On 31 January 2019, the Grand Council of Geneva adopted the cantonal project for the implementation of the Federal Act on Tax Reform and AVS Financing (TRAF). It introduces minor changes compared to the initial project and confirms the massive decrease of the corporate income tax rate to 13.99%.
On 31 January, the Grand Council of Geneva ruled on the “State Council’s draft law modifying the law on the taxation of moral persons (LIPM)”. This vote follows the recent work undertaken by the Geneva State Council as part of the implementation, at cantonal level, of the Federal Act on Tax Reform and AVS Financing (TRAF) (also read previous article). This cantonal draft law has convinced an important majority within the Grand Council thanks to the compromises that have been reached between the various Geneva political parties. The content of the final project that has been adopted by the Grand Council of Geneva and that will be subject to a cantonal vote on 19 May can thus be summarized as follows:
- Corporate income tax: unique effective tax rate of 13.99%;
- Overall limitation of tax measures related to the corporate income tax: cantonal cap on cumulated reduction effects to 9%, leading to a minimal income tax rate of 13.48%;
- Capital tax: credit of income tax towards capital tax (tax credit) limited at CHF 8’500 during the year of entry into force of the law (2020), limited respectively to 25%, 50% and 75% during the next three years (2021 to 2023) and, finally, full credit from the fourth year onwards (2024);
- Reduced taxation of capital: effective rate of 0.001% on the capital related to qualified investments, patents and intragroup loans;
- Dividend taxation: at cantonal and communal level, taxable part of 70% for qualified investments held in private wealth, 60% for qualified investments held in business wealth;
- Patent box: the reduction of the taxation of qualifying income would be limited to 10%;
- Research and development: the “super-deduction” would be limited to 150% of the commercially justified expenses;
- Disclosure of hidden reserves (transitional step-up): for five years from the end of the tax status, hidden reserves are taxed separately at the reduced effective rate of 13%;
- Recurring supporting measures: withholding of 0.07% on the wage bill (payroll) in favor of the early childhood and family care facilities;
- Adjustment of the capital contribution principle: companies listed on the Swiss stock exchange can make tax-free repayments (of the capital contribution reserves) only if they distribute taxable dividends for an equivalent amount;
- Notional interest deduction (NID): non-applicable at cantonal level for Geneva.
On 19 May, the population of Geneva will also vote on the federal project related to the tax reform. Consequently, in case of adoption, the cantonal project and the federal project should be implemented as from 1 January 2020. Both projects are crucial for ensuring the ongoing competitiveness of the Geneva economic center, value creation and employment as well as the maintaining of tax revenues.
In its current form, the cantonal project has been elaborated in adequation with the federal project of the TRAF. In the event that only the federal project is rejected whereas the cantonal project is accepted, the latter would not be null but would potentially be subject to amendment. Finally, there is to date no alternative project should the draft cantonal law be rejected by the Geneva population in the upcoming vote.
KPMG will continue to keep you updated regarding this key economic topic.
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