The patent box - an instrument for innovative companies

As of 2020, companies domiciled in Switzerland will have the opportunity to benefit from a privileged tax treatment for profits attributable to patents or similar IP rights by means of the Swiss patent box.

Additionally, they may also enjoy tax relief for research and development (R&D) costs incurred in Switzerland.

What is at the core of the Swiss patent box: Upon a taxable person's or company's request, the net profit resulting from patents or income from patents is, for the calculation of the taxable net profit, taken into account in the ratio of the qualifying R&D expenses to total R&D expenses per patent. This may result in a reduction of income of up to 90%, entailing corresponding tax advantages. However, the cantons are free to decide on a lower reduction.

Which patents and other IP rights are taken into account: The patent box applies to domestic, i.e. patents for Switzerland and Liechtenstein, and foreign patents. In addition, so-called "similar rights" (supplementary protection certificates, topography rights, plant varieties, documents protected under the Therapeutic Products Act of 15 December 2014) are taken into account. It should, however, be noted that the box covers patents and similar rights relating to R&D activities only. In the context of international standards (OECD), the so-called "nexus approach" applies: Pursuant to the conditions in accordance with the nexus approach, profits originating from the use of patents are to enjoy privileged tax treatment exclusively in the country in which relevant R&D expenses having led to the patent in question were incurred. For details on IP rights that are not covered by the patent box, see here.

To what extent are research and development costs subject to tax deductions: R&D expenses incurred directly by a taxpayer (person or company) in Switzerland or indirectly via third parties are deductible up to 150% of the explicit and commercially justified R&D costs. Details are governed by cantonal law.

Who is elegible to the patent box: This regulation favours not only large companies, but also the numerous small and medium-sized enterprises (SMEs) operating in research, development and innovation.

How does one take advantage of the special tax relief for R&D expenses? Upon request, the cantons may allow R&D expenses incurred directly by the taxpayer in Switzerland or indirectly by third parties to be deducted in an amount of up to 50% over and above the commercially justified R&D expenses. The relevant expenses must be documented. The resulting special tax relief does not directly depend on the applicability of a patent box.