Switzerland approved the Federal Act on Tax Reform with 64.4 percent of the population voting in favour of the project proposed by the Swiss government. The tax reform brings the replacement of certain preferential tax regimes with a new set of internationally accepted measures.
The aim of the proposal is to (i) secure the long-term tax attractiveness of Switzerland as a business location (ii) restore international acceptance of the Swiss tax system, and (iii) securing an appropriate level of tax revenue. The legislative changes align with the broad reduction of the cantonal corporate tax rates.
Prior to this tax reform, in 2017, tax reform with the same aim – Corporate Tax Reform III – was rejected by the Swiss voters. Since then, the Federal Council immediately drew up a new proposal
The first measures that introduced as part of tax reform is the abolishment of preferential tax regime. At the cantonal level, tax privileges for holding companies, domicile companies and mixed companies are terminated. At the federal level, the profit allocation rules for principal companies and Swiss finance branches no longer apply.
A core element of the reform is the introduction of a patent box regime in accordance with the Organisation for Economic Cooperation and Development (OECD) standard. In the box, net profits from domestic and foreign patents and similar rights are to be taxed separately with a maximum reduction of 90% (rate at cantonal discretion). Before the patent box can be applied for the first time, the corresponding tax deducted research and development (R&D) expenditures must be recaptured and taxed.
For Switzerland to remain an attractive business location, this measure is accompanied by the introduction of R&D super deduction of maximum 50%, optional at cantonal level. For administrative reasons, the maximum deduction of 50% (rate at cantonal discretion) is limited to personnel expenses for R&D plus a flat-rate surcharge of 35% for other costs and 80% of expenses for domestic R&D carried out by third parties or group companies.
To balance the proposal, the proposal also contains increased dividend taxation to 70 percent for the Confederation and at least 50 percent for the cantons, although the cantons can also make provision for a higher level of taxation.
The corporate tax reform will be effective 1 January 2020.
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