As revealed in KPMG’s Swiss Tax Report 2017, no noteworthy shifts in tax rates were discernible for the past year as a whole. Following some minor cuts last year, indications for 2017 are showing yet another unmistakable trend toward stagnating regular corporate tax rates. The circumstances regarding individual tax rates are similar. Several political developments in Switzerland and abroad could inject some fresh momentum into the tax competition situation in the future.
KPMG’s Swiss Tax Report 2017 compares the corporate and income tax rates in 130 countries as well as all 26 cantons. On the whole and with just a few isolated exceptions, no noteworthy shifts could be seen during the past year. Following some minor cuts in 2016, indications this year are pointing to yet another unmistakable trend toward stagnating regular corporate tax rates. Viewed over a ten-year period, the average tax rate levied by Swiss cantons has fallen by 2.99%. The circumstances regarding individual tax rates are similar: Following a moderate downward trend, average top tax rates have been stagnating over the past few years and the lion’s share of top tax rates only varied marginally. Several political developments in Switzerland and abroad could inject some fresh momentum into the tax competition situation in the medium term.
In a national comparison, the cantons of Central Switzerland continue to top the tax ranking. Most of the Swiss cantons left their regular corporate tax rates unchanged. While Lucerne raised its rate slightly from 12.32% to 12.43%, Schaffhausen cut its regular corporate rate from 16.04% to 15.97% and the Canton of Grisons cut its from 16.68% to 16.12%. The Canton of Uri posted another reduction in its tax rate, this time from 15.01% to 14.92%. The rates levied by lower-ranking cantons, which include Western Switzerland, the Mittelland region and the city cantons, remained largely unchanged. Of these, only Solothurn lowered its corporate tax rate from 21.85% to 21.49%. Further decreases can also be expected in connection with pending Tax Proposal 17, particularly in the high-tax cantons.
A European comparison did not reveal any noteworthy changes in 2016 except for those made in Hungary and Italy: While Hungary slashed its tax rate drastically from 19% to 9%, Italy reduced its rate from 31.40% to 24%. Compared to Europe, the cantons of Central Switzerland, in particular, are still well positioned, with Lucerne leading the way (12.43%). Only the Channel Islands and some countries in South-Eastern Europe levy lower regular corporate tax rates. In Europe, Ireland is still the most competitive with a regular corporate tax rate of 12.50%.
Globally, the list of attractive tax locations for businesses includes not only the familiar off-shore domiciles but Hong Kong and Singapore, in particular. Switzerland ranks among the top third in a worldwide comparison. Over a ten-year period, cuts in corporate tax rates have most notably been seen in the Middle East, and in some cases these were quite considerable. Great Britain has announced its intent to reduce its corporate tax rate to 17% by 2020.
Fig. 1: Viewed over a ten-year period, regular corporate tax rates in the cantons of Switzerland have fallen by 2.99% on average.
Individual tax rates in Swiss cantons in line with European average
Following a moderate downward trend, average top tax rates for individuals have been stagnating over the past few years. The cantons of Central Switzerland top the rankings at the national level as well. As with the corporate tax rate, the Canton of Lucerne is raising its income tax rate slightly from 31.17% to 31.74%. The rates levied by the cantons of Uri, Grisons and Schaffhausen have been reduced slightly. The cantons of Western Switzerland and the Mittelland region, on the other hand, ranked lowest.
In an international comparison, the top income tax rates of most Swiss cantons fall in line with the European average. High incomes are still taxed at particularly low rates in (South-)East European countries, in part due to flat-rate taxes. Yet here, too, tax rates have been stagnating for some years now. Extremely high income tax rates can be found in the countries of Western Europe and Scandinavia. Significant tax hikes were adopted for the current year in Luxembourg (from 44% to 48.78%) and Sweden (from 57.10% to 61.85%), in particular. While well-known offshore domiciles and a few Middle East countries continue to waive income taxes, some countries such as South Africa (45%) and Japan (55.95%) have extremely high tax rates in place compared to other countries around the globe.
Fig. 2: Income tax rates of Swiss cantons at a glance
The Swiss Tax Report is published on an annual basis by KPMG Switzerland. The current study reflects 130 countries and all 26 Swiss cantons. It compared 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; unmarried, no children, no religious denominations) for 2017 in the relevant national or cantonal capitals.
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