Tax deductions

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

The different types of tax deductions for companies in Switzerland

Tax deductions for businesses in Switzerland are numerous and varied. Professional expenses are one of the most common types of tax deductions for companies. These include passive interest, wages, and rent. Next, there are depreciations, which allow companies to reduce the value of their fixed assets over time, due to wear and tear, obsolescence, or any other valid reason. Provisions are deductible expenses from the taxable income of companies intended to cover probable future losses or expenses, but whose exact magnitude or impact cannot be determined with certainty. Expenses for research and development entrusted to third parties are generally deductible, under certain conditions. Previous tax losses are also deductible from a company’s current taxable income. Finally, all taxes borne by a company, whether direct or indirect, are deductible.

How to benefit from tax deductions for companies in Switzerland

To benefit from tax deductions in Switzerland, companies must meet certain conditions. They must be registered in Switzerland and be subject to corporate tax. Then, they must comply with the specific conditions for each type of tax deduction. Companies must demonstrate that the expenses related to their activity are necessary to benefit from deductions concerning professional expenses. Depreciations must be calculated based on the economic life of each fixed asset and according to calculation methods accepted by Swiss accounting standards. Companies must keep a record of their depreciations and include them in their annual tax return. The different conditions regarding provisions are listed in art. 63 LIFD. Previous tax losses can be deductible in cases where they have not already been taken into account.

Concrete examples of tax deductions for companies in Switzerland

Tax deductions for businesses can apply to various expenses related to their activity. For example, a construction company can deduct costs related to the purchase of construction materials, employee salaries, and equipment and machinery rental fees. Similarly, a technology company can deduct costs related to the research and development of new products, as well as employee salaries.
Regarding depreciations, a company that owns a fleet of vehicles can practice depreciation on each vehicle based on their useful life. For a car with a 5-year life span, the company can deduct one-fifth of the vehicle’s acquisition cost each year. Similarly, a company that owns a building can practice depreciation on the construction cost of the building, based on its useful life.

Provisions can also be used to cover probable future losses or expenses. For example, a company selling food products may set up a provision for products that might be recalled due to a quality defect. The company estimates that the probability of recall is 2% and that the likely cost is CHF 20,000. It can therefore set up a provision of CHF 400 (2% of CHF 20,000) and deduct it from its taxable income for the current year.

Finally, previous tax losses can also be deductible from a company’s current taxable income. For instance, a company that suffered a loss of CHF 50,000 in the previous fiscal year can deduct this loss from its current taxable income. This will reduce its tax burden for the current year.

These examples show how tax deductions can be applied in practice to reduce a company’s tax burden. It is important to refer to the legal and regulatory provisions in force to ensure that all conditions are met before claiming a tax deduction.

Tips for maximizing tax deductions for companies in Switzerland

To maximize tax deductions for companies in Switzerland, it is important to keep evidence and receipts for all expenses related to the activity of the company. Tax planning is also crucial to optimize the tax situation of the company. It may be wise to regularly consult a tax advisor to stay informed of changes in tax laws and ensure that the company meets all the required conditions to benefit from tax deductions. Finally, it is important to continuously assess the company’s tax situation and review the available tax deductions, to ensure that they are still appropriate and maximized. This can help identify opportunities for new tax deductions or adjust existing tax strategies. By following these tips, companies can maximize their tax deductions and reduce their tax burden.