Switzerland: R&D tax incentives for the food and beverage sector

The food and beverage sector may qualify for additional R&D tax deduction

The food and beverage sector may qualify for additional R&D tax deduction

Research and development (R&D) tax relief is available primarily for expenses associated with qualifying personnel directly involved in R&D in Switzerland. In addition, contract R&D in Switzerland is available and eligible. The level of additional R&D tax deduction varies from canton to canton but could provide up to an additional 50% deduction against the company’s taxable income at cantonal and municipal level.

The Swiss R&D tax incentive regime, focusing on additional R&D tax deductions, are designed to recognize and reward companies investing in R&D projects. Qualifying expenditure attracts an additional R&D tax deduction if the R&D is conducted in Switzerland. The level of the additional R&D tax deduction varies (for a maximum of 50%) but could provide an additional tax deduction against the company’s taxable income on qualifying R&D expense calculated as follows:

  • Qualifying personnel expenses considering an additional “lift-up” of 35% (to cover other R&D costs)
  • Third-party costs (contract R&D with a related or third party) may be eligible based on 80% of invoiced costs

Scientific research and science-based innovation activities across any sector may qualify for the additional R&D tax deduction. In order to qualify, the R&D activity generally needs to meet certain criteria (such as novelty, creativity, uncertainty, systematic approach, and transferability and/or reproducibility) of the OECD Frascati Manual. 

For Swiss income tax purposes, the scope of application of R&D is generally broad. The following activities in the food and drink sector may qualify for additional R&D tax deduction:

  • Development of new or appreciably improved product or packaging material
  • Development of new or appreciably improved production techniques to improve processing speeds or yields or reduce costs, energy, emissions and wastage
  • Change of properties of foodstuff for health or environmental reasons, while maintaining the same taste, appearance, smell, and texture (for example new vegetarian or vegan meat substitutes or dairy-free products)
  • Modification of a product to enhance its shelf-life
  • New technologies and advancements to use and recycle waste or excess products within the production process
  • The development of new or appreciably improved systems of e-business, e-ordering or e-logistics

For example, assume a company in Zurich that operates R&D and has CHF 1 million qualifying R&D expenses. The company can benefit from an additional tax deduction for R&D of CHF 500,000. This in turn would result in an annual tax benefit of approx. CHF 72,000 per CHF 1 million of qualifying expense and material cost saving for R&D activities.

Read a February 2022 report prepared by the KPMG member firm in Switzerland

 

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