The cantons are competing for taxpayers. The top spot in the corporate tax rankings goes to Nidwalden, while Zug is the winner with respect to individual taxes. Yet, when it comes to withdrawals of retirement assets, the cantons of Appenzell Innerrhoden and Nidwalden are the peak performers.
Tax reform has eased burden on corporations
When the Federal Act on Tax Reform and AHV Financing (TRAF) took effect in 2020, it marked the start of a new era of tax competition between cantons. With the elimination of privileged taxation of companies with a special status, cantons are now competing via lower ordinary tax rates. However, the purpose of the reformed tax law was to promote innovation as well. All cantons were required to introduce privileged taxation of profits from patents, and they are allowed to grant an additional deduction for research and development. In addition, an interest deduction for self-financing may be granted under certain conditions. However, the tax relief provided by these three tax instruments as well as any write-off on hidden reserves due to TRAF transitional measures may not total more than 70% (relief limit), meaning that each company must pay tax on at least 30% of its taxable profit before special regulations are applied.
In order to a remain attractive in the tax competition after implementing the TRAF, most cantons have cut their rates for ordinary corporate taxes in recent years. Since numerous cantons with higher taxes, like Bern and Zurich, take special advantage of the scope afforded by these tax instruments, the variation is considerably smaller when it comes to the minimum corporate income taxes than it is with ordinary corporate income tax rates.
Jockeying for position in tax rankings for companies
In 2022, however, the number of cantons that reduced their corporate tax rates was significantly lower than in 2021. Of those that did, many are doing so over a period of several years. The cantons of Valais and Jura made the biggest cuts and thus moved up in the rankings to number 20 and 22, respectively. Although Lucerne reduced its taxes by only a small amount, the canton advanced two places in the tightly packed field. By comparison, Basel-Stadt fell two places. Further repositioning is likely to occur by 2025. That is because several tax cuts are still anticipated – particularly in the cantons of Basel-Landschaft and Ticino.
Tax rankings for natural persons has hardly changed
Compared to legal entities, natural persons saw hardly any changes at all in recent years. After cutting its taxes significantly, the Canton of Schaffhausen moved up six places in the ranking. The result is that it now sits in ninth place on the tax index for natural persons. The Canton of Schwyz also managed to boost its attractiveness, maintaining its position at number two, closely behind the top-ranked Canton of Zug.
The tax burden on withdrawals from retirement assets paints a different picture. The cantons of Appenzell Innerrhoden and Nidwalden are the most attractive for those withdrawing higher lump sums. However, it should be noted that, in many cantons, it is more worthwhile to withdraw assets in payments staggered over a period of several years due to the tax progression there. This is especially true in the cantons of Valais, Basel-Landschaft, and Schwyz.