Switzerland and the canton of Zug will keep its leading position in attractive taxation
So far Switzerland scores well in international business taxation. According to the latest studies, it ranks in the top third. Some regions even rank within the top ten worldwide! In the course of the taken and planned actions by the EU and the OECD to equalise tax competitiveness within Europe, the question is whether this status of attractiveness is sustainable for cantons like Zug, a canton which is well-known for its business friendly tax environment.
As the pressure from the international organisations to abandon the preferential tax regimes has been increasing, the countries` scope is more and more limited. But Switzerland has been aware of the gravity of the situation and has taken several steps to adjust the Swiss corporate tax law. The main objective besides the continuation of a competitive tax environment is the long-term legal certainty for which Switzerland is famous for.
This summer, the Swiss parliament has been working hard on the “Tax proposal 17” to provide reliability and planning security for all businesses in Switzerland. The key characteristics of the revised reform will be of interest for foreign investors:
- Patent box
- Research & development super deduction
- General reduction of corporate tax rates
Patent box
The introduction of a patent box regime would be one of the most popular tax instruments in the present international environment. This instrument has been in force in already 13 countries in Europe and is generally accepted. It is designed to privilege income from patented intellectual property for which research & development expenses have occurred in Switzerland. Income from qualifying intellectual property will benefit from a reduction that may result in an effective tax rate in competitive Swiss regions like Zug of lower than 12 percent.
Research & development super deduction
Like the patent box, measures to support research & development have been in place already in many countries. Besides the international competitiveness, this instrument also helps the promotion of innovation. The cantons would have the option to introduce an excess deduction for research & development activities conducted in Switzerland, which allows companies to deduct more than the actual research & development costs.
General reduction of corporate tax rates
The above described instruments only partially affect the income of corporations. Profits which are not covered by the patent box and the research & development super deduction will be subject to the regular income tax rate. One of the crucial factors to keep Switzerland attractive for companies with preferential tax regimes will be – besides other not tax driven location factors – the regular income tax charge. This charge is determined by the federal tax rate and the tax rate of the respective cantons. As the federal tax rate remains unchanged, several cantons will have to lower the regular income tax rate to keep their competitive position.
Conclusion
Switzerland has realised that the current international tax environment requires significant reforms of the tax law. With the now discussed measures which will not become effective before 2020, both, the continuation of an attractive business tax environment and the objective to align the Swiss tax law with international standards will be met.
For almost 30 years Acton Treuhand AG has had its head office in the canton of Zug and offers expertise in the settlement of international enterprises and in the long-term financial support of well-established firms. Our team is well connected with the local authorities and is aware of the local conditions. Our experienced staff is accompanying founding processes and assists small and mid-sized companies not only in accounting- and tax matters, but with the full range of services in business consulting.