Created at the end of the 18th century, the Municipal Business Tax (“MBT”) (Taxe Professionnelle Communale) is only levied by the municipalities of the canton of Geneva and covers the gainful commercial activity of legal entities and individuals carried on in the canton.
The MBT is assessed on entities' annual gross revenues, rents and number of employees.
The tax rates are as follows:
- Turnover and any other income: the tax rate depends on the activity carried on by the company, as well as the nature of the other income. Some favourable regime are applicable to companies fulfilling certain conditions;
- Rental costs paid for the premises located in the canton of Geneva, taxed at a rate of 0.5%. In case companies own their premises, the rate is applied on the tax value of the building;
- Headcount: full time equivalent employees working in the canton of Geneva, taxed at a rate of CHF 10 per employee.
A maximum lump sum deduction of CHF 170 is granted on the total MBT burden.
This tax has been criticized for several years by economic circles who see it as a brake on the economic growth of Geneva. Indeed, this tax does not take into account the constitutional principle of the taxpayers’ ability to pay taxes as it is levied on the activity performed by a company irrespective of the actual profit/losses generated.
An initiative was launched in 2021 in order to have this tax abolished, however this initiative was rejected by the Geneva Parliament which decided to issue a counter project. This counter project was established in order to compensate the municipalities for which the abolishment represents a loss of CHF 200 million. In addition, it also takes into account the future implementation of the GloBE measures (Pillar II).
Following an unanimous compromise which was reached between all involved political parties, the counter project was approved by the Geneva Parliament on 11th May 2023 and includes the following:
- Abolishment of the MBT;
- Increase of the effective corporate income tax rate from currently 14% to 14.7% (increase of the Geneva cantonal tax multiplicator);
- Compensation mechanism between the canton and the municipalities in order for the latter to be compensated for the abolishment of the MBT.
From a timing perspective, the Canton of Geneva citizens have now 40 days as from publication of the act to gather 500 signatures in order to have a referendum (i.e. public vote) organized. The chance of success of a referendum cannot be excluded, however, it is very low, considering that this counter project approved by the Geneva Parliament is the result of a compromise between political parties of both sides (right and left) and involved a significant numbers of stakeholders.
In absence of a referendum, the changes would most probably be enacted in August or September and will be effective as of 1st January 2024.
In our opinion, these changes in Geneva's tax laws are positive for the following reasons:
- The MBT is outdated, no longer adapted to today's economy, as it does not take into account the constitutional principle of taxpayers' ability to pay taxes;
- Increase of the canton of Geneva competitiveness in Switzerland: Geneva is the only canton in Switzerland to levy such a tax, which is an economic disadvantage compared to other cantons;
- Reduction of the administrative burden of the companies related to the MBT compliance process;
- For multinationals subject to the Global Anti-Base Erosion Model Rules (“GloBE”), the increase of the effective corporate income tax rate should, in most cases, not entail an actual additional tax charge as the effective tax rate remains below 15%;
- Improvement of the situation for the companies subject to the GloBE rules, as the MBT is not considered as a covered tax within the framework of GloBE, as well as not creditable abroad (especially for US-based multinationals).
We will keep you posted as soon as more information will be available in this respect.
If you have any questions, please do not hesitate to contact us.