In a referendum on 19 May 2019, 66.4% of Swiss who voted approved the bill on Swiss tax reform and an increase in State Pension (AHV) financing. From 01 Jan 2020 Switzerland replaces its preferential tax regimes for holding and domicilary companies, thereby adhering to modern international standards, at the same time as claiming to remain one of the most stable, and attractive business and tax locations.
The main points of the reform bill are as follows.
– Holding, domiciliary (and mixed) companies will lose their tax exemptions based on business being performed outside Switzerland. This is the main requirement in order that Switzerland is not blacklisted as a tax haven.
– In return, many Swiss cantons will significantly lower their corporation tax levels to help remain attractive to foreign owners. However many will still have rates above that offered by several other European low tax countries.
– There will be a new tax exemption for qualifying “Patent Box” royalties, and a 50% deduction for R&D investment. Companies can lower their tax burden by using these options, if applicable.
– Private individuals who own more than 10% of a company will suffer a higher taxation rate for dividends. This will affect mainly SME owners resident in Switzerland. Note that in Switzerland corporation tax is not credited against tax on dividends as in several other countries.
– The State Pension and Disability insurance (AHV/IV) premium will rise by 0.15% on the employer and employee side respectively (currently 5.125%) to cover the estimated increase in burden due to an aging population. Note that in Switzerland the AHV pension account is maintained separately and therefore financed mainly by premiums. It currently has CHF 47 billion, enough to last until beyond 2030, but still requires measures to sustain beyond that time (the Swiss are managing their pension for the long term).
Not all those in the Swiss business community are happy with the new regime: private Swiss resident owners of Swiss SME’s (who make up the bulk of the Swiss economy) will suffer higher taxes on dividends to help pay for the immediate tax deficit. However for foreign owned companies using Switzerland for tax optimisation, this act attempts to ensure Swiss taxation remains competitive with other European low tax countries, such as Ireland and Holland. Swiss personal income tax continues to be one of the most competitive in Europe.
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