TRAF is an opportunity. If you take the right approach early on.

Approved in May 2019, the Tax Reform and AHV Financing (TRAF) package entails a fundamental restructuring of corporate taxation. For Swiss SMEs, this tax reform offers them the opportunity to rethink and optimize their own corporate structure to take advantage of these new possibilities. 

TRAF is shaking up corporate taxation

There were several hot topics at the second Credit Suisse Entrepreneur Conference – one of them being TRAF. The first measures of the Tax Reform and AHV Financing (TRAF) package will be implemented at the federal and cantonal levels on January 1, 2020. Many SMEs are now asking themselves which of these measures they can benefit from and how they can prepare for the reform. A large number are unaware that the reform offers numerous opportunities to Swiss companies that were previously unable to benefit from tax privileges.

Key measures of the tax reform at a glance

At the cantonal level, there is a 70 percent cap on cumulative relief through a patent box regime, deductions for R&D and self-financing as well as any depreciation and write-downs as part of a premature switch from preferential to ordinary taxation by disclosing hidden reserves.

Changes to the tax regime

At the federal level

Practical regulations for principal companies and finance branches are being abolished.

Elimination of tax privileges

At the cantonal level

Tax privileges for holding, domiciliary, and mixed companies are being abolished.

Introduction of a patent box regime

At the cantonal level

Patent box regime with a maximum tax reduction of 90 percent is being introduced.

Deductions for domestic research and development (R&D).

At the cantonal level – optional

An additional deduction of a maximum of 50% can be applied for domestic research and development (R&D).

Deduction for self-financing

At the cantonal level – optional

Cantons with high tax rates of more than 18.03% may introduce an interest deduction on surplus equity capital.

Adjustment of the tax on capital

At the cantonal level – optional

Cantons may reduce the rate of the tax on capital for patents and similar rights.

Switch from preferential to ordinary corporate taxation

Beginning in 2020, there will be a two-rate model for companies switching from preferential to ordinary taxation. The two-rate model grants special status companies a five-year transition period. During this time, profits from hidden reserves, which were previously taxed at a privileged rate, will be subject to a special tax rate. Cantons are able to determine this rate at their own discretion. After the reform is implemented, the regular tax rate will be applied to new profits.

However, in most cantons, companies already have the opportunity to disclose hidden reserves on a tax-neutral basis when changing their tax status. Over the next few years, companies will be able to write these off for tax purposes, effectively reducing their tax base. The so-called current-law step-up is interesting, in particular for mixed companies or companies that were previously able to benefit from tax privileges.

React early and take advantage of the opportunities posed by TRAF

With the passage of the reform at the federal level, the political process is now complete. Most cantons have now also laid out the design of their new tax regimes in detailed laws. However, in practice, nothing is set in stone. Companies have great negotiating potential, especially with regard to potential deductions for research and development. That is why companies in cantons with planned R&D deductions should already be thinking about what qualifies as an R&D expense in their company.

Most companies in Switzerland will be affected by the changes to corporate tax law brought on by TRAF. It is worthwhile following the current developments in the individual cantons. However, certain provisions of the tax reform will also have direct effects even without timely implementation by the cantons. Therefore, Swiss companies should analyze their structures early on and make the necessary arrangements both to safeguard the opportunities presented by the new regulations and to stay competitive.

Would you like to find out more about the "Tax Reform and AHV Financing" (TRAF) reform package?

Schedule a consultation This link target opens in a new window