Earlier this month the Swiss parliament approved proposed
changes to the country's tax system. Known as Corporate Tax
Reform III (CTR III), it will see an end to preferential cantonal
tax regimes and certain federal tax regimes.
In recent years Switzerland has faced increasing pressure from
the EU and OECD regarding its preferential tax regimes. The
cantonal privileged taxation for holding, domiciliary and mixed
companies and the federal tax arrangements for principal companies
and finance branches draws particular attention and
scrutiny. The goal of CTR III is to abolish preferential tax
regimes and at the same time, maintain Switzerland's
attractiveness and strength in the market.
CTR III will lead to the abolishment of holding, domiciliary and
mixed company arrangements. The federal tax arrangements for
principal companies and finance branches will be abolished as
Reduced cantonal corporate income tax rates
To counter the effects of no more preferential tax regimes for
companies, cantons may introduce reduced corporate income tax
rates. A number of cantons have already announced this intention,
with rates between 12% and 14%. The canton of Zug announced a rate
of 12% and the canton of Vaud announced 13.8%.
Introduction of Patent Box at cantonal level
Income from qualifying IPR may be subject to relief of up to
90%. The amount of relief is decided by the cantons. Further Patent
Box details are expected and will be subject to developments at EU
and OECD level.
Voluntary super deduction for R&D expenses at cantonal
Cantons are permitted to introduce a deduction for R&D
expenses higher than the actual R&D expenses, up to 150%.
Introduction of notional interest deduction
A company's equity is subject to a deemed interest
deduction. Limits are set as to what's included in the
company's equity. For cantons, the notional interest deduction
is optional, but it will be mandatory at federal level. This may
lead to effective taxation as low as 2%.
Step-up tax basis allowed
For up to five years following the abolishment of preferential
tax regimes, affected companies are permitted to recognise hidden
gains. Applicable tax rates are set by the cantons. This also
applies to companies moving to Switzerland.
Voluntary reduction cantonal net equity tax introduced
Cantons may decide to reduce the net equity tax due on
participations and IPR.
The introduction of a tonnage tax and the abolition of stamp
duty on equity payments were CTR III discussion topics, however
both have been taken out of the CTR III package and will be debated
Timeline to implementation
While now passed by the Swiss parliament, CTR III may still be
subject to a popular referendum. The socialist and green parties
have indicated that they will call for this. The cantons must
otherwise implement the changes and the expectation is that the
preferential tax regimes will be abolished by 1 January 2019 at the
Companies subject to the holding, domiciliary or mixed company
regime should review their status and take appropriate action at
the earliest possible stage. Other companies should review their
current tax status to determine whether any updates are
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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