On 14 June 2016, the Swiss parliament voted in favour of the introduction of a so-called “notional interest deduction” (NID) as part of the Swiss Corporate Tax Reform III (CTR III). Swiss companies may benefit from a substantial NID deduction on part of their equity. This taxable base deduction may result in an effective corporate income tax rate of between 2-5% (for fully equity funded companies). Companies with existing Swiss structures should review their structures and adapt them to CTR III. The existing Swiss tax regimes are expected to be abolished and the beneficial new measures of the CTR III to be introduced between 2019 and 2021. Click here for further information.
The measures of CTR III include the abolition of special tax regimes like the Swiss holding, principal, domiciliary and mixed company tax status as well as the Swiss finance branch regime. Switzerland is abolishing these regimes under international pressure. In order to keep its international investment climate attractive, Switzerland is introducing the following measures in the CTR III:
- Introduction of a patent box at cantonal level for patents and similar rights related to patents associated with R&D activities substantially conducted in Switzerland (in line with the “modified nexus approach”). The exact details of the patent box will depend on international developments at the level of the EU and the OECD.
- Optional introduction of a super deduction for R&D expenses at cantonal level that exceeds 100% of actual R&D expenses (capped at 150% of actual R&D expenses).
- Introduction of a notional interest deduction on part of the equity (optional at cantonal level and subject to certain conditions).
- Step-up in tax basis for companies currently benefitting from the special tax regimes upon their abolition as well as for companies relocating to Switzerland. This step-up allows for a reduction of their future income tax burden by way of goodwill amortizations.
- Reduction of cantonal corporate income and annual capital tax rates as well as cantonal capital tax basis (exemption for participations and patents) at the discretion of the cantons.
Some measures previously discussed are not proposed in the CTR III dispatch:
- The participation exemption and loss carry forward rules remain unchanged.
- No abolition of issue stamp tax on equity capital (separate parliamentary proceeding).
- No introduction of a tonnage tax regime (separate parliamentary proceeding).
- No introduction of a capital gains tax on sale of securities for private individuals.
The final votes regarding the CTR III are scheduled for Friday, 17 June 2016. The CTR III may enter into force in 2017 (if no referendum is called) or in 2018/2019 (if a referendum is called). The existing special tax regimes should not be abolished before 2019 (if no referendum called) or 2020 (if a referendum is called). Multinational enterprises with Swiss trading, principal, licensing, financing and holding activities should review their structures and adapt them to CTR III.