The statutory accounts of a Swiss company are the basis for determining taxable income. To be tax deductible, an expense has to be booked in the statutory accounts accordingly.
Generally, all business expenses that are booked in the statutory accounts are tax deductible, assuming they are economically/commercially justified from a tax perspective. If an expense is not a justifiable business expense in the sense of the tax law, it will be added back to taxable income. Examples typically include excessive depreciation, non-justified payments to related parties (e.g. hidden profit distributions), etc.
Depreciation and amortisation
Maximum depreciation/amortisation rates allowed for tax purposes are issued by the Swiss Federal Tax Administration. Higher depreciation/amortisation is allowed for tax purposes if the taxpayer can prove that such higher depreciation/amortisation is required (not only allowed) from a statutory accounting perspective. Some cantons follow the federal guidelines, whereas some cantons apply their own (more liberal) depreciation/amortisation rates.
The following summary of the rates specified by the Swiss Federal Tax Administration provides the general range of tax-accepted depreciation:
|Assets||Declining-balance (%)||Straight-line (%)|
|Buildings and land combined||3||1.5|
|Office furniture and equipment||25||12.5|
|Computer hardware and software||40||20|
Some cantons (e.g. Basel-City, Bern, Grisons, Zurich) take a more liberal approach and even permit, for tax purposes, an immediate write-down of certain assets (including fixed assets) to 20% or nil of the purchase price in the first year, provided that such write-downs do not, in the aggregate, result in a drastic decline in taxable income or even a tax loss. For CIT purposes, such immediate write-downs must be booked in the statutory accounts and generally disclosed in the tax return. As the cantonal tax authorities are responsible for assessing not only cantonal/communal CIT but also federal CIT, the immediate write-down will typically be accepted for federal CIT purposes as well.
Only acquired goodwill (derivative goodwill) may be capitalised in the statutory accounts and be amortised. Amortisation is generally allowed straight-line over five years. Special limitations apply to acquired shares, where the purchase price for these shares partly represents inherent goodwill.
The Swiss code of obligations does not contain any specific Swiss statutory accounting provision with regard to start-up expenses. For Swiss statutory accounting purposes, start-up expenses shall be expensed as incurred. For Swiss CIT purposes, business-related start-up expenses as booked in the statutory profit and loss statement are likely fully tax deductible.
Interest paid by a corporation to a third party is a deductible business expense. Interest paid to related parties (affiliated company or shareholder) has to reflect the fair market rate and is subject to limitations (see Thin capitalisation in the Group taxation section).
With respect to related parties, the Swiss Federal Tax Administration annually issues safe harbour interest rates to be used on loans denominated in Swiss franc on the one hand and in foreign currencies on the other hand. The corporation may deviate from these safe harbour rates as long as it can prove with hard facts that the rates used are at arm’s length and more appropriate in the present case. The cantons usually follow these federal guidelines.
The safe harbour rules for loans denominated in Swiss franc applicable as of 1 January 2019 are as follows:
|For loans to related parties||Minimum interest rate (%)|
|Financed from equity||0.25|
|Financed from debt (actual costs plus at least):|
|On amount up to and including CHF 10 million||0.50|
|On amounts of more than CHF 10 million||0.25|
|But in all cases at least||0.25|
|For loans from related parties||Maximum interest rate (%)|
|Type of loan||Home construction/ agriculture||Industry and business|
|Real estate loans:||1.00||1.50|
|A loan up to the amount generally acceptable for mortgages (i.e. ⅔ of the market value of the real estate)|
|Rest, whereby the following maximum interest rates for debt are applicable:||1.75*||2.25*|
|Land, villas, condominiums, vacation homes, business premises up to 70% of the market value|
|Other real estate up to 80% of the market value|
|Operational loans up to CHF 1 million:|
|Granted to trading and production companies||-||3.00*|
|Granted to holding and asset administration companies||-||2.50*|
|Operational loans above CHF 1 million:|
|Granted to trading and production companies||-||1.00*|
|Granted to holding and asset administration companies||-||0.75*|
* In calculating the amount of the maximum interest permissible from a tax perspective, any potentially existing hidden equity (based on Swiss thin capitalisation rules) has to be considered.
Notional interest deduction (NID)
A notional interest deduction (NID) on excess equity will be introduced with TRAF as per 1 January 2020. However, the NID will only apply for a company tax resident in the canton of Zurich. The NID rate on such excess equity will generally be based on the 10-year Swiss government bond rate. To the extent it relates to inter-company loans, an arm’s-length rate can be applied.
Bad debt provision
Based on a longstanding practice in Switzerland, it is admissible to set up a statutory accounting provision for specific impaired receivables, which will be accepted for CIT purposes. Unlike most other countries, it is also possible to account for an additional ('lump sum') bad debt provision of 5% on all domestic and 10% on all foreign receivables (i.e. a provision in addition to the provision for specific impaired receivables). Except for inter-company receivables and receivables to the public, enabling the taxpayer to defer the related tax liability until this provision has been released. Some cantons, such as Zurich, accept an even higher reserve (i.e. 10% on domestic and 20% on foreign receivables). This additional bad debt provision may have the character of a 'hidden' (i.e. undisclosed) reserve and is appropriate because the Swiss statutory accounting standards favour prudence over true and fair view accounting principles.
Obsolete inventory provision
Similarly to the bad debt provision, it is possible to account for a 'hidden' (i.e. undisclosed) reserve on a company’s inventory. This provision, which must also be booked in the statutory accounts, is accepted for tax purposes (similar to the bad debt provision). Specifically, a company may book a provision for specific obsolete inventory as well as a general provision of 33.3% on the inventory value after deduction of the obsolete inventory.
At the federal level, charitable contributions of up to 20% of the net profit (after tax) of a company are tax deductible, provided certain criteria are met. In particular, the charitable contribution has to be remitted to (i) Swiss legal entities that are exempt from taxation based on their public welfare or exclusively charitable objective or to (ii) the Swiss Federation, a Swiss canton or municipality, or their agencies (‘Anstalten’). The cantons usually apply the same rules and similar thresholds.
Sponsoring contributions are only tax deductible if commercially justified (without specific thresholds).
Royalty payments are generally deductible for tax purposes as long as the royalty rate is at arm’s length.
Costs of employee share plans and stock option plans
The cost of employee share plans and stock option plans are generally deductible, assuming the employees eligible for the plan are employed by the Swiss company. The same holds true for the recharge of costs for plans covering local employees.
Costs for job-related training and continuing education of employees
As far as they are recognised as an expense in the statutory books, costs incurred for job-related training and continuing education of employees are generally tax deductible.
R&D super deduction
With the entry into effect of TRAF as per 1 January 2020, an optional super deduction will be introduced for R&D expenses at the cantonal and communal level. Upon request by the taxpayer, an additional deduction of up to 50% (depending on cantonal rules) may be granted on qualifying Swiss R&D personnel expenses as well as expenses for third party contract R&D in Switzerland.
Fines and penalties
Under Swiss tax law, tax fines are not tax deductible. The potential tax deductibility of other fines or penalties has to be analysed with respect to the specific case.
Corporate income and capital taxes paid to the federal government, as well as to the cantons and the municipalities, are tax deductible. Indirect taxes (e.g. real estate transfer tax) are tax deductible as well.
Net operating losses
Tax losses can be carried forward for a maximum of seven years and can be offset against the taxable income of the following seven years. There is no carryback of tax losses in Switzerland.
Payments to foreign affiliates
Management and services fees paid by a Swiss company to a related party are generally tax deductible as long as the fees are at arm’s length.