Zurich adjusts the taxation of startups

To strengthen Zurich as an innovation hub, the cantonal tax office is adjusting the valuation rules for startups: young companies will now be valued based on their asset value during the start-up phase.

Initial Situation

Of all the cantons, Zurich has the most startups and is considered particularly innovative and promising for the future. However, the regulations on wealth tax for shares are unsatisfactory from the perspective of young entrepreneurs: Since the tax authority has so far based the market value of the shares on the last financing round, the wealth tax might even exceed the basic income of individual entrepreneurs.

Practice Change by the Cantonal Tax Office Zurich

To improve the framework conditions for startups, the tax office and economic representatives have agreed on the following solution: Young companies will be taxed on the asset value during the first three business years (start-up phase). Investment prizes received during this period will not be considered for taxation. In the two subsequent business years, the tax base will be calculated based on the average of asset value and investment prizes. In the fourth business year, the asset value will be counted twice and the investment prizes once, while in the fifth year, the asset value will be simple and the investment prizes double in the calculation. From the sixth business year onwards, the calculation will be based on the investment prizes received. An exception is made for startups in the medtech and biotech industries. Due to longer development processes, their start-up phase is extended from three to five years. The new regulation for the taxation of startups takes immediate effect. However, it does not apply in the following cases: on the one hand, if shareholders sell a significant part of their shares, or on the other hand, if the company determines its own market value. The latter can occur, for example, in connection with the issuance of employee participation.