On 3 September 2019, the referendum period for the cantonal implementation of the Swiss tax reform in Zug expired and the tax reform in Zug will enter into force on 1 January 2020.

In the public vote on 19 May 2019, the Swiss voters approved the Federal Act on Tax Reform and AHV Financing (TRAF). The reform at federal level will already enter into force on 1 January 2020. Following the approval at federal level, 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 and the R&D super deduction.

Zug tax reform

In the canton of Zug, the cantonal parliament approved the amendment of the cantonal tax law for the implementation of TRAF on 27 June 2019. The referendum period against the bill expired unused on 3 September 2019. Therefore, the implementation of the TRAF measures in Zug will enter into force on 1 January 2020.

With the publication in the cantonal gazette on 13 September 2019 the new tax law is formally enacted. Therefore, for tax accounting purposes (IFRS and US GAAP), the amended cantonal tax law needs to be considered for September 2019 closing.

Tax measures in Zug

To remain attractive as business location, Zug introduces all available TRAF measures. The main tax law changes in the canton of Zug can be summarized as follows:

  • A core component of the amended tax law is the reduction of the corporate income tax rate at cantonal level, which results in a reduction of the overall corporate income tax rate (including direct federal tax) on pre-tax income from 14.35% to 11.91%.
  • 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 (phased increase of reduce tax rate from 0.8% to 1.6%).
  • The introduction of the OECD-compliant patent box is made with full use of the maximum relief of 90%. Additionally, to promote and develop R&D activities, the R&D super deduction in Zug is set to the maximum of 50%.
  • The maximum cantonal tax relief is set to the maximum of 70%.
  • As the privileged tax regimes will also be abolished for net equity tax purposes, a net equity relief of 98% on qualifying assets (participations, patents, IC-loans) is introduced.

Status of other cantons in Central Switzerland

The other cantons in Central Switzerland are also on track to implement the TRAF measures into the cantonal tax laws. Please find in the following an overview of the status:

Lucerne

In the canton of Lucerne, the cantonal parliament approved the amendment of the cantonal tax law for the implementation of TRAF on 17 June 2019. The referendum period against the bill expired unused on 21 August 2019. The date of entry into force (expected on 1 January 2020) still needs to be formally decided by the Lucerne government.

Obwalden

In the canton of Obwalden, the cantonal parliament approved the amendment of the cantonal tax law for the implementation of TRAF on 28 June 2019. The mandatory public vote was accepted with a 56% majority on 22 September 2019.

Nidwalden

In the canton of Nidwalden, the cantonal parliament approved the amendment of the cantonal tax law for the implementation of TRAF on 26 June 2019. During the referendum period a counter proposal was filed. The deadline for collecting the required signatures for the counter proposal expires on 4 November 2019.

Schwyz

In the canton of Schwyz, the cantonal parliament approved the amendment of the cantonal tax law for the implementation of TRAF on 22 May 2019. The referendum period against the bill expired unused on 30 July 2019. The formal publication in the cantonal gazette is still pending.

Uri

In the canton of Uri, the cantonal parliament approved the amendment of the cantonal tax law for the implementation of TRAF on 19 June 2019. The mandatory public vote will take place on 20 October 2019.

Conclusion

After the approval of the Zug 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 in most cantons, taxpayers are advised to analyze the impact of the upcoming changes and to evaluate appropriate measures to seize opportunities and prevent from competitive disadvantages.