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Switzerland: Geneva cantonal project for tax reform changes

Switzerland: Geneva cantonal project for tax reform

A governing executive body of the canton of Geneva on 31 January 2019 approved a cantonal project with respect to the Swiss federal tax reform legislation (that is referred to as the “Federal Act on Tax Reform and AHV Financing” or “TRAF”)—the project that notably includes a proposed reduction in the corporate income tax rate to 13.99%.

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The final project will now be subject to a cantonal vote by the Geneva electorate on 19 May 2019. If approved, both the cantonal project and the federal project would be expected to be effective 1 January 2020.

Among the measures in the legislative project are the following items:

  • Corporate income tax—for an effective tax rate of 13.99%
  • Overall limitation of tax measures related to the corporate income tax—a cantonal cap on cumulated reduction effects to 9% that lead to a “minimal” income tax rate of 13.48%
  • Capital tax—a credit of income tax towards capital tax (tax credit) limited at CHF 8,500 during the year of the new law’s effective date (2020) and then limited to 25%, 50%, and 75% during the next three years (2021 to 2023), and a 100% or full credit from the fourth year onwards (2024)
  • Reduced taxation of capital—effective rate of 0.001% on capital related to qualified investments, patents, and intragroup loans
  • Dividend taxation—at the cantonal and communal level, the taxable part of 70% for qualified investments held in private wealth, 60% for qualified investments held in business wealth
  • Patent box—a reduction of the taxation of qualifying income limited to 10%
  • Research and development (R&D)—the “super-deduction” limited to 150% of the commercially justified expenses
  • Disclosure of hidden reserves (transitional step-up)—for five years, with hidden reserves taxed separately at the reduced effective rate of 13%
  • Recurring supporting measures—withholding tax at a rate of 0.07% on wages (payroll) for support of early-childhood and family-care facilities
  • Adjustment of the capital contribution principle—companies listed on the Swiss stock exchange allowed tax-free repayments (capital contribution reserves) only if they distribute taxable dividends for an equivalent amount
  • Notional interest deduction (NID)—non-applicable at cantonal level for Geneva

In its current form, the cantonal project is related to the federal project for tax reform (TRAF), but if the federal project is rejected whereas the cantonal project is approved by the voters, the cantonal measures could potentially be subject to amendment. There is no alternative project as a back-up provision if the draft cantonal law is voted down by the voters in the Geneva referendum.

 

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

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