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Corporate tax code overhauled in Switzerland

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Tax Hot Topics newsletter Voters in Switzerland approved to reform the country’s corporate tax code last month. The measure, which passed by a two-thirds majority on May 19, will allow Switzerland to remain competitive and enhances its attractiveness for multinational companies.

The new code phases out some preferential corporate tax regimes and replaces them with incentives that are in line with those generally accepted by the EU and OECD.

Two major incentives relate to research and development (R&D) and income from patented intellectual property. Swiss states, known as cantons, can now grant an excess deduction for R&D activities conducted in Switzerland. This “R&D super-deduction” allows a corporation to deduct up to 150% of its actual R&D spend for cantonal or communal (local) tax purposes.

Under the new patent box regime, income from patented intellectual property for which the R&D costs were incurred in Switzerland is entitled to a reduction of up to 90%. This may result in an effective combined tax rate of 8.5% on all income tax levels before accounting for depreciation, interest deduction, and other benefits.

Other incentives include:
  • Reduction of corporate tax rates at the cantonal level (with federal/cantonal/communal combined effective rates between 12% and 14.5% in many cantons)
  • Tax-free stepped up basis when a company transfers its legal seat, effective place of management or functions and assets to Switzerland
  • Deduction for notional interest on excess equity
  • Grandfathering rules for transitioning from the old, preferential corporate tax regimes

The combined tax reduction generated by the new incentives is limited to a percentage of taxable income, typically 70%, in order to maintain a minimum income tax base.

The new legislation is effective as of Jan. 1, 2020.
 
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Washington National Tax Office 
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David Zaiken
Managing Director
Washington National Tax Office 
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Cory Perry
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Washington National Tax Office 
T +1 202 521 1509

Mike Del Medico
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Washington National Tax Office 
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