On 1 September 2019, the popular vote in the canton of Zurich regarding the cantonal implementation of the Swiss tax reform was successfully accepted.

Following the approval of the Federal Act on Tax Reform and AHV Financing (TRAF) in May 2019, which will enter into force as of 1 January 2020, the cantons are required to implement the new measures into their cantonal tax laws and ensure conformity with the federal TRAF regulations.

TRAF overview

The tax privileges for holding companies, domicile companies and mixed companies are internationally no longer accepted and will be abolished. At the same time, transitional rules are supposed to ensure a smooth transfer to ordinary taxation. Additional measures that are introduced with TRAF are the patent box, R&D super deduction and the notional interest deduction.More detailed insights into the corporate tax measures and the cantonal implementation status can be found in the blog article “Swiss cantons are on track to implement Swiss Tax Reform on time”.

Zurich tax reform

The Zurich government presented the cantonal implementation plan for TRAF on 24 September 2018 and the cantonal parliament finally approved the bill on 1 April 2019. As the Zurich tax reform will lead to a higher tax burden for certain taxpayers, the Zurich tax reform was subject to a mandatory public vote on 1 September 2019.

On 1 September 2019, the voters in the canton of Zurich approved the cantonal tax reform bill with a 56% majority. The positive outcome of the public vote is an important signal that the canton of Zurich wants to remain an attractive business location going forward.

Tax measures in Zurich

In order to remain attractive as business location, Zurich will reduce its cantonal tax rate and will introduce all new tax measures from TRAF. The main tax law changes in the canton of Zurich can be summarized as follows:

  • Zurich’s cantonal corporate income tax rate is scheduled to be gradually reduced. In a first step, the cantonal corporate income tax rate will be reduced from 8% to 7% as of 1 January 2021, which results in an overall corporate income tax rate (including direct federal tax) on pre-tax income of 19.70%. In a subsequent step, it is then contemplated to further reduce the cantonal income tax rate by another 1% as per 1 January 2023, which would lower the overall corporate income tax rate (including direct federal tax) on pre-tax income to 18.19%.
  • Specific transitional rules will be available for companies that will lose their preferential cantonal tax regimes. In addition to the already available step-up practice, the so-called “two-rate system” will be newly introduced. Profits relating to the realization of hidden reserves that were generated under a privileged tax regime will, upon request, be subject to a reduced tax rate until the end of 2024 (reduced cantonal income tax rate: 0.5%). Under the current step-up practice in Zurich, stepped-up assets can be amortized tax-effectively over a maximum period of 10 years.
  • The introduction of an OECD-compliant patent box regime is mandatory. This measure will provide tax relief of a maximum of 90% of the income derived from patents and similar rights at cantonal level. Zurich makes full use of this measure by introducing a maximum relief of 90%.
  • In order to promote and develop R&D activities within the canton, the R&D super deduction will be set to the maximum of 50% in Zurich, i.e., taxpayers will be allowed to deduct 150% of qualifying R&D costs for cantonal tax purposes.
  • As a specialty, Zurich will introduce the notional interest deduction on surplus equity. This measure is only intended for application in “high-tax” cantons, such as Zurich.
  • The maximal cantonal tax relief is set to 70%, which is the maximum possible tax relief.
  • As the privileged tax regimes will also be abolished for net equity tax purposes, a net equity relief will be introduced. The net equity tax relief in Zurich amounts to 90% and can be claimed on the net equity attributable to qualifying participations, patents and intercompany loans.


After the approval of the Zurich tax reform, both the federal as well as the cantonal tax reform measures will enter into force on 1 January 2020.

The tax reform brings an unprecedented change to the Swiss corporate tax landscape and most corporate taxpayers will be impacted by the most significant overhaul of the Swiss tax system in decades. As the tax reform will enter into force on 1 January 2020, taxpayers are advised to analyze the impact of the upcoming changes and to evaluate appropriate measures in order to seize opportunities and prevent from competitive disadvantages.