With the adoption of the Federal Act on Tax Reform and AHV Financing (TRAF, cf. blog article) the Swiss voters approved the basis for a cantonal implementation of the tax reform. Based on this, on 17 June 2019 the Parliament of the Canton of Lucerne enacted the Tax Reform 2020. The corporate income tax rates for companies domiciled in Lucerne will be among the lowest in Switzerland.
The new corporate taxation in Lucerne
The new corporate tax law will enter into force on 1 January 2020 and will look as follows in the Canton of Lucerne:
- The effective corporate income tax rate will remain at 12.32% across all levels (federal taxes, cantonal taxes and municipal taxes of Lucerne).
- The ordinary capital tax rate will remain at 0.185% (municipality of Lucerne). Taxable equity levied on all qualifying equity interests, group receivables and qualifying patents will only be charged a tax rate of 0.001% (fixed tax rate, corresponds to the currently used capital tax rate for holding companies).
- With the introduction of the patent box, the net profit from patents and similar rights will be included in the calculation of the taxable net profit with a reduction of only 10%.
- No further reduction for research and development is accorded in the Canton of Lucerne.
- Tax privileges for holding companies, management companies and mixed companies will no longer apply.
- The Canton of Lucerne has foreseen a transitional solution, as follows:
(a) the tax-neutral disclosure and subsequent amortization of hidden reserves (the so-called step-up under previous law) or
(b) the application of the special tax rate of 1.48% (cantonal and municipal taxes of Lucerne) to tax hidden reserves and goodwill realized in the next 5 years (the so-called special rate solution)
- The relief restriction is set to 70% (if using the step-up) or 20% (without step-up) of taxable net profit (excluding income from participations and offsetting of losses).
- The partial taxation of natural persons’ dividends from qualifying equity interests remains at 60% in the Canton of Lucerne – for federal tax there will be an increase to 70% (previously also 60%).
Entry into force and significance for Lucerne companies
As it is a comprehensive revision of the tax law, companies in the Canton of Lucerne should prepare for the changes mentioned above as soon as possible. Specifically, the following questions should be addressed:
- How will my business be affected by the reform?
- How will the transition from privileged tax status to normal taxation take place?
- How can my business benefit from the transitional rules?
- How can my business benefit from a fiscal privilege relating to the patent box?
- How will the increase of the capital tax effect the total tax burden and what optimizations can be taken?
- When should my business take which measures?
- Does the dividend strategy still make sense?
Companies should take timely action in order to be ready for the impact the tax reform will have on them. This includes a thorough planning in time as well as a simulation of the impacts of the different aspects of the tax reform.