Reform of the taxation of Swiss companies has been on the agenda for a considerable length of time. On 28 September 2018, the final draft of the 'Federal Act on Tax Reform and "AHV" Financing' ("TRAF") was approved by the Swiss Parliament.

"AHV" is an obligatory payment for every individual over the age of 20 living in Switzerland. It is an insurance for old age and/or for the bereaved.

The Objectives and Timing

The European Union (EU) has given Switzerland until the end of 2018 to review a number of tax privileges that they consider are not internationally acceptable. The main objective of the proposed reforms is to achieve this goal while retaining the international attractiveness of the Swiss Corporate Tax Regime.

Key Measures

At the cantonal level, it is proposed that tax privileges for holding companies, domicile companies and mixed companies will be abolished.

At the federal level, it is anticipated that the profit allocation rules relating to principal companies and branches of companies in Switzerland will be repealed.

A Summary of What the Key Affects are Likely to Be

Cantons are expected to receive an increased share of federal tax: 21.2% (previously 17%).

  • This will enable the majority of Swiss cantons to provide attractive tax rates on pre-tax income of between 12% and 18% (including federal tax).

The Process and Where are We Now?

As with any adopted Swiss Law, this law will be subject to a referendum. 50,000 signatures need to be collected within 100 days (this timescale ends mid-January 2019).

If 50,000 signatures are collected, a public vote would then take place on 19 May 2019. Only if the Law is accepted, by the public, will it enter into force on 1 January 2020.

If the Law is not accepted, by the public, the procedure starts again and the Swiss Parliament will have to start the process to draft new proposed legislation.

Once Legislation is Accepted

Even when legislation is accepted, it is up to the individual Swiss cantons (of which there are twenty-six) to implement the tax reform, based on the federal framework.

This process, in itself, could take a while. Federal/national direct tax is the lower proportion of corporate tax levied in Switzerland, the real tax burden is decided by each canton.

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.