On 17 October 2018, the Geneva State Council presented its final cantonal project for the implementation of the Federal Act on Tax Reform and AVS Financing (TRAF). It introduces minor changes compared to the previous project and leads to a massive decrease of the corporate income tax rate to 13.79%.
Following the approval of the Swiss Corporate Tax Reform III (CTR III) by the Swiss Parliament in June 2016, the Geneva State Council set up a cantonal project to implement said CTR III and a first project emerged in November 2016. However, as CTR III was rejected by the Swiss electorate, the Swiss Parliament had to work on an amended project (Tax Proposal 17). This was subsequently updated by the Federal Council to include a social equalization measure concerning AVS financing. On 28 September 2018, the Swiss Parliament passed the Federal Act on Tax Reform and AVS Financing (TRAF). Taking into account this new federal law, amendments have been made to the initial cantonal project which can be summarized as follows:
- Corporate income tax: unique effective tax rate of 13.79%;
- Capital tax: credit of income tax towards capital tax (tax credit) limited at 50% for five years, then unlimited/full credit applied;
- Dividend taxation: taxable part of 70% for investments held in private wealth, 60% for investments held in business wealth
- Patent box: the reduction of qualifying income would be limited to 10%;
- Research and development: the “super-deduction” is limited to 150% of the commercially justified expenses;
- Notional interest deduction: non-applicable at cantonal level for Geneva (unchanged);
- Disclosures of hidden reserves (transitional step-up): for five years from the end of the tax status, the taxation of hidden reserves is reduced to 13%
- Overall limitation of tax measures: cantonal cap on cumulated reduction effects to 9%, leading to a minimal income tax rate of 13.29%
- Recurring supporting measures: withholding of 0.07% on the wage bill (payroll) in favor of the early childhood and family care facilities
The Geneva State Council will propose to the cantonal Parliament to organize a public vote in May 2019. The population of Geneva would thus have to vote jointly for the federal and cantonal projects on the same day. The federal and cantonal projects should be implemented on 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.
KPMG will continue to keep you updated regarding this key economic topic.
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