Driving innovation through tax policy in Switzerland

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Driving innovation through tax policy in Switzerland

Sponsored by

Sponsored_Firms_deloitte.png
Reverse hybrid entities become subject to Dutch CIT on January 1 2022

Manuel Angehrn and Loris Lipp of Deloitte discuss the tax benefits that Switzerland has introduced to maintain its reputation as a global leader in innovation.

The phrase ‘innovate or die’ may sound simple, but for businesses, it is a reality. Even more so in times when business is haunted by a global pandemic, and simultaneously faces the challenges of climate change.

To retain its position as a global innovation centre with attractive taxation, Switzerland in 2020 introduced both input and output research and development (R&D) tax incentives, with the clear intention to strengthen Switzerland`s position as an innovative R&D hub. All incentives were designed with the OECD framework against harmful tax regimes in mind, thus – allowing for internationally accepted – tax benefits that can further reduce the already very competitive headline tax rates, which are below 12% in some Swiss cantons.

R&D deductions

As part of the new rules, companies with Swiss sourced R&D activities may opt-in for an additional tax deduction of up to 50% of R&D related employee costs (including a mark-up) and/or qualifying contract R&D expenses. In order to simplify the determination of qualifying R&D activities, Swiss tax authorities will, among others, rely on the definition of R&D as provided by the OECD-Frascati manual (2015 edition).

The deduction covers both basic research and process/product application related innovation. The additional R&D deduction is possible, even in case no future profit derives from the underlying R&D spending.

Patent box

In addition to input promotion, Swiss tax law allows for an output promotion following the OECD-nexus approach and allowing for an additional R&D deduction of up to 90% on patent-related income. The patent box is available in all Swiss cantons and provides companies with a registered patent or comparable right (in Switzerland or abroad) with an efficient instrument to optimise taxation for the useful life of the patent.

Switzerland opted for a patent box that limits the additional administrative burden and reliance on registrations with a recognised patent office. Companies with eligible patents may determine the box profit either by way of a top down approach or bottom up, i.e. based on adjusted patent/product income (with lump sum deductions and brand related costs) or based on taxable income with pre-defined deductions for certain categories of income. The patent box deduction is limited by the ‘nexus ratio’, that determines the Swiss-sourced R&D related to the patent. Acquisition costs for a patent and related party R&D costs from outside of Switzerland reduce the ‘nexus ratio’, while Swiss-sourced R&D expenses and global contract R&D expenses from third parties (with a mark-up of 30%) benefit the ‘nexus ratio’.

To avoid ‘double deductions’, the opt-in to a patent box regime requires entrance taxation of historic R&D expenses related to the patent within five years, with many cantons offering flexible application of the box deduction rather than levying an entrance cash-tax.

The innovation benefits provided by the Swiss tax law should allow Swiss-based companies to keep a competitive edge, attract more foreign investment and allow the country to retain its position as a global innovation leader.



Manuel AngehrnT: +41 58 279 7279E: maangerhn@deloitte.ch

Loris LippT: +41 58 279 60 00E: llipp@deloitte.ch

more across site & shared bottom lb ros

More from across our site

US President Donald Trump’s tariffs may get thrown out by courts in the future and taxpayers should already be planning for that possibility, BDO’s Dustin Stamper tells ITR
Awards
ITR is delighted to reveal the first shortlisted nominees for the Middle East Tax Awards
The firm has appointed Deloitte’s former tax leader for Thailand to lead the new operation, which builds on considerable Asian investment in recent months
The Donald Trump administration could use legislation from 1930 if the Supreme Court blocks its tariffs; in other news, China has updated its VAT refund procedures
Braun gives ITR an exclusive insight into WTS Digital’s UK launch of its AI product, which can free up more than 1,500 hours per month by reducing routine tasks
Long tells ITR about her varied role, why curiosity is a key characteristic for the tax professional, and what she’d be doing if she wasn’t working in tax
The choice facing governments is not whether to adopt AI in taxation, but how to do so in a way that upholds the principles of tax fairness, writes Neil Kelley
As ITR’s client data reveals discontent with German tax advisers’ cost management, Grant Thornton’s local TP head insists it’s a two-way street
Uncertainty isn’t always a bad thing, but it’s easy to see how the Trump administration’s IRS commissioner merry-go-round may serve to undermine business confidence
The EU defended its ‘sovereign right’ to impose the tax in the face of US tariff threats; in other news, the US deputy Treasury secretary resigned after just five months
Gift this article