Switzerland is standing at a crossroads in terms of its attractiveness as a business location. Tax rates still play a vital role despite the importance of other location factors. The latest edition of KPMG’s “Clarity on Swiss Taxes”, which compares corporate and income tax rates in 130 countries and all 26 Swiss cantons, reveals, on average, minimal tax reductions for legal entities and minimal increases for individuals.
Like last year, the Canton of Lucerne has once again topped the list in a national comparison of corporate tax rates with a maximum effective pre-tax rate of 12.32%, followed closely by Nidwalden and Obwalden at 12.66% as well as Appenzell Ausserrhoden, which raised its rates by 0.38 percentage points from 12.66% to 13.04%. Corporate tax rates were raised at the cantonal level not only in Appenzell Ausserrhoden but also in Schwyz where the increase amounted to 0.57 percentage points. The biggest reduction was found in Neuchâtel where tax rates were cut by 1.36 percentage points. As in the previous year, the regular corporate tax rates of Western Switzerland, the Mittelland region and the city cantons are considerably lower than those in the cantons of Central and Eastern Switzerland. The highest business taxes are once again being levied on companies in the cantonal capitals of Geneva and Lausanne, namely 24.16% and 22.79%, respectively.
Once again, only the cantons of Central and Eastern Switzerland could compete in a European comparison with lower corporate tax rates found solely in the Channel Islands and some countries of (South-) Eastern Europe. In Western Europe, Ireland still represents the biggest competition in terms of standard tax rates. The Canton of Lucerne is the only canton that can compete with Ireland's regular corporate tax rate of 12.50%. In an international comparison (as of 2014), the strong financial centers of Hong Kong and Singapore were ranked among the top locations with rates of 16.50% and 17.00%, respectively.
As the current situation shows, when it comes to international competition, standard tax rates are not the only contributing factor in companies' choice of location. Political developments of recent years, driven by the EU, OECD and G20, have increased the pressure put on Switzerland and its special tax regulations even further. Over the past 12 months, however, other European countries such as Belgium, Ireland, Luxembourg and the Netherlands have come under pressure for their special tax regimes, as well. Within the scope of the Corporate Tax Reform III, Switzerland now has an opportunity to find a solution that is acceptable in terms of both foreign and domestic policy, which safeguards Switzerland's continued attractiveness as a tax location.
There is a trend toward transparency in corporate taxation. The already foreseeable statutory and regulatory developments will not bring any turnaround in this respect. On the contrary, the new rules on transparency will increasingly be anchored in laws and international treaties. That is how the agreement with the OECD and the Council of Europe on the subject of administrative assistance on tax matters intends to handle the international exchange of information. Similarly, the OECD's BEPS action plan calls for companies to commit to preparing a country report detailing where they generate their profits, where they pay taxes, and how much taxes they pay. “Long term, we expect this information to become part of a company's public reporting,” says Peter Uebelhart, Head of Tax and a Member of the Executive Committee at KPMG Switzerland.
As in the previous year, the average cantonal tax rate on high incomes rose slightly. Nevertheless, enormous differences still exist between the individual cantons. When it comes to individual taxes, the cantons of Central Switzerland are also ahead: among cantonal capitals, the Canton of Zug still tops the list at a rate of 22.86% followed by the cantons of Obwalden (24.48%), Nidwalden (25.55%) and Uri (25.63%). At 26.96%, the Canton of Schwyz dropped from 2nd place to 6th place compared to the previous year (23.73%).
With a view to European countries, Swiss cantons continue to remain competitive. Only East European countries such as Bulgaria (10%), Lithuania (15%) and Hungary (16%), as well as the Channel Islands of Guernsey and Isle of Man (20%), have lower income tax rates. In an international comparison, the Caribbean offshore domiciles and a few Arab countries top the list due to their zero income tax policies followed by Asian nations such as Hong Kong (15%), Singapore (20%) and Malaysia (26%) (as of 2014). All in all, Switzerland continues to rank in the midfield with an average maximum income tax rate of 33.86%.
"Clarity on Swiss Taxes" is published on an annual basis by KPMG Switzerland. The current study reflects 130 countries and all 26 Swiss cantons. It compares the maximum effective corporate tax rates for companies (at the federal government, cantonal and municipal level) as well as the maximum income tax rates for individuals (at the federal government, cantonal and municipal level; no children, no religious denominations) for 2015 in the relevant national or cantonal capitals.
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