A new tax law came into force in Zurich on 1 January 2020, with the following effects:

• The effective income tax rate for the federal, cantonal and municipal levels will initially decrease to 19.70% (capital city, previously 21.15%) as of 1 January 2021. However, a further reduction of the effective income tax rate from 19.70% to 18.19% as of 1 January 2023 is planned within the framework of a new tax bill (but still a subject to the legislative process).
• Net profits from patents and similar rights will be taxed in a so-called patent box with a maximum reduction of 90%.
• An additional deduction of 50% for domestic research and development costs is now permitted.
• Moreover, a deduction for self-financing is planned, which includes the granting of an imputed interest deduction on surplus equity. Surplus equity includes equity capital which in the long term exceeds the equity capital required for business activities. Throughout Switzerland, this measure will most likely be introduced only in the Canton of Zurich.
• Tax privileges for holding, domiciliary and mixed companies will be repealed and will no longer be granted as of 1 January 2020.
• For companies affected by repeal of a cantonal tax privilege, the Canton of Zurich offers certain relief or transitional measures, i.e. (1st) such as a tax-neutral disclosure and tax-effective amortization of hidden reserves over a period of up to 10 years (a current law step-up or disclosure solution) or (2nd) the application of a special tax rate of 1.13% (capital city, cantonal and municipal taxes) for the taxation of hidden reserves and self-created goodwill realized within the next five years (a special tax rate solution). Furthermore, there is a possible combined solution consisting of these two options (3rd).
• The overall limitation of measures is set at 70% of taxable net income (excluding participation income and before loss offsetting). It limits the tax-reducing effects of the patent box, the additional R&D deductions, the notional interest deduction and the current law step-up (disclosure solution).
• The partial taxation of dividends from qualifying participations for natural persons will remain – at least for the time being – at 50% in the canton of Zurich (formally, there will be a change from the half-rate to the partial taxation procedure). For direct federal tax there will be an increase to 70% (previously 60%).
• The ordinary capital tax rate remains unchanged at 0.1718% (capital city). Taxable equity attributable to qualifying investments, loans to group companies and qualifying intellectual property may be reduced by 90%.