Zug fiscal reform 2017

The Federal Steering Committee announced on June 1 2017 its first proposals for the new tax regulation 2017, regarding the tax reform in Switzerland which will implement a standard corporate tax rate of approximately 12%, without causing any important financial losses to the canton of Zug, to the municipalities, companies and individuals. In addition, the tax burden will not be shifted to individual tax payers. The measures are focused on making the Swiss tax system in line with international standards and to revoke certain tax privileges that are granted to certain companies that operate in international jurisdictions.

Because of the rejection of the Corporate Tax Reform III (CTR III) on 12 February 2017 by the Swiss electorate, it is important to provide clarity regarding the conditions of the taxation framework for companies from Zug operating in international jurisdictions, but not only, and to improve legal certainty and planning security. The proposal of the Steering Committee are based on the Corporate Tax Reform III’s structure, approved by the electorate from Zug, while taking into consideration concerns and issues voiced before the referendum. Some of these concerns include the minimum amount for child and education allowances. Finance Director Tännler confirms that authorities «are still planning to implement the tax reform in Zug, without causing notable financial losses for the canton of Zug and it municipalities and without shifting the extra tax burden to individual tax payers. »

The most important tax changes refer to:

1.Implementing a standard  corporate income tax rate of approximately 12% for all Zug companies;

2.Introducing a patent box with a cantonal tax relief of 90%;

3.Promoting research and development through a cantonal tax deduction of 150%. The maximum discharge shall equal maximum 70% of net profit;

4.Increasing taxation of qualifying dividends from 50% to 70%. The Canton of Zug will not be affected by the increase of the minimum amount for child and education allowances, because there are already high amounts into effect.

The tax adjustments are part of a much needed corporate tax reform on national level. Some types of companies such as holding companies, mixed companies and domicile companies must accept the moderately higher tax burden and not benefit from a privileged tax treatment. However, these measures will lead to a corporate income tax rate reduction for all Zug-based companies from 14.6% to approximately 12%.

The new taxation system in Zug is meant to be neutral, in order for additional revenue shortfalls and revenues to offset each other almost entirely, including the indirect impacts on the national financial equalization scheme (NFA).

Consultations for implementation on cantonal level are expected to begin in April 2018, while the amendments would come into effect by 2020. The Department of Finance intends to launch the consultation regarding implementation on cantonal level as quick as possible, depending on the progress made at federal level. For the summer of 2018, a consultation of the Federal Assembly on the tax regulation 2017 is expected. Furthermore, the government of the Zug canton plans consultations on the draft for the first semester of 2019, while the inception is expected starting with 2020.

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