Canton of Zug Plans to Strengthen its Attractiveness in a Post-Pillar II World - Tax and Legal blog

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The canton of Zug aims to strengthen the attractiveness of Switzerland, and in particular the canton itself, as a business location in a post-Pillar II world using a bundle of instruments with a focus on subsidies related to sustainability and innovation (media release in German). No Qualified Refundable Tax Credits (“QRTC”) are planned at this stage. The consultation draft of the "Location Development Act" is subject to a popular vote in 2025 and would come into force on January 1, 2026.

Background

The canton of Zug is one of the most attractive business locations in Switzerland and internationally. It owes this leading position in part to a business-friendly framework that appeal to international companies. The introduction of the global minimum tax ("Pillar II") for large international companies from 2024 requires some adjustments to the existing framework to retain the business location’s appeal.

To maintain competitiveness, the additional net tax revenues generated by the minimum tax are to be invested in full in targeted instruments to support businesses. The canton focuses on three priority areas: social issues (e.g., childcare, contributions to private international schools), infrastructure/innovation projects and subsidies for companies.

Subsidies vs. Tax Credits

The canton of Zug is planning to introduce a system of direct subsidies for companies to support sustainability and innovation projects of Zug resident groups. The canton has compared the two options of direct payments via subsidies and indirect payments via tax credits (e.g., Qualified Refundable Tax Credits, “QRTC”), and has opted for direct payments (“Förderungsbeiträge”). It remains to be seen whether other cantons will adopt direct payments rather than tax credits as well. At least the canton of Graubünden has so far preferred indirect payments through QRTCs in a draft act.

Financial Restrictions

According to the draft act, the maximum annual subsidy per company is limited to 1.5% of the average taxable net profit of the last three years in the canton of Zug. Only companies with an average annual taxable profit of at least CHF 500,000 (after offsetting prior-year losses and excl. participation income) would be entitled to subsidies (i.e., corresponding to a minimum subsidy of CHF 7,500). For companies that relocate to Zug, only the profit of the current year is taken into account.

The canton estimates that a wide range of companies will benefit from this scheme (whether they are subject to Pillar II or not). The government expects that subsidies will amount to a maximum of CHF 150 million per year for the years 2026 to 2028. From 2029 onwards, the Government Council (“Regierungsrat”) will redefine the maximum contributions. To benefit from subsidies, companies must apply proactively.

Promoted Activities

The draft act states in general terms that entrepreneurial activities in the areas of “sustainability” and “innovation” are to be promoted. The Government Council is obliged to specify these activities in an ordinance. The draft ordinance distinguishes between three categories:

  • Impact-oriented sustainability promotion: activities that reduce greenhouse gas emissions in connection with procured goods and services (in accordance with the “Greenhouse Gas Protocol”; subsidy: CHF 30 per ton of CO2 saved, to the extent that the reduction is at least 50,000 tons). Evidence must be provided based on the company's non-financial reporting, which must be audited.
  • Expense-based innovation promotion: basic research, applied industrial research and experimental developments (subsidy: 10% of personnel expenses which shall be increased by 35% to reflect the infrastructure costs).
  • Income-based innovation promotion: net profit from patents, software and computer programs, trademarks and similar (subsidy: 5% of net profit before tax).

If such activities are already subsidised elsewhere or in a comparable manner by Switzerland or abroad, the company cannot apply for subsidies in the canton of Zug.

Next Steps

The draft act is subject to public consultation, which will last until September 15, 2024. It is expected that the popular vote will be held on November 30, 2025. According to the timetable provided by the canton, the act should come into force on January 1, 2026.

Deloitte’s View

Due to the great importance of the canton of Zug for Switzerland as a business location, it is to be welcomed that the canton has now published its plans on how it intends to remain attractive as a business location. These plans may have an influence on other cantons as well as on other foreign business locations. It remains to be seen how the chosen path of direct subsidies instead of tax credits will be received by companies.

If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts

Thomas Hug_blog2

Thomas Hug - Partner, National Tax Office

Thomas is the leader of Deloitte Switzerland's National Tax Office. He has a proven track record of being at the forefront of international tax developments and analysing their impact from a Swiss tax technical perspective. Thomas has published thought-leading articles and books, and is frequently asked by industry groups, universities and tax and accounting associations to make presentations or lead seminars. He serves as a substitute judge at the Zurich Tax Court of Appeal.

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Blog_Daniel stutzmann110x110

Daniel Stutzmann - Partner, Global Minimum Taxation

Daniel is a Tax Partner with 18 years of experience as an international corporate tax specialist. This includes a one-year assignment in the US to lead the Swiss ICE Desk of Deloitte. He is a specialist in the proposed OECD Pillar 2 legislation and its impact and leads the Deloitte Switzerland Pillar 2 team. In addition, he is co-leading the Deloitte Global Pillar 2 technical advisory group.

Daniel has extensive experience in the area of cross-border structuring (like establishing tax efficient IP- and financing structures) as well as business reorganizations including large supply chain transformation projects. This also includes advising several multinationals in moving their worldwide/regional headquarters or central functions to Switzerland.

As a Swiss tax expert he has managed the Swiss tax compliance of hundreds of companies in Switzerland from various industries. He is well acquainted with the Swiss tax authorities and has successfully led various tax audit and tax ruling negotiations with the Swiss tax authorities. He also has broad knowledge in tax accounting and tax reporting both from an advisory and audit side. Daniel leads the business tax practice in Switzerland.

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Manuel Angehrn110x110

Manuel Angehrn- Director, Global Minimum Taxation

Manuel is a Director with over 10 years of experience in International Tax. He is a Deloitte Switzerland’s Global Minimum Tax subject matter expert. He follows domestic and global tax developments and assesses the impact to Swiss multinationals.

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