Locational quality: Less dynamism in locational ranking competition between cantons

Locational competition between cantons eases off in the meantime

After years of upheaval due to corporate tax reform, 2021 has seen locational quality rankings stabilize. The Canton of Zug is consolidating its position at the top of the locational rankings, ahead of Basel-Stadt.

Zug takes first place in the locational rankings for 2021 as well

The Canton of Zug has consolidated its position at the top of Credit Suisse's locational quality rankings, once again taking first place ahead of Basel-Stadt. One contributing factor in this context was the temporary reduction of the cantonal tax rate from 82% to 80% approved by Zug voters in March 2021. The new rate will apply for the tax years of 2021 through 2023. The measure aims to assist the population and corporations in dealing with the financial fallout of COVID-19.

There is quite a bit of distance separating the Cantons of Zurich and Geneva and the two top spots. Aargau, Nidwalden, and Schwyz also posted clearly above-average results. The Canton of Valais still brings up the rear, but has succeeded in improving its locational quality and is closing in on the Canton of Jura.

Image Alt Text*	Locational quality of Swiss cantons

Locational quality of Switzerland's cantons at a glance

Locational quality indicator (LQI), synthetic index, CH = 0
Source: Credit Suisse

Only a few isolated tax cuts in the context of corporate tax reform

This year, as previously, the significant changes within the locational quality rankings can be attributed to tax policy. As such, 2021 has seen several individual cantons reduce their corporate tax rates in the wake of the TRAF corporate tax reform, although the most dramatic changes in position had already taken place in previous years. The effective maximum profit tax rate in Sion (Valais) is now 18.72%, versus 20.29% in 2020. Zurich has reduced this rate from 21.15% to 19.70%.

While the availability of qualified workers and the accessibility of the location also play key roles in the evaluation of locational quality in addition to tax appeal, these factors typically only change slowly.

The locational quality of Switzerland's cantons has changed only gradually in recent years

The evolution of the cantonal locational quality rankings during the period from 2013 to 2021 shows that the positions of most cantons have only changed to a limited extent. Thanks to considerable increases in tax appeal for legal entities, however, several cantons are performing much better than they were in 2013. Basel-Stadt is now competing for first place with Zug, the current leader; the Cantons of Geneva and Vaud have climbed eleven and eight places, respectively. Meanwhile, Obwalden, Bern, and Lucerne have lost the most appeal from a relative perspective over this period.

Corporate tax reform: Movement within locational rankings

Corporate tax reform has been a particularly decisive factor with regard to movement within the locational rankings

Locational quality indicator (LQI), synthetic index, CH = 0
Source: Credit Suisse

Reform of international corporate taxation likely to influence locational rankings

The gradual reductions of corporate tax rates which have been implemented in a number of jurisdictions are likely to result in further minor shifts within the cantonal rankings over the next several years. At the same time, however, international efforts to reform global corporate taxation may put pressure on certain cantons to raise their taxes again.

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