Patent box: first things first

1. Who qualifies for the patent box?

  • In principle, any company in Switzerland that owns patented or patentable technology qualifies.
  • The entity doesn’t necessarily have to be the legal owner of a patent; what counts is the economic ownership (i.e. the entity bearing the costs of the research and development activities).
  • Process patents also qualify for the patent box.
  • The OECD’s substance requirements, and in particular the modified nexus approach, apply.

2. Which income qualifies?

  • The part of the patent box profit that meets the substance requirements of the OECD's modified nexus approach is subject to reduced taxation under the patent box regime. In the nexus ratio there’s a direct link to the R&D costs incurred by the Swiss entity. Acquisition costs and contract R&D costs with related parties abroad reduce the nexus ratio and the benefit that companies can get under the patent box rules.
  • Qualifying income includes both licences and capital gains from the sale of a patent, and income from the sale of products (‘embedded income’).
  • Taxpayers are free to decide when and with which patents they wish to enter the patent box.

However, entry into the patent box is linked to a "buy-in" mechanism in which the qualifying R&D costs over the last 10 years, which were deducted from the taxable base, need to be taken into account. In Zug and Zurich, these entry costs may be offset against patent box profits in the first five years. In Basel, the entry costs are taxed at a very low rate (0.5%) in the first year.

3. What about the R&D super-deduction?

  • On request, certain cantons may grant an additional deduction of up to 50% on R&D expenses incurred in Switzerland.
  • The definition of qualifying R&D costs is much broader under the R&D super-deduction than under the patent box. It follows the definition of innovation and scientific research as per Article 2 of the Swiss Federal Act on the Promotion of Research and Innovation (FIFG/RIPA), which includes:
    1. scientific research (basic and applied research) and
    2. science-based innovation.
  • With the R&&D super-deduction, the cost base can be defined as follows:
    1. own salary costs incurred by employees with 35% mark-up on costs and
    2. 80% of the contract R&D expenses paid to a contract researcher in Switzerland (third party).
  • The total benefit of all tax measures may not exceed 70% of taxable income ("maximum relief limitation"’).

4. When do you need to take action?

The corporation tax reform is effective from the beginning of 2020, so companies wishing to benefit should be assessing their eligibility for the Swiss patent box and reviewing their R&D/patent strategy as quickly as possible.

5. Benefits

A reduction in effective income tax charge up to a maximum of 70% of your taxable profits.

Cantonal corporate income tax rates and extent of possible reliefs

Canton Patent box relief R+D deduction Max. relief limit Effective profit tax rate (after reform) Effective profit tax rate (before reform)
AG 90% 50% 70% 18,61% 18,61%
AI 10% 0% 50% 12,66% 14,16%
AR 50% 50% 50% 13,04% 13,04%
BE 90% 50% 70% 21,04% 21,63%
BL 90% 20% 50% 17,97% 20,70%
BS 90% 0% 40% 13,04% 13,04%
FR 90% 50% 20% 14,17% 19,86%
GE 10% 50% 9% 14% 24,16%
GL 10% 0% 10% 12,43% 15,65%
GR 90% 0% 55% 14,73% 16,12%
JU 90% 50% 70% 17% 20,40%
LU 10% 0% 20/70% 12,32% 12,32%
NE 20% 50% 40% 13,57% 15,61%
NW 90% 0% 70% 11,97% 12,66%
OW 90% 50% 70% 12,74% 12,74%
SG 50% 40% 40% 14,50% 17,40%
SH 90% 25% 70% 14,18% 15,72%
SO 90% 50% 70% 16,32% 21,38%
SZ 90% 50% 70% 14,13% 15,02%
TG 40% 30% 50% 13,40% 16,43%
TI 90% 50% 70% 19,21% 20,55%
UR 30% 0% 50% 12,64% 14,92%
VD Offen Offen 50% 14% 14%
VS 90% 50% 34% 16,98% 21,57%
ZG 90% 50% 70% 11,91% 14,35%
ZH 90% 50% 70% 18,19% 21,15%

Source: PwC, 07. November 2019

How we can help

The Swiss tax reform and the new patent box are a rich opportunity. But in such new and unexplored territory it’s good to have an expert guide. Contact us to discuss your next move.

 
Benjamin Koch
Partner, Leader Transfer Pricing and Value Chain Transformation
PwC Switzerland
+41 58 792 43 34
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Armin Marti
Partner, Leader Tax Policy
PwC Switzerland
+41 58 792 43 43
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Alfred Köpf
Alfred Köpf
Partner
Rentsch Partner Ltd.
+41 44 225 70 70
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Matthias Städeli
Matthias Städeli
Partner
Rentsch Partner Ltd.
+41 44 225 70 70
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