Generally, cantons offer competitive CIT rates for cantonal and communal tax purposes. Depending on the specific cantonal and communal tax location in Switzerland, the ordinary overall (federal, cantonal, and communal) CIT rates applicable on profit before tax may vary between 11.9% and 21.6% (see the Overall tax rates in the Taxes on corporate income section). The cantons continually try to improve their attractiveness as business locations. It is at the sole discretion of the cantons to credit CIT against the capital tax to reduce the overall tax burden (see Capital tax in the Other taxes section). With the Swiss tax reform, a patent box was introduced at cantonal and communal levels on 1 January 2020 reducing CIT on license income from qualifying patents. There is further, in most of the cantons, the option to apply for an R&D super deduction (see Federal Act on Tax Reform and AHV Financing (TRAF) in the Significant developments section).
In addition, many cantons offer tax incentives for newly established companies or for expansion investments, such as tax holidays or significant tax relief for cantonal and communal tax purposes for up to ten years. In some specific economic development regions and regional centres, a tax holiday may even be granted for federal CIT purposes if certain conditions are met.
Privileged cantonal tax regimes
Many cantons offered privileged corporate tax regimes (holding companies, domicile companies, mixed trading companies) until the end of 2019. With the entering into effect of the TRAF on 1 January 2020, the privileged cantonal tax regimes were abolished, replacing them with other measures (see Federal Act on Tax Reform and AHV Financing (TRAF) in the Significant developments section). The cantons provide for specific transition rules for companies that must change from a privileged tax regime to an ordinary taxation (old law 'step-up' and/or new law 'step-up' depending on the company’s location of corporate residence in Switzerland).
On 1 January 2020, a patent box was introduced at cantonal and communal levels reducing CIT on income from qualifying patents. The proportion of income from patents and similar rights to the extent it is based on qualifying R&D expenses in Switzerland is exempt from CIT up to a maximum of 90% (depending on the cantonal implementation). To enter the patent box, previously incurred R&D expenses that arose to develop the respective patents will have to be taxed at the applicable CIT rate based on a company’s location of corporate residence in Switzerland. The magnitude of the patent box benefits varies from canton to canton.
Foreign tax credit
Swiss tax resident corporations and branches may suffer foreign non-recoverable WHTs on dividend, interest, and royalty income derived from foreign sources. As such foreign-source income is generally subject to corporate income taxation in Switzerland, a double taxation occurs. In case a double tax treaty (DTT) exists and in order to reduce or to eliminate double taxation, Switzerland usually applies the credit method (for branches as of 1 January 2020). Specific conditions and formalities will need to be met to benefit from foreign tax credits.