Basel Innovation Credit: Overview Of Key Terms

In this blog we outline the key aspects of the Basel innovation credit based on the recently enacted ordinance on the cantonal act promoting business in the Basel area (Verordnung zum Standortförderungsgesetz or StaföV). For Basel-based companies with research and development (R&D) or clinical trial activities, such innovation credit can be financially quite attractive. Some restrictions are very Basel orientated and we hope that later revisions will relax some requirements.

1. Qualifying Companies

All legal entities subject to unlimited taxation in Basel Stadt qualify for the innovation credit if they are primarily active in research and development (R&D) driven sectors like food, chemicals, life sciences, metal, machinery, high-technology instruments, and manufacturing or services related to information & communication technology (ICT). In addition companies qualify if eligible R&D expenses exceed at least 10% of their total expenses over the last three years (or if shorter, since foundation). Legal entities subject to limited taxation in Basel-Stadt only qualify if eligible expenses (depreciation on tangible assets R&D, depreciation on tangible assets for high-tech production) in Basel-Stadt amount to at least CHF 100'000 in the relevant year.

2. Qualifying Expenses

• Personnel Expenses: Salaries for employees primarily working in Basel-Stadt or the broader Northwest Switzerland region and engaged in R&D activities, including researchers, technical specialists, support staff, and personnel ensuring regulatory compliance and IP protection.
• Depreciation on Assets: Regular depreciation on tangible assets located in Switzerland and used for R&D or high-tech production. Extraordinary depreciation is excluded.
• Clinical Trials: Expenses for clinical trials conducted in Switzerland or for manufacturing active ingredients for these trials in Switzerland. Only direct expenses qualify (subcontracting is excluded). Funding is provided to commissioning company only for expenses incurred by a CRO/CMO that itself conducts the clinical trials or manufactures the necessary active ingredients. If the CRO/CMO conducts the clinical trials in Basel-Stadt or in Northwest Switzerland or manufactures the necessary active ingredients in in Switzerland, it can be assumed that the same expense also qualifies for the CRO/CMO.

3. Credit Amount

The credit amount depends on the location and type of expense:

• Personnel in Basel-Stadt: 25% (expenses < CHF 5M), 20% (CHF 5M - CHF 50M), 5% (> CHF 50M). An additional 3% applies to patent-related expenses.
• Personnel in Northwest Switzerland (excluding Basel-Stadt): 10% of the applicable Basel-Stadt rate.
• Depreciation on Assets in Basel-Stadt: 25% (expenses < CHF 1M), 20% (CHF 1M - CHF 5M), 5% (> CHF 5M). An additional 3% applies to patent-related expenses.
• Depreciation on Assets in other Swiss Cantons: 10% of the applicable Basel-Stadt rate.
• Clinical Trials: 10% of eligible expenses.

4. Deadlines

Applications must be submitted electronically by 30 June of the year following the relevant calendar year. For 2024, the deadline is September 30, 2025.

5. General Documentation Requirements

• Current Commercial Register Excerpt.
• Audited Annual Financial Statements: Provides a comprehensive overview of the company's financial performance during the relevant fiscal year. If the Company has no auditor elected, we recommend to conduct an EGM in Q3 2025. There is some uncertainty whether a limited audit according to art. 727a CO is sufficient. We believe this should the case given the additional auditor's confirmation required (next bullet).
• Auditor's Confirmation: This statement from the company's auditor must verify the calculation basis used for determining the eligible expenses.

6. Specific Documentation

The required additional documentation varies depending on the specific expenses claimed but generally includes the following:

• Personnel Expenses: Detailed payroll records demonstrating the salaries and other compensation paid to employees engaged in qualifying R&D activities; documentation of the employees' roles and responsibilities, demonstrating their involvement in R&D; and proof of their primary place of work (Basel-Stadt or Northwest Switzerland).
• Depreciation on Assets: Asset register or fixed asset schedule listing the tangible assets used for R&D or high-tech production; depreciation calculations showing the regular depreciation claimed for the relevant fiscal year; proof of the location of the assets (Basel-Stadt or elsewhere in Switzerland); and documentation demonstrating the use of the assets in qualifying R&D or high-tech production activities.
• Clinical Trials: Contracts with third-party service providers for conducting clinical trials or manufacturing active ingredients; invoices and proof of payment for clinical trial expenses; and documentation confirming that the clinical trials were conducted in Switzerland and/or the active ingredients were manufactured in Switzerland.

The authorities may request further documentation or clarification as needed. It is crucial to maintain accurate and organized records of all relevant expenses and supporting documentation.

8. Other Relevant Information

• Limits: The credit for expenses outside Basel-Stadt cannot exceed twice the credit for expenses within Basel-Stadt. Total credits are limited by available funds, with proportional reductions if necessary.
• Exclusions: Companies in bankruptcy or liquidation are excluded. Outstanding payments to authorities may offset the credit. Double funding of the same measure is not permitted.
• Auditing: Authorities may conduct audits up to five years after the decision.
  

9. Example

The following example provides an illustrative calculation for a life sciences company located in Basel-Stadt with following expenditures in 2024:

In this example the "cap" of twice the Basel-Stadt credit for expenses outside the canton is not relevant as the Baselland personnel expenses are significantly lower. If the total credits requested exceed available funds, proportional reductions will apply. Please seek professional advice for your specific circumstances.

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.