As revealed in KPMG’s Swiss Tax Report 2018, both the corporate tax rates for companies and income tax rates for individuals have stagnated nearly across the board, but several reform endeavors in Switzerland and abroad are likely to shake up the tax competition situation in the near future.
KPMG’s Swiss Tax Report 2018 compares corporate and income tax rates in 130 countries as well as all 26 cantons. No noteworthy shifts were identified in the Swiss tax landscape. The average regular corporate tax rate levied by Swiss cantons has declined by merely 3.05 percentage points since KPMG first began tracking these rates in 2007. The situation regarding individual tax rates is similar: Following a moderate downward trend which persisted until 2012, the average top income tax rate has settled at just below the 34% mark, but several fiscal reform endeavors in Switzerland and abroad are likely to shake up the tax competition situation in the near future.
On average, corporate tax rates for companies only declined marginally year over year. Ranked by regular corporate tax rate, the cantons of Central Switzerland still come out on top with the lowest rates. While the vast majority of Swiss cantons have not made any changes since last year, Zug, Schwyz and Schaffhausen have reduced their rates moderately. Similarly, in Western Switzerland, the Mittelland region and the city cantons, which come in at the tail-end of the ranking, only the cantons of Jura, Ticino and Solothurn made minor changes. Yet with an eye to pending Tax Proposal 17, more cuts can be expected in the regular corporate tax rates, some of which considerable, particularly in previously high-tax cantons.
The average corporate tax rate in Switzerland might have declined by 3.05 percentage points since 2007, yet the long-term trend points toward a stagnation in these rates. Noteworthy reductions were only seen in the rates levied by the cantons of Grisons (-12.94 percentage points), Schaffhausen (-7.09), Lucerne (-6.58), Neuchâtel (-6.57) and Appenzell Ausserrhoden (-5). In practice, the 12% mark has established itself as a de facto floor – the cantons probably cannot afford to let regular corporate tax rates for companies drop any lower than this.
A comparison of European countries found nearly no changes among the top-ranked locations with very low tax rates. The cantons of Central Switzerland were extremely well positioned in this segment in 2017, as well. Regular corporate tax rates were only lower in the Channel Islands (0%) and a few countries in (South-)Eastern Europe. In Europe, the most competitive location is still Ireland with a corporate tax rate of 12.5%.
Coming in last in terms of their tax appeal were several countries in Northern, Western and Southern Europe. Of these, Norway (-1 percentage point) and Luxembourg (-1.07) cut their rates again in 2018. France is even planning to gradually reduce its regular corporate tax rate to 25% by 2022, unlike Germany, which raised its rate slightly by +0.21 percentage points.
While the US significantly cut its federal tax rate, this change only shifted the country into the mid-field range. Various offshore domiciles as well as Hong Kong and Singapore maintained their standing as the world’s most tax-competitive locations. Globally, Switzerland continues to rank among the top third in terms of its fiscal policies.
The cantons of Central Switzerland also topped the charts in an intercantonal comparison of individual tax rates. Lucerne was the only canton to increase its tax rate marginally by 0.01 percentage points over the previous year. The individual rates levied in the cantons of Western Switzerland and the Mittelland region took last place again. There were no changes to report compared to last year.
After a gentle downward trend, the average top income tax rate over the past 10+ years has settled at just below the 34% mark. The cantons of Central Switzerland and Appenzell Ausserrhoden have topped the rankings almost continuously since 2007. All in all, the cantons only made minor cuts to tax rates for individuals with the exception of the Canton of Uri, which has reduced its income tax rate from 33% in 2007 to the current level of 25.35% (2018).
Similarly, the high-tax cantons, where tax rates vary just slightly, have not seen many changes since 2007. This does not hold true for Aargau and the cantons of Solothurn and Jura, however, which have made significant, long-term cuts to their rates. Individual taxation in the cantons of Neuchâtel, Bern, Vaud and Geneva, on the other hand, has remained unchanged for over ten years.
In a continental comparison, countries in (South-)Eastern Europe still have the lowest tax rates for high incomes – in part due to flat tax systems. Latvia, however, gave up its flat tax system this year and raised its top rate from 23% to 31.40%. The tax rates levied on high incomes in most Swiss cantons are in line with the European average.
Extremely high income tax rates can be found in the countries of Western Europe and Scandinavia. After significantly hiking their tax rates for 2017, Luxembourg and Sweden have reduced them again this year, from 48.78% to 45.78% in Luxembourg and from 61.85% to 57.34% in Sweden.
A global comparison of income tax rates paints a somewhat mixed picture: While well-known offshore domiciles and a few isolated Middle East countries continue to waive income taxes entirely, some countries such as South Africa, Australia, China and Japan have extremely high top tax rates in place. Another interesting location at the moment is the US, which has lowered its tax rates for individuals significantly for the current year, although to a lesser extent than the corporate tax rates.
Over the long term (2007-2018), the tax cuts introduced by Central and Eastern European countries for high incomes stand out most prominently: Hungary has lowered its top rate by 21 percentage points since 2007, Bulgaria by 14 and Lithuania by 12. These stand in stark contrast to those Western European countries which have increased their tax rates in the past 10+ years, in some cases significantly, whereby the largest hike was in Iceland where the rate rose from 35.70% (2007) to its current level of 46.24%.
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