Tax advantages through patent box

The patent box is used to tax-favor profits on products based on a patent. Through tax benefits, investments in research and development are to be encouraged.

Switzerland plays a pioneering role in many areas concerning innovation. For example, in the machinery or watch industry as well as in the pharmaceutical sector. In order to further encourage innovation as well as research and development in this country, the legislature implemented the patent box on January 1, 2020.

Patent box in Switzerland

The concept of the patent box was redefined by the OECD within the framework of the BEPS measures. Since the enactment of the Federal Act on Tax Reform and AHV Financing (STAF) on January 1, 2020, the Swiss cantons also have the possibility to benefit from patent boxes. A so-called patent box refers to tax benefits for income from domestic or foreign patents. Through the tax incentives granted in this way, an incentive is to be created for companies liable for taxes in Switzerland to invest in research and development. The possibility to offset high investments and costs for patents through tax favors gives companies a research incentive. In this way, the competitiveness of Switzerland as a production and research location is intended to be strengthened.

Cantonal differences

On earnings, which fall on the net profit from patents, there is the possibility to request a tax reduction. A reduction of up to 90 percent is possible, although the setting of the specific maximum deduction is left to the cantons. Accordingly, the actual level of tax favoring varies significantly across the different cantons. While the cantons of Basel and Zurich allow the maximum deduction, currently only reductions up to 10 percent are possible in the Crypto-Valley Lucerne.

Patent box and startups

An advantage of the arrangement is that theoretically not only large corporations can benefit from it, but also innovative startups and possibly even private individuals. As all individuals and companies liable for tax in Switzerland are eligible to apply. If the criteria of the patent box are met, in particular, a permissible Swiss or equivalent foreign patent is present, the favoring is granted. However, the costs associated with the patent and the changed taxation are hardly bearable for startups, which is why so far essentially only large companies benefit from the favoring.

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