Tax Proposal 17 - Part 4: Increase in Dividend Taxation and Increase in the Cantonal Share of the Direct Federal Tax

In the fourth part of our series on Tax Proposal 17, we will explain two more central measures of the proposal to you with the increase in dividend taxation and the increase in the cantonal share of the direct federal tax.

Increase in Dividend Taxation

‍Tax Proposal 17 plans to mandatorily tax dividends for natural persons with stakes over 10% at at least 70%. Currently, it is 60%. This increase takes place at both the federal and cantonal levels. However, the cantons are free to set the taxation even higher. In addition to this targeted increase, the relief is also standardized, occurring at both the federal and cantonal levels on the assessment basis. If the proposal takes effect, adjustments will be needed in ten cantons, including Zurich and Bern. According to the legislator, there is currently an under-taxation which would be intensified with Tax Proposal 17. Furthermore, due to the general decrease in profit taxation, more partnerships have been transformed into corporations or dividends paid out instead of wages. The legislator attempts to counteract these trends with the regulation and also hopes to generate more income for social security. However, this will also increasingly affect the owners of SMEs, as they, unlike large companies, are probably less likely to rely on means like the patent box or additional R&D deductions.

Increase in the Cantonal Share of Direct Federal Tax

‍As we explained to you in the second part of our series on SV17, many cantons will reduce their profit tax rates upon the enactment of the proposal, to retain companies that will lose their privileged and very low tax burden as status companies. However, this lower taxation in the cantons would affect all companies, leading to reduced revenues at the cantonal level. Therefore, the proposal envisages an increase in the share of the cantons in the direct federal tax to compensate for this. Their share is to be increased from currently 17% to a new 20.5%, which would result in an additional 825 million Fr. for the cantons.

You will learn about other measures taken with Tax Proposal 17 in the next part of our series.

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