Canton of Zurich Implements Swiss Corporate Tax Reform - Other Cantons to Follow
By popular vote the Canton of Zurich implements as of 2020:
- Corporate tax rate of 19.7% (City of Zurich) instead of 21.1%
- An additional tax deduction of 50% on R&D costs
- A notional interest deduction on conservative equity
A further reduction of the corporate tax rate to 18.2% is expected in a second step. In order to comply with the OECD regulations, Switzerland has decided to abolish special taxation for holding, domicile and mixed companies as of 2020. To stay attractive for international business, the Canton of Zurich has now reduced the corporate tax rate for all companies and implemented special tax deductions that are recognized by OECD standards.
Who is not affected by the corporate tax reform?
Holding companies, i.e. companies holding more than 10% on the stock of other companies (participations) are not affected, as income from participation and capital gains on the disposal of participations are exempt based on the participation exemption scheme. Even income from participations of less than 10% but with a value of more than CHF 1 million are exempt, however capital gains on such high value participations are not.
Lower capital tax rates are provided for participation holding companies and thus no higher capital tax is to be expected.
Who will profit from the corporate tax reform?
Companies with research and development activities are allowed to deduct an additional 50% of their R&D cost in their tax return.
Companies with (excess) equity, i.e. equity that is not necessary for their operative business, are allowed to deduct a notional interest on such conservative equity. However, in the current zero or even negative-interest environment, there may be no accountable advantage.
Ordinary taxed companies will profit form lower corporate tax rates.
Who is affected?
Portfolio companies, i.e. companies holding a portfolio of bankable assets with individual positions at value lower than CHF 1 million are affected by the tax reform. For these companies the privileged taxation will no longer be available and a higher corporate tax rate of 19.7% will apply as of 2020. Higher ordinary capital taxation will be applicable as of 2020 as well.
Trading companies, i.e. companies with purchase and sale activities outside of Switzerland, can no longer profit from mixed company privilege and thus will be affected by being taxed at ordinary tax rate. Even though the ordinary tax rates have been reduced, they are still significantly higher than the tax rate provided for mixed companies in the past.
Also affected by the tax reform are companies with tax rulings, as the tax rulings are superseded by the new corporate tax reform act. Only certain tax rulings, e.g. transfer pricing rulings, are not concerned by the corporate tax reform.
Portfolio companies, trading companies and companies with tax rulings will no longer profit from reduced capital tax rates.
What needs to be done?
Portfolio companies, trading companies and companies with tax rulings have to anticipate higher corporate tax rates and higher capital tax rates in the Canton of Zurich Companies not closely linked to Zurich may consider relocating to another Canton with lower corporate tax rates and better capital conditions.
By 2020 the most favorable tax rates of certain Cantons are expected to be around 12% to 14% with lowest possible capital taxes.
We gladly analyze your specific case and propose ideal options for actions you can take to make sure you profit from the lowest possible taxation in the future. We are as well suited to provide office space, infrastructure, administration and management in some of the best in class (tax) sites in Switzerland, e.g. Zug or Lucerne.
We are looking forward to hearing from you.