Taxation in the Canton of Zurich

Transcription

1 Kantonales Steueramt Head Corporate Tax Taxation in the Canton of Zurich Tax Proposal 17 (TP17): Update Contact: Regarding TP17 Cantonal Tax Office Zurich Head Corporate Tax Bändliweg 21 CH 8090 Zürich Tel +41 (0) Fax +41 (0)

2 For official use please refer to the German version. Table of contents 1 Federal tax Disclosure of hidden reserves in case of relocation to and from Switzerland Zurich cantonal/communal tax Abolition of privileged tax regimes Reduction of cantonal corporate income tax rate Tax incentives based on TP Increased tax deduction for research and development Patent box Notional interest deduction Disclosure of hidden reserves / Step-up procedure in general Reduction of capital tax Summary Tax holiday Federal tax holiday area in the canton of Zurich Cantonal/communal tax holiday... 6 Page 2

3 Introduction On February 12, 2017, the corporate tax reform III has been rejected by Swiss voters. However, for the Swiss federation and the cantons neither the starting position (foreign countries criticize certain rules of corporate taxation) nor the purpose (ensuring that Switzerland continues to offer a sustainable, internationally accepted and competitive corporate tax system) changed. On September 6, 2017 the federal council initiated the public consultation for the tax proposal 17 (TP17) and submitted the dispatch for parliament on March 21, It is planned that parliamentary discussions will be completed during the session in fall. If the measures of TP17 are not subject to a referendum with public voting again, they could enter into force in On November 15, 2017 the cantonal council announced his statement to the federal public consultation of TP17 and his intention regarding the implementation of TP17 in the canton of Zurich (decision of the cantonal council No. 1069/2017). In cooperation with the significant cities and communities, it is intended to make full use of all possible tax incentives for the calculation of the taxable income and capital offered by TP17 on cantonal level. Moreover the canton of Zurich insists on the optional introduction of the notional interest deduction on cantonal level as a compensation measure for the abolition of the holding status and the practice for finance branches. Finally, a general reduction of the corporate income tax rate from currently 8% down to 6% is envisaged in two steps. Depending on the effect of TP17 and taking into account the specific business activities of a company and the place where these activities are executed, the effective tax burden will range between 11,2% and 18,2% (federal, cantonal and community tax city of Zurich, calculation based on profit before taxes). It has to be noted, that the introduction of the below mentioned tax incentives requires an amendment of the Zurich cantonal tax law, which presumably will be subject to a public voting in autumn Federal tax 1.1 Disclosure of hidden reserves in case of relocation to and from Switzerland According to TP17 hidden reserves shall be treated equal in case of relocation to and from Switzerland. As a result, only the portion of the net profit, which has been realized during residency in Switzerland, is taxed. A tax free step-up of hidden reserves (including goodwill) is foreseen in case of a relocation of the legal entity or the place of effective management to Switzerland. The same rule applies if assets or functions are transferred from abroad to a Swiss company or a Swiss branch. The termination of a federal tax exemption also qualifies as a beginning of the tax liability. Consequently, a step-up is also possible in this case. A step-up shall be granted on certain non-taxed hidden reserves including original goodwill. No step-up is foreseen on hidden reserves of participations in a corporation or cooperative of more than 10%, if they qualify for the participation exemption in the future. The annual tax depreciation rate for disclosed hidden reserves is similar to the depreciation rate according to the official guidelines. The amortization period for original goodwill is foreseen to be 10 years. As a corresponding rule (which applies already as of today), hidden reserves (including hidden reserves on original goodwill) have to be taxed at the end of the tax liability. The transfer of assets or functions abroad as well as the relocation of the legal entity or the place of effective management to another country qualify as end of tax liability. 2 Zurich cantonal/communal tax 2.1 Abolition of privileged tax regimes Due to international development the cantonal tax regimes such as holding company, mixed company and domicile company have to be abolished for complying with international standards. Page 3

4 2.2 Reduction of cantonal corporate income tax rate The cantonal council announced a reduction of the corporate income tax rate from currently 8% down to 6%, effected in two steps. As a result, the effective tax burden for an ordinarily taxed company in the canton of Zurich with domicile in the city of Zurich will be reduced from currently 21.1% down to 18.2% (federal, cantonal and community tax, calculation based on profit before taxes and current conditions, assuming a cantonal income tax rate of 6%). 2.3 Tax incentives based on TP17 Depending on the specific business activity and the place where these activities are executed, on cantonal level the envisaged increased tax deduction for research and development expenses, the patent box and depending on the parliamentary discussions the notional interest deduction are interesting measures which further reduce the corporate income tax burden in accordance with international standards. Based on federal regulations, in any case at least 30% of the net earnings must be subject to taxation on cantonal level (taxable profit prior to deduction of tax loss carry forwards and excluding net participation income from qualified participations). The absolute minimum of 30% also applies, for any tax depreciations on tax free stepped-up hidden reserves. 1 The cantonal council intends to go for the absolute minimum of 30%. Consequently profits are subject to a minimal effective tax burden of currently 11.2% (whereof approx. 30% relate to cantonal/communal taxes) Increased tax deduction for research and development According to TP17 the cantons have the possibility to allow on cantonal level an increased tax deduction of maximum 50% of the effective research and development (R&D) expenses incurred in Switzerland. An additional deduction should be possible for R&D expenses incurred in Switzerland directly by the company or indirectly through third parties in Switzerland. In the canton of Zurich an increased tax deduction of 50% of the R&D expenditures incurred in Switzerland is envisaged Patent box On cantonal level a patent box shall be introduced due to TP17. Thus, the portion of the income resulting from patents and similar intangibles related to Swiss incurred research and development expenditures can be exempt up to 90% from the cantonal corporate income tax. The canton of Zurich plans to fully grant a 90% exemption on such income Notional interest deduction As outlined above, the canton of Zurich still insists on an optional introduction of a notional interest deduction on cantonal level on the surplus equity, as it has been foreseen in the corporate tax reform III. The surplus equity reflects approx. the portion of equity that could be taken as debt capital on the capital market any time. In general the applicable interest rate for the calculation of the notional interest deduction is based on the long-term Swiss bond rate for 10 years. The applicable interest rate on the portion of the surplus equity to be allocated to intra-group receivables (group financing activities), may also be calculated based on the arm s length principle. 1 Regarding the release of hidden reserves in case of loss of a cantonal tax regime please refer to the note (available in German only) dated August 28, 2017 ZStB-Nr 73.3 Übergang von der Besteuerung als Holding-, Domizil oder gemischte Gesellschaft zur ordentlichen Besteuerung (Statuswechsel): Auswirkungen auf die stillen Reserven und die Vorjahresverluste. tatuswechsel.html Page 4

5 2.4 Disclosure of hidden reserves / Step-up procedure in general General: The treatment of hidden reserves in case of relocation to and from Switzerland is based on the rules for direct federal tax (see section 1.1 above). Transition from preferential taxation to ordinary taxation: As a consequence of the abolition of the special cantonal tax regimes through TP17 (abolition of holding company, mixed company and domicile company), a tax wise systematically correct treatment of hidden reserves is required. Thus, during a transition period of 5 years the realization of hidden reserves (including original goodwill) can be taxed separately with a lower special tax rate, if such income would not have been taxable under the old law. However, companies which are currently subject to special taxation in the canton of Zurich have the possibility to voluntarily waive their cantonal tax privilege prior to the enter into force of TP17. In this case, due to cantonal tax practice a corporate income tax free step-up of hidden reserves (including original goodwill) is possible, followed by a tax-effective amortization (with a maximum amortization period of 10 years for goodwill). However, such depreciations are subject to the overall limitation of 70% of the tax relief, once TP17 is in force. The stepped up hidden reserves are subject to cantonal capital tax until the provisions of TP17 are entered into force on cantonal level. As far as the conditions for the taxation as a holding company, mixed company or domicile company are still fulfilled after the voluntarily waiver of the cantonal tax privilege for corporate income tax purposes, the reduced capital tax rate still applies, until the Zurich cantonal tax law is changed. In this case, the company has to apply for the reduced tax capital tax rate in the tax return. 2.5 Reduction of capital tax As a further measure in connection with TP17, the cantons can envisage a reduced capital tax on equity relating to investments, patents and similar intangibles as well as intercompany loans, if enacted by parliament. The canton of Zurich intends to make use of this instrument as well. 2.6 Summary In short, the strategy of the cantonal council intends to introduce the following tax incentives: - Reduction of corporate income tax rate down to 6% in two steps; - Increased tax deduction of 50% on the R&D expenditures incurred in Switzerland; - Exemption of 90% of qualifying income from patents and similar intangibles related to R&D costs incurred in Switzerland; - Introduction of the NID, if enacted by parliament; - Reduced capital tax on equity relating to investments, patents and similar intangibles as well as intercompany loans, if enacted by parliament; - Special tax rate on certain hidden reserves of former holding, domicile and mixed companies in case of realization of such reserves within five years. As a result of the combination of a general reduction of the tax rate from 8% to 6% and the other instruments - and depending on domicile and specific business activities - an effective tax burden between 11.2% and 18.2% results (federal, cantonal and city of Zurich communal taxes (multiplier 2017), based on profit before taxes). Page 5

6 3 Tax holiday 3.1 Federal tax holiday area in the canton of Zurich As of July 1, 2016 the Zurich's communities of Rüti and Dürnten are part of the tax holiday area on federal level. Consequently, in case of relocation to these communities, a tax holiday for federal corporate income tax can be requested, if the necessary requirements are met. 3.2 Cantonal/communal tax holiday A cantonal/communal tax holiday can be combined with the above mentioned cantonal/communal tax incentives. For further information, please see our separate brochure Tax relief to newly established businesses Page 6