Tax deductions

Tax deductions are fiscal advantages that allow companies to reduce their tax burden. In Switzerland, these deductions are granted to individuals and companies under certain conditions. The rules related to tax deductions for companies are mainly defined in the Federal Law on Direct Federal Tax (LIFD) and the Law on the Harmonization of Direct Taxes of Cantons and Municipalities (LHID).

Types of tax deductions for companies in Switzerland

In Switzerland, tax deductions for businesses are numerous and varied. All expenses justified by commercial use are deductible (art. 59 LIFD; 13 LIPM). First, there are professional expenses (art. 26 ss LIFD). These are fundamental expenses ensuring the smooth operation of the company. Professional expenses are one of the most common types of tax deductions for companies. They include, among others, passive interests, salaries, and rent. Next, there are amortizations (art. 28 LIFD) and provisions (art. 29 LIFD). Amortizations are tax deductions allowing companies to reduce the value of their fixed assets over time due to wear, obsolescence, or other valid reasons. Provisions are deductible expenses from a company’s taxable income intended to cover future probable losses or charges, but whose exact extent or impact cannot be determined with certainty. Then, research and development expenses entrusted to third parties are generally deductible, under certain conditions (art. 63 al. 1 let. d LIFD). In cantonal law, there may be an additional deduction for these expenses (art. 25a L. 1 LHID). Moreover, notional interest on own capital for security can, under certain conditions, be deductible in cantonal law. Furthermore, previous tax losses are also deductible from a company’s current taxable income (art. 31 and 67 LIFD). A company can deduct tax losses suffered in previous years from its current taxable income. Finally, other deductions are admissible such as federal, cantonal, and municipal taxes (art. 59 LIFD). However, tax fines are not included. All taxes borne by a company, whether direct or indirect, are deductible.

How companies can benefit from tax deductions in Switzerland

To benefit from tax deductions in Switzerland, companies must meet certain conditions. First, they must be registered in Switzerland and subject to corporate tax. Next, they must meet specific conditions for each type of tax deduction. Indeed, to benefit from deductions for professional expenses, companies must demonstrate that the expenses are necessary for their activity. The expenses must be reasonably proportional to the income generated by the company’s activity. Companies must also keep evidence and supporting documents for these incurred expenses. Amortizations are calculated based on the economic life of each fixed asset and according to the calculation methods accepted by Swiss accounting standards (art. 62 LIFD). Companies must keep a record of their amortizations and include them in their annual tax return. Regarding provisions, they are calculated based on the estimate of the extent of probable future losses or charges, but they cannot be used to cover losses or charges that have already occurred or are known at the date of the provision’s constitution. Different conditions concerning provisions are listed in art. 63 LIFD. Lastly, losses from the seven fiscal years preceding the fiscal period can be deductible, provided they have not already been taken into account (art. 67 LIFD).

Concrete examples of tax deductions for companies in Switzerland

For professional expense deductions, a marketing company can deduct the costs related to advertising carried out for a client as well as travel expenses incurred to visit the client. An example of amortization could be a company purchasing a machine for CHF 100,000, which has a useful life of 10 years and a residual value of CHF 10,000. The company can practice an annual amortization of CHF 9,000 (i.e., CHF 90,000 / 10 years), which will be deducted from its taxable income each year for 10 years. Lastly, an example of a provision would be a company selling products. This company must create a provision for products that might be recalled due to a quality defect. The company estimates that the probability of recall is 5% and the probable cost is CHF 50,000. It can therefore create a provision of CHF 2,500 (i.e., 5% of CHF 50,000) and deduct it from its taxable income for the current year.

Tips for maximizing tax deductions for companies in Switzerland

To maximize tax deductions for companies in Switzerland, here are some useful tips. First, it’s important to keep evidence and supporting documents for all expenses related to your company’s activity. This can include invoices, receipts, and contracts. Next, the tax planning stage of your company is crucial. Indeed, a company might consider deferring income or expenses to optimize its tax situation. Furthermore, it may be wise to regularly consult a tax advisor to stay informed of changes in tax laws. It is indeed important to know the current tax regulations to ensure that the company meets all the conditions required to benefit from tax deductions. Lastly, it is necessary to continuously evaluate your company’s tax situation and review available tax deductions to ensure they are still appropriate and maximized. This can help identify opportunities for new tax deductions or adjust existing tax strategies.

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Boulevard Georges-Favon 26

1204 Genève

T. : +41 22 348 32 35