Nearly half of Swiss cantons dropped tax rates for top earners in 2021

Canton Zug continues to have the lowest corporate tax rate in Switzerland. © Keystone / Alexandra Wey

Both the corporate tax rate and the tax rate for high income earners has declined in Switzerland over the last year according to an analysis by the tax advisory firm KPMG. Switzerland is under increasing pressure to come up with a plan to implement the global corporate tax rate deal agreed last year.

The tax rates of 18 cantons are below the target minimum corporate tax rate of 15% included in the global corporate tax deal agreed by more than 130 countries last year.

In 2021, the average corporate tax rate dropped slightly from 14.9% to 14.7% in Switzerland. This is largely due to tax cuts made in three cantons – Valais (-1.6 percentage points), Aargau (-1.1 percentage points), and Jura (-1.0 percentage points). Canton Zug, home to several major companies including commodities giant Glencore, maintains the lowest corporate tax rate (11.9%) followed by the cantons of Nidwalden (12%) and Lucerne (12.2%). Canton Bern has the highest corporate tax rate of 21%.

If these cantons or Switzerland don’t raise their corporate tax rates to the 15% threshold, the difference could be taxed in another country. KPMG estimatesExternal link Switzerland could lose out on around CHF1 billion ($1 billion) to CHF2.5 billion in tax revenue in this case.

The OECD has said that the first components of the global tax deal should come into force globally on January 1, 2023. Under a timetable presented by Swiss finance minister in January, Switzerland will introduce a temporary ordinance so it can start rolling out the deal following a vote on a constitutional amendment in June 2023. Parliament is also expected to lay the legal foundations for the changes by the end of this year.

The deal is expected to have major implications for low tax countries such as Switzerland, Ireland and offshore markets.

“The burden now falls on countries like Switzerland to take targeted steps to cultivate their other location factors, such as access to specialists and flexible labor market conditions,” says Stefan Kuhn, Head of Tax and Legal at KPMG.

One idea being floated to maintain Switzerland’s attractiveness is to lower the income tax rate for top earners. The KPMG analysis found that the Swiss tax rates for high-income earners declined slightly compared to the previous year, from 33.7 to 33.5% due to the fact that 12 cantons cut tax rates for top incomes.

The biggest cuts were made by the cantons of Schwyz (-1.5 percentage points), Schaffhausen (-1.0 percentage points), Thurgau and Lucerne (roughly -0.6 percentage points each). Top incomes are taxed at the lowest rates in canton Zug (22.2%).