Corporate taxation: Switzerland has regained places worldwide
This is a different picture from Switzerland that emerges from the representation of ordinary tax rates on corporate profits. The cantons of French-speaking Switzerland, with the exception of that of Jura and Valais, now have some of the most competitive tax rates, close to those of central and eastern Switzerland.
While the central part of the country, from the Jura to the Alps via the Plateau, has the highest tax rates. At least that is what the Swiss Tax Report 2020 published by KPMG and presented on Wednesday in Zurich indicates. This report compares the corporate income tax and personal income tax rates of 130 countries and 26 Swiss cantons.
Significant improvements for Geneva, Friborg and Solothurn
As part of the tax reform (RFFA) adopted by the Swiss people, a year ago, the canton of Geneva in particular proceeded to the most substantial reduction in its tax rate on profits, from 24 % to 14%, followed by Friborg from 19.9% to 13.9% and by Solothurn from 21.4% to 16.2%. In one year, the average tax rate in Switzerland has dropped by two percentage points, from 17.1% to 15.1%, while in 2007 it was still above 20%. In international comparison, Switzerland thus regained places in the upper third and overtook Hong Kong (16.5%) and Singapore (17%). Overall, corporate income tax rates have dropped sharply since 2018, particularly in the Middle East and as part of the U.S. tax reform (27%).
A paradigm shift is taking shape internationally
But for KPMG specialists, “even if relatively low profit taxes will remain a factor of competitiveness due to the high wage costs in Switzerland, this low corporate taxation alone will not be enough to sustainably preserve the country’s competitiveness. Especially since a clear paradigm shift is taking shape in the international tax landscape, with rules for the allocation of fiscal substrate likely to be disrupted by the tax base project and profit transfer under the plan BEPS 2.0 of the OECD and the G20. “We see that this project, initially focused on the digital economy, is increasingly becoming a restructuring of international rules in many sectors,” said Stefan Kuhn, head of tax and legal advice at KPMG. As it sees fit, “Switzerland would therefore be well advised to become actively involved in discussions within the OECD and with other concerned bodies and to forge alliances with countries also concerned with an attractive environment for economy and society ”warns the specialist.
Coronavirus to Strengthen Competition
And KPMG believes that the coronavirus crisis will further strengthen competition between economic places. These are indeed countries already heavily indebted that have massively increased their debt during the pandemic and they will be even more eager for tax revenue. In the international competition between economic places, factors such as access to the market, a skilled workforce, modern infrastructure and legal certainty will play an increasing role.
As in the past, the cantons of Central Switzerland and Inner Appenzell Rhodes have the lowest ordinary income tax rates. In these cantons, the rates remain broadly stable despite a notable drop for Zug and Uri. With a profit tax rate of 11.9%, the canton of Zug is now ahead of Lucerne (12.3%). The canton of Glarus gained nine places and fell third (12.4%) with a substantial drop in its profit tax rate. The French-speaking cantons of Neuchâtel (13.57%), Friborg (13.87%), Geneva (14%) and Vaud (14.02%) follow one another from the eleventh to the fourteenth rank, clearly ahead of the Jura (17%), Bern (21.63%) and Valais (21.74%).
Taxation of individuals more and more favorable in central and eastern Switzerland
The taxation of individuals continues to present in Switzerland a more polarized picture between the most competitive cantons of central and eastern Switzerland on the one hand and a heavier taxation in French-speaking Switzerland, but also in Bern, Ticino and to Zurich. The lowest income tax rate of 22.4% is recorded in the canton of Zug, followed by Obwalden (24.1%) Appenzell RI (24.9%) and other cantons in Switzerland central. And it is in Geneva that high incomes are most taxed, at a rate of 44.75%. In Basel-Landschaft (42.2%) and Ticino (40.2%) also, tax rates for high earners are relatively high. The average income tax rate in Switzerland remains at 33.8% as in the previous year. The biggest change can be seen in the canton of Basel-Stadt, which raised its rate by almost three percentage points from 37.4% to 40.3%. Otherwise, only the canton of Lucerne increased its own, but only marginally (from 31.16% to 31.17%). Seven cantons, on the other hand, slightly lowered their respective rates.