Corporate Taxation in Switzerland in 2024

Overview of Corporate Taxation System in Switzerland

The Swiss corporate tax system is complex, characterized by cantonal variations and currently undergoing significant changes to comply with international standards such as the OECD global minimum tax rate. Here is a detailed analysis comparing the Swiss system to those in Europe and the rest of the world, along with commentary on implications and strategies.

Swiss Tax Framework

The Swiss tax system is structured at three levels: federal, cantonal, and communal. Companies are taxed at varying rates from one canton to another, starting at 11.80% and averaging 14.9%. Switzerland thus positions itself as a competitive player internationally. Federally, corporations and cooperatives are taxed at 8.5%, while other legal forms such as associations and foundations are taxed at 4.25%. Over 100 double taxation agreements ensure that income generated in two different countries is not subject to double taxation. Swiss VAT, among the lowest in Europe, is set at 8.1%.

In Switzerland, companies are taxed on capital, and the rates may vary between different Swiss cantons, with each canton applying specific scales. This is particularly true for companies with complex structures or those operating in multiple cantons.

Tax Developments and Innovations

RFFA: Since its modernization in 2020, the Swiss tax system continues to offer attractive tax rates, often below 15% in two-thirds of the cantons. Initiatives such as the “patent box,” in line with OECD guidelines, promote preferential taxation of income from patents and similar rights. Increased deductions for research and development complement this offering, allowing for maximum tax relief of up to 70% on profits.

OECD and BEPS 2.0

In response to the digitization of the economy, the OECD has developed rules for fair profit allocation and minimum taxation of profits of large multinational corporations, applicable in Switzerland from January 2024 with a minimum rate of 15% for companies generating over €750 million in global revenue.

The BEPS (Base Erosion and Profit Shifting) project, developed by the Organisation for Economic Co-operation and Development (OECD), aims to counter the reduction of the taxable base and profit transfer by companies to minimize their taxes. As an OECD member, Switzerland has committed to adopting the BEPS recommendations to enhance transparency and combat tax evasion.

Switzerland, like many other countries, has been proactive in implementing the OECD BEPS 2.0 project, including the introduction of the global minimum tax under Pillar Two. This project aims to ensure that multinational enterprises (MNEs) pay a minimum tax rate of 15% in each country where they operate. Switzerland has introduced specific elements such as the Qualified Domestic Minimum Top-up Tax (QDMTT) from January 1, 2024, with other elements planned for later implementation.

In Europe, the EU has taken significant steps to integrate these global rules into its legislation. Council Directive (EU) 2022/2523 has been enacted, transposing the OECD’s model rules on base erosion and profit shifting (GloBE) into EU law, imposing a minimum rate of 15% for large MNEs and domestic groups within the EU from 2023.

In the United States, the adoption of a global minimum tax is part of a broader effort to reform the international tax system, targeting large multinational corporations and digital companies in particular. The United States has played a key role in negotiations and the formulation of agreements within the OECD/G20 Inclusive Framework, but implementation details, such as the timeline and impact on businesses, are still under discussion.

Overall, these developments indicate a significant shift towards greater tax compliance and fairness in the global economic landscape, aiming to prevent profit shifting and ensure that companies contribute proportionate taxes to their operations in each jurisdiction.

Comparison with Europe and Global Standards

In terms of global competitiveness, Switzerland generally offers lower corporate tax rates than many other countries. For example, only a few jurisdictions like Guernsey, Hungary, and Bulgaria have rates lower than the lowest Swiss cantons.

However, Switzerland implemented a global minimum rate of 15% on January 1, 2024, in accordance with new OECD guidelines, aimed at multinational enterprises (MNEs) with revenues exceeding €750 million. This new requirement, known as GloBE rules, will necessitate an increase in effective tax rates for some cantons that currently have rates below this threshold. The implementation of this tax is expected to be fully aligned with OECD GloBE rules without significant deviations, marking a significant shift in Swiss tax policy towards compliance with international standards.

Note:

– 8.1%: One of the lowest VAT rates in Europe, ranking second.

– 14.9%: Average corporate tax rate in Switzerland.

Corporate Taxation in Europe in 2024

– Hungary: 9%

– Zug (Switzerland): 11.80%

– Lucerne (Switzerland): 12.4%

– Ireland: 12.50%

– Geneva (Switzerland): 14.7%

– Switzerland: 14.9%

– Sweden: 20.6%

– Slovakia: 21%

– Austria: 23%

– Luxembourg: 24.9%

– United Kingdom: 25%

– Belgium: 25%

– Spain: 25%

– France: 25.7%

– Netherlands: 25.8%

– Italy: 27.8%

– Germany: 29.9%

– Malta: 35%

Strategic Changes and Challenges

The shift to a global minimum tax is expected to reduce the competitive advantage that low Swiss rates previously offered. In response, there is a shift from tax-based competition to subsidy-based competition, with Switzerland needing to explore new promotional measures to maintain its attractiveness as a business location. These measures must comply with OECD and EU regulations and should focus on incentives for sustainability and innovation.

Focus on Environment and Sustainability

Switzerland is also witnessing a movement towards environmental-related taxes, which are relatively low but expected to increase. This is part of a broader trend where nations use “green” taxes to address environmental challenges. These taxes include energy taxes, emissions-based measures, and others related to resource management.

Conclusion and Outlook

The Swiss business tax environment is undergoing substantial changes to comply with international standards while striving to maintain competitiveness through innovative site promotion measures and subsidies. As these changes unfold, the Swiss tax system is likely to continue evolving, balancing adherence to global tax standards with the promotion of a business-friendly environment. This balance will be crucial to maintaining Switzerland’s position in the global economic landscape amidst international regulatory changes and competitive pressures.

Switzerland, known for its favorable tax regime, attracts many international businesses due to its low tax rates for both companies and individuals. The country also benefits from excellent cooperation between authorities and businesses, a vast network of double taxation treaties, and a particularly low VAT rate. The federal law on tax reform RFFA and financing of the AVS, implemented as of January 2020, modernized the tax framework, making Switzerland even more attractive on the international stage.

A Swiss Corporate Services Provider like My Swiss Company can play a crucial role in helping businesses establishing in Switzerland navigate the complex Swiss tax landscape and address associated challenges. Here’s how a fiduciary can be particularly helpful:

Tax Advisory and Planning

Fiduciaries/Swiss Corporate Services Providers, with their in-depth knowledge of the Swiss tax system, can offer personalized advice to optimize the company’s tax structure. This includes planning tax obligations at the federal, cantonal, and communal levels, taking into account the specificities of each canton. They can help structure the business to legally minimize tax obligations while remaining compliant with prevailing regulations.

Compliance and Tax Filings

Tax compliance is essential to avoid penalties and ensure sound business management. A fiduciary can take care of preparing and submitting all necessary tax declarations, ensuring that all deadlines are met and that declarations are correctly filled out according to Swiss standards.

Management of Global Minimum Tax Implications

With the introduction of the OECD global minimum tax, fiduciaries can advise on the implications of these new rules for multinational enterprises. This includes assistance in adapting to the Income Inclusion Rule (IIR) and the Qualified Domestic Minimum Top-up Tax (QDMTT) rules to ensure that companies meet required thresholds while optimizing their tax burden.

Restructuring and Reorganization Assistance

In a changing environment, businesses may need to restructure or reorganize their operations in Switzerland to remain competitive. Fiduciaries can play a key role in this process by providing strategic advice on the tax implications of such moves.

Audit and Due Diligence

When establishing or expanding in Switzerland, a fiduciary can conduct tax audits to identify potential risks and ensure that the business complies with all local regulations. This due diligence process is crucial for securing investments and business operations.

Adaptation to Subsidies and Tax Incentives

In the transition from tax-based competition to subsidy-based competition, fiduciaries can help identify and apply for government subsidies or tax incentives available, especially those related to sustainability and innovation, as encouraged by the European Green Deal and similar initiatives.

In summary, My Swiss Company SA – Corporate Services Provider provides essential support to businesses in navigating the complex tax environment, ensuring compliance, and optimizing tax opportunities, thereby allowing businesses to focus on their growth and expansion in Switzerland.

Contact us to start your initial consultation now. We would be delighted to get to know you and define the next steps for establishing your SME in Switzerland.

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