Targeted tax incentives boost innovation in Switzerland

Tax incentives boost innovation in Switzerland

Economic development in Switzerland is characterized by the strong Swiss franc, the climate of uncertainty in the eurozone and the Far East, and the ever-diminishing room to maneuver left by increasingly strict compliance requirements. A joint study conducted by KPMG Switzerland, the Swiss-American Chamber of Commerce, the Swiss Federation of Small and Medium Enterprises (SGV) and economiesuisse has shown that tax incentives provide a significant boost to research and development activities, thus helping to drive innovation in Switzerland.

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Research and development (R&D) are vital pillars of innovation and also have an indirect impact on economic growth. Switzerland is an enterprising country, boasting one of the world’s most innovative economies. It holds this prominent position thanks to the multinational corporations based in the country, as well as large companies and a great number of highly successful small and medium enterprises (SMEs) that make a significant contribution to innovation on Swiss soil.

Growing economic and political pressure on Switzerland has led to significant efforts being made to ensure that businesses can remain competitive on this market and boost innovation within the country. Such measures include tax incentives, which aim to promote R&D activities and also form part of the Swiss Federal Council’s proposals for Corporate Tax Reform III.

The OECD is placing ever more restrictions on the ways in which measures on the income side – such as the Patent Box – can be used, greatly limiting their effectiveness. However, there are high hopes for a targeted approach to promoting R&D through tax incentives on the expenses side.

KPMG Switzerland and the Swiss-American Chamber of Commerce teamed up with the Swiss Federation of Small and Medium Enterprises (SGV) and the economic umbrella organization economiesuisse to conduct a study that took a closer look at the use of tax incentives, asking some 700 large companies and SMEs about their R&D activities. The study led to three major findings:

  • In the last five years, only a quarter of the companies surveyed that had built new R&D centers had done so in Switzerland, with the vast majority of businesses opening their centers abroad.
  • 72% of the companies surveyed said that tax incentives were important or very important to their choice of location for R&D activities. The only factors rated as more important were opportunities to collaborate with universities, universities of applied sciences or other education institutes (85%), access to qualified, international specialist staff (94%) and political and economic stability (95%).
  • When it came to choosing a location for future R&D centers, most of the companies surveyed had no strong opinions. 95% of the companies that were considering reducing their R&D activities in Switzerland said that the introduction of tax incentives for research and development in the country could well do enough to convince them not to go abroad.

The survey of large companies and SMEs clearly shows that introducing tax incentives for R&D would strongly encourage companies to keep their existing R&D activities in Switzerland and base additional national and international operations in the country.

Tax Incentives for R&D in Switzerland

Tax Incentives for R&D in Switzerland

Study about the approach to promoting R&D through tax incentives on the expenses side.

© 2016 KPMG Holding AG is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

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