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Switzerland: Tax reform implications for social security, payroll (beginning 2020)

Switzerland: Tax reform implications

The Swiss federal law on tax reform and AHV financing (TRAF)—effective 1 January 2020—will have implications for social security contributions and payroll.

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Background

The tax reform (TRAF) repeals certain tax benefits for international companies—including holding status, domiciliary or mixed company status. The tax reform also introduces new measures in the form of a patent box regime and rules for the deduction of research and development (R&D) expenses, as well as new rules regarding the taxation of dividend payments.

The tax reform also aims to strengthen the old-age insurance by increasing contributions rates and introducing a higher contribution by the government. It is estimated that there will be additional revenues of CHF 2 billion (roughly U.S. $2.03 billion) for this purpose as of the year 2020, of which CHF 800 million will be funded by the government and the rest (CHF 1.2 billion) will be funded by employers and employees.


Social security contributions

With the additional AHV financing, old-age insurance contributions will increase as of 1 January 2020—the first increase in over 40 years. The contribution rate will increase to 8.7% (from 8.4%). Therefore, contributions will increase by 0.15% for employees as well as employers.


Payroll considerations

Affected companies need to consider what steps are necessary to implement the new contribution rates for all payrolls as of 1 January 2020. The rates of 5.275% for employees and 5.275% for employers must be recorded in the payroll system to allow for the correct deductions.


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

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