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Tax measures in Switzerland due to COVID-19

May 18, 2020.

The measures adopted by the Federal Council mean that a large number of natural persons and legal entities in Switzerland are economically affected by COVID-19 either directly or indirectly. The crisis is hitting small and medium-sized enterprises particularly hard, as shown by the Swiss SME survey carried out by Generali and the Swiss SME Association (SKV). Many Swiss SMEs expect a negative business performance, which may threaten their continued existence in some cases.

The Swiss federal government and most of the cantons have adopted various measures to mitigate the negative economic consequences. In addition to economic measures, such as granting loans with sureties, extending short-time work and compensating the self-employed for lost earnings, they have also taken tax measures.

 

 

Tax measures in connection with COVID-19 at the federal level

In addition to the waiver of default interest on VAT, duties, excise duties and incentive taxes owing, the federal government has also taken a number of measures in relation to direct taxes (income and wealth tax / profit and capital tax). If provisional or final tax bills due between 1 March 2020 and 31 December 2020 are paid late, no default interest is due for the period from 1 March 2020 to 31 December 2020. As a general rule, payment deadlines will continue to apply. In cases of hardship due to COVID-19 (such as extended periods of unemployment for natural persons or a drop in sales for companies), it is possible to apply to pay in instalments or postpone tax bills.

 

 

Tax measures in connection with COVID-19 at the cantonal level

A range of measures have also been adopted for cantonal and municipal taxes, although these vary considerably depending on the canton. Individual cantons have not yet officially published any tax measures. In principle, however, the tax administrations have been instructed to take a very favourable and rapid approach to any applications from taxpayers to pay direct federal, cantonal and municipal taxes in instalments.

 

Measures that are granted in many cantons for both natural persons and legal entities include a general reduction or waiver of default interest on final tax bills and – in some cases – provisional tax bills, as well as the suspension of reminders, debt enforcement and sometimes even deadlines in connection with seeking legal remedies. If taxpayers are unable to pay their final or provisional tax bill on time or have difficulty in doing so due to financial losses in connection with COVID-19, they can also apply to defer their tax bill or pay it in instalments under the simplified procedure, depending on their canton.


It should also be possible to adjust the provisional tax bill for 2020 to the lower taxable factors. Furthermore, some cantons are currently not sending out tax assessments and invoices, and some have adjusted the payment deadlines.

 

For legal entities and self-employed persons who are directly or indirectly affected by COVID-19, some cantons have also announced that they will permit extraordinary provisions to be included in annual financial statements for 2019, usually amounting to 25% to 50% of their taxable profit. Companies must then reverse these provisions in their 2020 financial statements. This measure is particularly attractive for SMEs because it can help avoid high taxation for 2019 with a subsequent loss in 2020. Since the 2019 tax rate is also higher in many cantons than for 20201, this measure should generate a tax advantage in itself.

It should be noted that this measure is controversial under tax law. Some cantons have rejected it or are still debating its admissibility. To our knowledge (as of 8 April 2020), the federal government has not yet stated its position in this regard.

 

 

Expert tip for SMEs

At PrimeTax, we recommend that you check as soon as possible whether you or your company can apply to pay in instalments or defer your tax bill, especially if you do not have much liquidity. For details on the tax measures in your canton, we refer you to the media releases issued by each canton. You can also find an overview of the measures in the individual cantons on our homepage. This overview is continually updated.

 

In addition, if your company is directly or indirectly affected by COVID-19, we recommend that you consider including additional “COVID-19 provisions” in your 2019 annual financial statements, where possible under commercial law2. However, you should not do so if there will be a full participation deduction in 2019 or if you have already reported a loss, since the loss carry-forward period is generally limited to seven years

 

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1 Due to the reduction of corporation tax rates in many cantons as a reaction to the latest tax reform (STAF).

2 In our opinion, under commercial law, it is possible to use the creation of provisions as an instrument to ensure the continued prosperity of your company within the meaning of Art. 960a para. 4 CO and Art. 960e para. 3 (4) CO. Admissibility from a tax perspective is checked in the assessment procedure.

The autor

 

Rebecca Schwarzenbach, Manager at PrimeTax Zürich, Certified Tax Expert.