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01 July 2019 / news

Swiss Corporate Tax Reform – Impact on Individuals

On 19 May 2019, the Swiss corporate tax reform package TRAF (Tax Reform and AHV Financing) was approved by referendum. The reform will enter into force on 1 January 2020 and is mainly aimed at replacing preferential tax regimes. However, TRAF will not only have an impact on companies (see our other blog post, dated 20 May 2019) but also affects Swiss resident individuals. The biggest impact will come from the increased taxation of dividends but also other aspects require closer attention.

Overview of the impacts on individuals

The impact on Swiss resident individuals can be divided into four aspects, as outlined below:

Measure

Tax reform package

Taxation of dividends

• Preferential taxation of dividends for Swiss tax resident individuals increases (minimum tax basis of 70% on federal and 50% on cantonal level)

• The cantons may also provide for a higher level of taxation

• The requirements for the preferential taxation remains the same as before, i.e. a participation of at least 10% in a company's equity

Transposition adjustments

• The 5% transposition threshold for shares transferred to self-owned companies will be abolished

• The profit from the sale of shares will not remain tax-free if an individual sells shares to a company controlled by that individual

Step-up for relocation

• Step-up upon migration or transfer of business operations/functions to Switzerland

Repayment of qualifying capital reserves

• Restriction of the tax-exempt distribution of qualifying capital reserves for Swiss listed companies

• Swiss listed companies can repay reserves from capital contributions to their shareholders tax-free only if they distribute at least the same amount as taxable dividends

 

Action points until the end of the year 2019

The new rules will enter into force on 1 January 2020. Also taking into account tax developments in other jurisdictions, priority action points for individuals include the following:

  • Increased taxation of dividends: In view of the higher taxation of dividends from 1 January 2020, companies should (if possible) make distributions to their shareholders still in 2019. Particularly, individuals fully owning companies should take a close look at the company's freely distributable reserves and other financial aspects giving room for optimization.
  • Transposition adjustments: Under current rules, taxpayers may benefit from tax effective restructurings. However, the abolishment of the 5% transposition threshold limits the opportunities for the transfer of shares for certain individuals. Therefore, it is necessary to assess possible restructurings this year on a case-by-case basis. Taxpayers are recommended to review their position and analyze what is the most beneficial approach.
  • Relocation of activities/functions: Many companies have started to relocate functions to Switzerland in view of the future low tax rates without reliance on tax regimes. The possible additional benefit of a step-up in basis upon migration could result in higher (tax deductible) amortization expenses that may further enhance the tax efficiency. In any event, international tax developments seem to indicate a shift towards a tax rate-related approach.
  • Repayment of capital contribution reserves: The restriction of the tax-exempt distribution of qualifying capital reserves for Swiss listed companies leads to an income and withholding tax burden for individuals. Depending on the place of residence of the taxpayer, this restriction of the tax-exempt distribution may lead to a non-refundable withholding tax burden. Thus, taxpayers are advised to review their Swiss tax position and analyze their overall set-up with regard to their strategy.Please contact your trusted advisor at Loyens & Loeff in case you have any queries. We provide tailor-made, multi-jurisdictional solutions to ensure your business has a smooth and efficient transition from the current Swiss tax environment to a post-BEPS world, both in Switzerland and in the European market.

We recommend clients to assess opportunities further to the adoption of the Swiss corporate tax reform package, starting from the above topics.



Swiss Corporate Tax Reform – Impact on Individuals

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