Among the measures in the Swiss tax reform package are the following:
- Reduction of ordinary corporate income tax rates: Cantons are expected to reduce their “ordinary” corporate income tax rates at the cantonal / communal level. Certain cantons have already announced or decided on new rates. For example, the Canton of Basel decided to reduce the ordinary income tax rate from 22.2% to 13% (including federal, cantonal and communal income taxes). Refer to KPMG’s interactive map that shows the status of discussions at cantonal level. In accordance with Swiss tax law, companies can move to another canton without any exit taxation. In addition, tax neutral reorganizations (e.g., demerger, spin-offs) are available to take advantage of differences in cantonal tax regimes.
- Repeal of tax privileges / step-up mechanism to disclose hidden reserves: Federal and cantonal tax regimes will be repealed effective 1 January 2020. In connection with the repeal of the tax regimes for holding, Swiss-domicile and “mixed companies” as well as of the principal company taxation and the finance branch regime, the tax reform allows for the possibility of a step-up mechanism for tax purposes as a transitional measure. Over a maximum period five years, the net taxable income realized is to be taxed at a “special” reduced tax rate to the extent it is based on the realization of hidden reserves determined as “step-up” amount at the time of the repeal of the tax regime.
- Patent box regime / R&D super deduction: A patent box regime will be available at the cantonal level and limited to patents and intellectual property (IP) that is similar to patents. The IP is to be narrowly defined and include supplementary protection certificates, topographies, protected varieties of plants, protected documents under the Swiss therapeutic products law and reports protected by the rules to protect plant products. Software may only be included if an integral part of a patented invention (computer-implemented invention) or has been patented abroad. Qualifying income can be exempted by a maximum of up to 90%, taking into account the modified nexus approach. An additional deduction for research and development (R&D) expenses at cantonal level becomes available for cantons and (similar to the rules available under the patent box regime) reflects a commitment to Switzerland’s position as a location for research and industry.
- Capital tax relief: The tax reform also make available the cantons’ “optional capital tax relief” on equity capital attributable to participations, patents, and similar rights as well as intra-group loans.
- Lump-sum tax credit available for Swiss permanent establishments: In order to avoid international double taxation, Swiss permanent establishments of foreign companies will in future be able to benefit from the lump-sum tax credit.
- Restrictions of withholding tax-free distribution of capital contribution reserves: In accordance with Swiss tax law, dividend distributions are generally subject to 35% withholding tax (reclaim or refund being available depending on tax treaty, if applicable). Dividend distributions of capital contribution reserves (i.e., reserves that derive from shareholder contributions (e.g., capital surplus)) are exempt from Swiss withholding tax in accordance with Swiss domestic tax law (irrespective of whether tax treaty is available). In accordance with the Swiss tax reform, companies listed on the Swiss stock exchange may only pay out capital contribution reserves without withholding tax charges if they distribute taxable dividends in the same amount (the so-called “repayment rule”). However, the repayment rule does not apply to capital contribution reserves created after 24 February 2008 as a result of the transfer of assets to Switzerland or a cross-border contribution to a Swiss company (including cross-border mergers and restructurings). Also, the repayment rule does not apply to capital contribution reserves paid out group internally (investments with a share quota of at least 10%), in the event of liquidation or—for withholding tax purposes—the transfer of the registered office abroad. Another restrictive rule is the partial liquidation rule, according to which at least half of the liquidation surplus must be charged to the capital contribution reserves when a company listed on a Swiss stock exchange repurchases its own shares.
Read a May 2019 report prepared by the KPMG member firm in Switzerland
For more information, contact a tax professional with the KPMG member firm in Switzerland:
Simon Juon | + 41 58 249 53 66 | firstname.lastname@example.org