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Switzerland To Overhaul Corporate Tax Rules On January 1

Tuesday, December 31, 2019

Switzerland is due to introduce its new corporate tax regime from the beginning of 2020.

The reform was included in the Federal Act on Tax Reform and AHV Financing (TRAF). The TRAF will abolish special arrangements for cantonal status companies and introduce a mandatory patent box regime for all cantons, with additional optional deductions for research and development expenditure.

The TRAF will also set a minimum level of taxation for dividends from qualified participations, introduce additional depreciation measures for companies relocating to Switzerland, and extend the application of the flat-rate tax credit.

The Swiss Government has said the TRAF will introduce internationally competitive tax measures that will enable Switzerland to remain an attractive business location, as the tax regimes it will replace are no longer in line with international standards.

Switzerland was obligated to change its corporate tax regime after long-standing pressure from the European Union, which led to the country accepting the EU Code of Conduct on Business Taxation in June 2014. Jurisdictions recognizing the Code must, among other things, roll back tax measures deemed "harmful" and commit not to introduce new ones.

Consequently, tax reform proposals were drawn up to abolish special tax arrangements at cantonal level, namely holding, domiciliary, and mixed company formats, which allow foreign companies to pay little or no corporate tax. These regimes have long been criticized by the EU for facilitating the shifting of profits from EU member states to Switzerland.