Tax savings due to excess equity and research and development activities

Additional deduction of research and development expenses in accordance with Art. 25a StHG

In order to promote scientific research and knowledge-based innovation at Swiss companies, the additional deduction of research and development expenses ("R&D") was introduced as part of the introduction of the TRAF. When it comes to research and development expenses, many often have very innovative spin-offs from ETH, EPFL and the like in mind and do not think that their own company could qualify for such a deduction. As the additional R&D deduction can only be deducted from any profit in the current financial year and is also limited by the relief limit of 70% of the annual profit, this deduction often comes to nothing, especially for start-ups with high development costs and corresponding losses at the beginning of the company's activities. It is often forgotten that the deduction is also intended to promote development and innovation, i.e. the development of new products, procedures, processes and services for the economy and society. For understandable reasons, however, this deduction cannot be claimed for any efforts for mere market launch or commercialization.

For example, mere expenses for the implementation of existing solutions are usually not additionally deductible. However, items such as the in-house development of software or the development of new packaging materials or molecules may fall under the additional deduction of R&D costs. As an additional 50% of qualifying expenses can be deducted over and above the actual expenditure, potentially large tax savings can be achieved by applying the R&D deduction. So, if you have the feeling that your activities could potentially qualify for this deduction, contact your trusted accountant and have any deductibility checked with the tax authorities.

Deduction for excess equity in accordance with Art. 25abis StHG

In a reverse analogy to interest on hidden equity, the deduction on excess equity was introduced as part of the introduction of STAF. Although the percentage rates at which the various assets must be backed by equity in order to arrive at excess equity within the meaning of Art. 725abis StHG are not 1:1 the same as in the FTA circular no. 6 on hidden equity, however, the principle is comparable. If a company now has a high level of equity and therefore also a portion of equity that is deemed to be security equity, this can be notionally subject to interest at the interest rate according to the yield on 10-year federal bonds. This notional interest can then be deducted from the taxable profit. As with other STAF deductions, the maximum deductibility is limited by a relief limit (70%) of the taxable profit. The deduction for self-financing can only be made in cantons in which the profit tax burden (excluding federal tax) is at least 13.5%. This is currently only the case in the canton of Zurich.

As the yield on 10-year Confederation bonds as at 1 January of the calendar year is decisive for the calculation, and the yield as at 1 January 2023 was 1.565%, such a deduction for excess equity can be made for the first time for the 2023 financial year for companies domiciled in the canton of Zurich due to the end of negative interest rates. However, it is important to note that such a deduction can only be made on taxable company profits in the current year and cannot be carried forward to future financial years in the event of a loss.

Conclusion

Actively approach your accountant or tax advisor about any additional deductions for research & development at the next annual accounts meeting, or make sure that your accounting department is aware of your company's development activities.