domiciliary, and mixed companies will be repealed, and will no longer be granted as of 1 January 2020.
  • For companies affected by repeal of a cantonal tax privilege, the canton of Zurich offers certain relief or transitional measures—such as a tax-neutral disclosure and tax-effective amortization of hidden reserves over a period of up to 10 years (a current law step-up or disclosure solution) or the application of a special tax rate of 1.13% (capital city, cantonal and municipal taxes) for the taxation of hidden reserves and self-created goodwill realized within the next five years (a special tax rate solution). Furthermore, there is a possible combined solution consisting of these two options.
  • The overall limitation of measures is set at 70% of taxable net income (excluding participation income and before loss offsetting). It limits the tax-reducing effects of the patent box, the additional R&D deductions, the notional interest deduction, and the current law step-up (disclosure solution).
  • The partial taxation of dividends from qualifying participations for natural persons is to continue—at least for the time being—at 50% in the canton of Zurich (formally, there will be a change from the half-rate to the partial taxation procedure). For direct federal tax, there will be an increase to 70% (previously 60%).
  • The ordinary capital tax rate remains unchanged at 0.1718% (capital city). Taxable equity attributable to qualifying investments, loans to group companies and qualifying intellectual property may be reduced by 90%.


KPMG observation 

Companies based in the canton of Zurich need to consider preparing for these changes and, given that the effective date is only four months in the future, begin to take steps now to prepare for the effects of the tax reform.

Read a September 2019 report prepared by the KPMG member firm in Switzerland

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