Corporate Tax Reform (RFFA): What Is It?
The RFFA, which came into force in January 2020, abolished the previous tax regimes in order to introduce new tax rates , more equal for all companies. However, the cantons are free to set their own tax rates, while respecting the principle of equality.
This reform affected :
- Income tax
- Capital tax
- Income tax
- Wealth tax
RFFA Objectives
The main objective of the RFFA is the modernization of the Swiss tax system to bring it in line with international standards, while maintaining Switzerland's tax attractiveness. The aim of the Geneva corporate tax reform was to abolish corporate tax privileges and introduce a more tax-efficient system.
The Main Changes of the RFFA
Tax Cuts for Businesses
All Geneva-based companies are obliged to pay tax on their capital, i.e. on the amount of money or property they own. In Geneva, this tax was set at 1.8‰ before the RFFA.
Once the corporate tax reform was passed, the canton of Geneva established a reduced tax rate for companies, at 0.005‰, on parts of the capital used for R&D purposes.
Patent Box
To encourage innovation (research, creation of new technologies, etc.), the RFFA has introduced the "patent box", a tool which, among other things, grants lower taxation of a company's profits. The profits in question must come from patents and comparable rights.
This means that a Geneva-based company can pay less tax on profits from patents or similar rights. The tax reduction can be up to 10%. To benefit from this reduction, certain conditions must be met.
Expenditure on research and development must have been made in Switzerland, in order to benefit from this reduced rate.
- A patent protects an invention.
Research and Development (R&D) expenditure
Like the patent box, the RFFA introduced the deduction for R&D, which seeks to encourage companies to innovate by lightening the burden of research-related expenses. Here again, expenditure must be incurred in Switzerland, not abroad.
In other words, a company that spends money on R&D in Switzerland can deduct even more from its taxable profits than it has actually spent. For example:
- If a company spends CHF 100 on R&D salaries, it can use CHF 135 (100 + 35 %) to calculate the deduction.
- On this increased basis, a further 50 % can be deducted from the business' taxes.
For R&D expenses incurred by external service providers, up to a maximum of 80% while adding 50% discount.
Dividend taxation
To limit the double taxation of dividends received by individuals holding at least 10% of a company.
If the shares held are in his assets private (for example: an individual shareholder who holds these shares as a personal investment), it will only be taxed on 70 % of the amount received.
If it's in fortune commercial of the shareholder (for example: a company or a self-employed person who holds these shares as part of his or her professional activity), it will only be taxed on 60 % of the amount.
To do this, you will need to apply for a tax ruling, which must be claimed on a company's tax return.
As a general rule, self-employed individuals can also benefit from the various instruments available to companies, such as the patent box or R&D.
Frequently Asked Questions
What is the corporate tax reform (RFFA)?
The RFFA, which came into force in 2020, is a tax reform that abolished the old special tax regimes to create a fairer system in line with international standards. It allows cantons like Geneva to set their own rates, while respecting equality between companies.
Which taxes are affected by the RFFA reform?
The reform affects several types of tax:
-
Income tax
-
Capital tax
-
Income tax
-
Wealth tax
Why was the RFFA reform introduced?
The RFFA aims to modernize the Swiss tax system to bring it into line with international standards, while maintaining the country's competitiveness. It abolishes the tax privileges of former companies and puts everyone on an equal footing.
What is Geneva's new capital tax rate?
Before the reform, capital tax was set at 1.8‰. After the reform, Geneva applied a reduced rate of 0.005‰ on innovation-related capital (patents, comparable rights, etc.). This amounts to a very low tax: around 0.001 %.
What is the patent box?
The patent box is a tax tool that enables companies to pay less tax on profits from patents or similar rights. It encourages innovation by reducing taxation by up to 10 %, provided that the R&D expenditure has been made in Switzerland.
How does the R&D deduction work?
The reform makes it possible to deduct more than the amounts actually spent on research and development. For example:
-
An R&D salary expense of CHF 100 can be increased to CHF 135.
-
On this basis, we can further deduce 50 % more.
-
For external expenses (service providers), you can deduct up to 80 % of their amount, then add 50 % additional deduction.
