In the European context, Switzerland offers low tax rates and an investor-friendly tax environment. Its ordinary corporate income tax rates are low compared to most other European countries.
As a rule, the Swiss confederation’s federal 7.8% corporate income tax charge generally accounts for less than 50% of an ordinarily taxed company’s total corporate income tax charge, while most cantonal and municipal corporate income tax accounts for more than 50% of an ordinarily taxed company.
As each of the 26 Swiss cantons (states) and each of their municipalities has the sovereign right to determine its own income tax rate, there is competition for low tax rates among the 26 cantons (and within each of them, between the municipalities).
As a result, the overall corporate income tax charge varies from canton to canton between 12% and 24%, making it worthwhile to carefully bear in mind cantonal and municipal corporate income tax charges when selecting a corporate domicile in Switzerland (the term “tax charge” as opposed to “tax rate” is used on purpose to reflect that in Switzerland, tax payments are tax deductible expenses).
In some of the 26 Swiss cantons, a net worth or capital tax of up to 0.5% is levied on share capital and reserves. At the federal level, there is no net worth or capital tax.
Corporate tax reform
Currently, the so-called Corporate Tax Reform III (CTR III) is looming, but what is it all about? There are a number of special low-tax models: Nidwalden Canton’s former licence box model, the limited risk distribution tax model, the mixed company model, the holding company model and the finance branch model.
It should be noted, however, that Switzerland is under pressure from the Organization for Economic Co-operation and Development (OECD), driven by the EU, to abolish any of these models for its so-called CTR III within the next few years, whereas the Canton of Nidwalden has already aligned its licence box model to the patent box standards defined by the OECD. A similar OECD-compliant patent box, detailed below, will be introduced nationwide by CTR III, and on top of that CTR III will enable the cantons to reduce ordinary corporate income tax rates from the current 15-24% to 12-20%.
In the sense of a taxpayer-friendly Swiss finish, additional benefits might be implemented in the amended legislation such as additional deductions or tax credits for R&D expenses, a notional interest deduction on over-average equity, a tax-free step-up on any hidden equity at the time the amended law will enter into force, and a right of cantons with capital tax to allow the deduction of IP-related equity from the capital tax base.
In any case, we expect that although the above-mentioned low tax models may fall out within the next few years, they will be replaced by the attractive CTR III features designed to uphold Switzerland’s tax attractiveness. CTR III is expected to become effective on 1 January 2019, according to the planned schedule.
Attractive ‘patent box’ model
The Nidwalden Canton – one of the 26 Swiss cantons and located less than an hour’s drive southeast of Zurich – attracts group IP companies and other companies with substantial income from patents by limiting their total income tax charge on patent income to 8.8% (including 7.8% federal income tax), if and to the extent that its patent-related income is based on its own R&D expense.
Under CTR III, an OECD-compliant patent box will be made available in all Swiss cantons. Its currently contemplated reduced tax rate will be slightly over 10%. The Swiss patent box will apply to income generated from qualified patents and “comparable rights”, while comparable rights may, according to OECD standards, include income from supplementary protection certificates (SPCs) and software copyrights. It is expected that patents and comparable rights only qualify for patent box benefits if and to the extent that they resulted from R&D expenses that were mainly generated in Switzerland (OECD modified nexus approach, allowing for 30% acquired or outsourced IP/R&D expense).
Dividends and capital gains
Dividend income derived from shareholdings of more than 10% of the share capital or exceeding CHF1 million in value – currently equivalent to about US$1 million – and capital gains derived from shareholdings of more than 10% of the share capital are exempt from federal corporate income tax, provided the respective shares have been held for a minimum period of one year prior to their sale.
Switzerland’s practice to obtain binding tax rulings is probably unique. A tax ruling as practised in Switzerland is not a type of special tax arrangement under investigation from the OECD and EU, but is a binding consent of the competent tax authority to the taxpayer’s understanding of the tax consequences of a particular undertaking, such as a planned merger, corporate reorganization or other activity. Tax rulings can be obtained within a few weeks, and in case of urgency even faster, and it provides high-level certainty and comfort for the taxpayers.
At a mere 8% standard rate, Swiss VAT is extremely low in comparison to the EU’s 15% minimum VAT standard rate, topped by most EU members with VAT standard rates of 20% and more. In Switzerland, special VAT rates apply to food, seeds, agricultural products, medication and print media (2.5%) and to hotel services (3.8%).
It is noteworthy that Switzerland’s VAT reform of 2010 allowed holding companies to claim input VAT, which adds to the attractiveness of Switzerland for holding companies.
Christoph Niederer is a partner and head of tax at VISCHER in Zurich, and Fiona Gao is an associate with VISCHER’s China Desk
P.O. Box 1230
电话 Tel: +41 58 211 34 00
传真 Fax: +41 58 211 34 10