Anticipating ongoing pressure from the European Union and the OECD,  Switzerland has launched a draft corporate tax reform, called CTR III, focusing on increasing the competitiveness of Switzerland as a global corporate center.

Switzerland is already favored by multinationals thanks to its attractive combination of stability, location, efficiency and technology, as well as its continuing commitment to a business-favorable tax system.

CTR III’s measures include:

  1. the license box,
  2. a notional interest deduction (NID),
  3. a step-up mechanism to reveal hidden reserves,
  4. a general lowering of cantonal corporate income tax rates,
  5. a stronger participation exemption, and
  6. abolition of the 1 percent capital stamp duty on equity capital contributions.

These measures are intended to  counteract the elimination of  cantonal tax regimes such as holding, domicile and mixed company regimes. The new measures are also intended to offset the elimination of the federal principal company regime and the Swiss finance branch regime, in order to ensure that Switzerland will remain a very favorable option for multinational companies.  

1. Swiss license box

The proposed license box regime broadly follows similar regimes existing in other EU countries, such as the UK, although the Swiss variation may be more expansive in its definition of qualifying income/assets.  The details are being drafted, and final provisions are, of course, subject to further developments at the OECD and/or EU level in order to stay internationally acceptable.  But, the objective is an effective tax rate (including both federal and cantonal taxes) of between 2.4 and 4.8 percent, depending on the location within Switzerland.

2. Notional interest deduction (NID)

The proposed NID regime would be applicable at both the federal and the cantonal level on the so-called “surplus equity”.  As a result, deemed interest would be deductible on the part of the equity deemed to be in excess of the necessary core equity.

3. Step-up mechanism

A company moving to Switzerland will be allowed to step up its assets to their fair market value (FMV), including the goodwill related to future profits. The FMV of these assets will be depreciated in the following years according to the general guidelines.  The same step-up will apply when a company relocates from a privileged tax regime (holding, mixed, license box, principal company) to an ordinary tax regime.

4. Lowering of cantonal tax rates

The base cantonal and communal income tax rates are expected to be reduced, so that the combined Swiss tax rates (cantonal and federal income tax) will be  12 – 14 percent. Certain Swiss cantons have already adopted the new lower rates, while others have announced new target rates.

5.  Participation exemption

Dividends and capital gains upon sales (even on small participations), would be fully exempt from income taxation.  This is viewed as a more certain and broader application of the current mechanism. Thus, by abolishing the current regime, the general Swiss participation exemption on dividend or participation income will not be negatively affected.

6. Abolition of capital stamp duty

The 1 percent stamp duty on equity capital contributions to a Swiss corporate entity will be fully abolished. This will facilitate the use of Swiss holding companies by eliminating the primary obstacle to use of Switzerland for corporate structuring and reorganizations.


Following the recent end of official consultations on the CTR III draft (January 31, 2015), it is clear that:

  1. the CTR III will not come into force until 2018 and 2020 and
  2. in the interim, the current Swiss rules and tax regimes still apply to existing and newly created Swiss entities (including the rules relating to cantonal holding companies and mixed companies).

Attractive package for multinationals

The general reduction of the corporate income tax rates in many cantons will result in effective tax rates as low as 12 percent on all income. Together with the step-up basis, license box and notional interest, once the new rules are in effect, companies will be able to achieve an even lower rate on Swiss income.  

Moreover, these changes aim to attract non-Swiss companies that may be facing higher scrutiny by tax authorities and financial auditors regarding income tax and low/no-tax jurisdictions. Among such companies may be those that will be under pressure to “on-shore” their holding companies and intangible property due to pressure from the EU to comply with OECD guidelines. The new Swiss tax rules to be enacted under CTR III should ensure that relocation to Switzerland will remain a very favorable option.  Thus, it appears advisable for companies to evaluate the long-term impact of these changes and to consider initiating forward-looking tax planning that includes Switzerland.

Hans-Jürg Schmid is a partner with the law firm Walder Wyss Ltd., based in Switerland.  Reach him at [email protected]