Swiss Patent Box and R&D Super-Deduction: StHG Art. 24a and Art. 25a Explained

Q: What is the Swiss patent box and how much tax does it save?

Switzerland's patent box (StHG Art. 24a) allows cantons to reduce cantonal corporate income tax on qualifying IP income by up to 90%. If the cantonal rate is, for example, 4% (Zug cantonal portion), a 90% patent box reduction brings the effective cantonal rate on qualifying IP income to 0.4%. Combined with the federal CIT (unchanged by the patent box), the effective combined rate on patent box income in Zug is approximately 8-9% before the OECD nexus ratio is applied. The actual reduction depends on the canton (most offer the maximum 90%), the nexus ratio, and the 70% combined cap.

Q: What IP qualifies for Switzerland's patent box?

Qualifying intellectual property for Switzerland's patent box under StHG Art. 24a includes: patents (granted Swiss and foreign patents); supplementary protection certificates (SPCs) for pharmaceuticals and agrochemicals; plant variety certificates; data exclusivity rights; and, in some cantons (including Zurich), software protected by copyright. Non-qualifying IP includes trademarks, brand names, domain names, copyrights on artistic works (as opposed to technical software), and customer lists. The key distinction is between technical innovation (eligible) and commercial branding (not eligible).

Q: What is the OECD nexus ratio in the Swiss patent box?

The OECD nexus ratio determines what proportion of qualifying IP income is eligible for the patent box reduction. It is calculated as: qualifying R&D expenditure by the company (own R&D + R&D by unrelated contract researchers) divided by total R&D expenditure for the IP (including R&D by related parties and acquired IP cost). If a company performs all its R&D in-house and does not acquire IP or outsource to related parties, the nexus ratio is 100% and the full income is eligible. If 50% of R&D was performed by related-party providers, the nexus ratio is approximately 50% and only 50% of IP income benefits from the box reduction.

Q: What is the Swiss R&D super-deduction under StHG Art. 25a?

StHG Art. 25a allows cantons to offer an additional deduction of up to 50% of qualifying R&D expenditure beyond the actual cost - meaning qualifying Swiss domestic R&D costs are deductible at up to 150% of actual expenditure. The deduction applies only to R&D conducted in Switzerland by the company's own employees or commissioned from unrelated third parties in Switzerland. R&D contracted to related parties or performed outside Switzerland does not qualify. Most cantons that offer the R&D super-deduction grant the maximum 150% deduction rate.

Q: What is the 70% combined cap under StHG Art. 25b?

StHG Art. 25b imposes a 70% combined limitation: the total tax reduction from the patent box (StHG Art. 24a) plus the R&D super-deduction (StHG Art. 25a) combined cannot exceed 70% of net taxable income before these reductions are applied. This ensures that the combined effect of all cantonal incentives does not reduce the effective cantonal CIT to zero - at minimum 30% of the pre-incentive income remains taxable at the cantonal level. The 70% cap applies at the cantonal level; the federal CIT is not affected by the patent box or R&D super-deduction.

Q: Does Switzerland's patent box cover software?

It depends on the canton. Federal law (StHG Art. 24a) expressly includes patents and functionally equivalent rights but does not mandate software inclusion. Several cantons, including Zurich, have chosen to include copyright-protected software as qualifying IP in their cantonal patent box. Other cantons limit the box to patents, SPCs, and similar technical protection rights. Before relying on the patent box for software IP income, the canton's specific implementing ordinance must be confirmed, as the treatment varies.

Q: Does the patent box interact with Pillar Two minimum tax?

For MNE groups with consolidated revenue above EUR 750M, the Swiss patent box reduces covered taxes in the GloBE ETR numerator, potentially pushing the GloBE ETR below 15% and triggering top-up tax under MinStG. This can partially or fully neutralise the patent box benefit for in-scope groups. For groups below EUR 750M - the vast majority of companies using the Swiss patent box - Pillar Two has zero impact and the full patent box benefit is preserved.

Q: Can a Swiss shelf company benefit from the patent box or R&D super-deduction?

Yes. A Swiss shelf company that acquires or develops qualifying IP and generates income from it can benefit from the patent box from its first year generating qualifying income. Similarly, a shelf company that commissions qualifying R&D from unrelated Swiss researchers or employs R&D staff in Switzerland can benefit from the R&D super-deduction. These are transaction-based incentives tied to qualifying activities, not status-based regimes requiring special designation.

TRAF 2020: Why Switzerland Introduced These Incentives

The Federal Act on Tax Reform and AHV Financing (TRAF), effective 1 January 2020, abolished Switzerland's old cantonal preferential tax regimes (holding privilege, domicile company, mixed company). To compensate, TRAF simultaneously mandated that all cantons could offer two OECD-compliant IP incentives: the patent box (StHG Art. 24a) reducing cantonal CIT on qualifying IP income by up to 90%, and the R&D super-deduction (StHG Art. 25a) allowing up to 150% deduction on qualifying Swiss domestic R&D expenditure. A combined 70% cap prevents these incentives from eliminating cantonal CIT entirely (StHG Art. 25b).

The Swiss Patent Box (StHG Art. 24a)

Maximum Reduction: 90%

The patent box allows cantons to reduce cantonal CIT on qualifying IP income by up to 90%. The federal CIT is not reduced by the patent box - the reduction applies only to the cantonal and communal portion of CIT. In Zug, where the cantonal/communal rate is approximately 4.1% and the combined rate is approximately 11.9%, a 90% patent box reduction on the cantonal portion brings the effective cantonal rate on qualifying IP income to approximately 0.4%. Combined with federal CIT of approximately 7.83%, the effective total rate on patent box income is approximately 8.2% before applying the nexus ratio.

Qualifying IP

Category	Qualifying	Notes
Patents (Swiss and foreign)	Yes	Granted patents in any jurisdiction
Supplementary protection certificates (SPCs)	Yes	Pharmaceutical and agrochemical SPC extensions
Plant variety certificates	Yes	UPOV-protected plant varieties
Data exclusivity rights	Yes	Regulatory data protection for pharmaceuticals
Software (copyright-protected)	Canton-dependent	Zurich: yes. Other cantons vary. Check cantonal ordinance.
Trademarks and brand names	No	Explicitly excluded. Commercial value only, no technical innovation.
Domain names	No	Not qualifying IP
Artistic copyrights	No	Only technical software may qualify (canton-dependent)
Customer lists, databases (non-IP)	No	Not qualifying IP

The OECD Nexus Ratio

The nexus ratio is the OECD's mechanism to ensure the patent box benefit flows only to entities that performed the R&D creating the IP - not to entities that merely acquired IP developed elsewhere. The formula is:

Nexus ratio formula:
Qualifying expenditure = own R&D costs + R&D costs contracted to unrelated third parties
Total expenditure = qualifying expenditure + related-party R&D costs + IP acquisition cost (with 30% uplift on qualifying expenditure)
Nexus ratio = Qualifying expenditure / Total expenditure

The 30% uplift on qualifying expenditure prevents companies from losing box eligibility due to minor outsourcing or acquisition activity. However, companies that predominantly acquired IP from related parties or licensed in IP from group members will have a low nexus ratio, substantially limiting the patent box benefit.

What Income Qualifies

Income qualifies for the patent box if it is economically connected to qualifying IP. This includes:

Royalties and licence fees received for use of qualifying IP
Proceeds from sale of qualifying IP (capital gains)
Income from products or services where the qualifying IP makes a material contribution to their value
Damages received for infringement of qualifying IP

For embedded royalty income (products incorporating patented technology where no explicit royalty is charged), a notional royalty must be calculated to determine the qualifying income. This requires a transfer pricing analysis to establish an arm's-length royalty rate for the patent embedded in the product.

The R&D Super-Deduction (StHG Art. 25a)

Up to 150% Deduction

The R&D super-deduction allows companies to deduct qualifying R&D expenditure at up to 150% of the actual cost for cantonal CIT purposes. The extra 50% is an additional deduction beyond the actual cost. This applies only at the cantonal level - federal CIT is not affected.

Qualifying R&D Expenditure

Expenditure type	Qualifies	Notes
Own R&D staff payroll (Swiss employees)	Yes	Including social charges
R&D contracted to unrelated Swiss third parties	Yes	80% of invoice qualifies
R&D contracted to related parties (Switzerland)	No	Related-party R&D does not qualify
R&D performed outside Switzerland	No	Only Swiss domestic R&D qualifies
Capital equipment used exclusively for R&D	Yes (depreciation)	Depreciation qualifies, not the purchase price directly

Most Swiss cantons offer the maximum 150% super-deduction rate. A company with CHF 5 million in qualifying Swiss domestic R&D payroll deducts CHF 7.5 million (150% of CHF 5M) from cantonal taxable income instead of CHF 5 million. The additional CHF 2.5 million deduction reduces cantonal CIT at the applicable rate.

The 70% Combined Cap (StHG Art. 25b)

The combined cantonal tax reduction from both the patent box (StHG Art. 24a) and the R&D super-deduction (StHG Art. 25a) cannot exceed 70% of net cantonal taxable income before these reductions. At least 30% of pre-incentive income remains taxable at the full cantonal rate. This prevents total elimination of cantonal CIT through stacked incentives.

Example: A company has CHF 10M cantonal taxable income before incentives. The patent box reduction would reduce it by CHF 7M and the R&D super-deduction by CHF 3M - a combined CHF 10M reduction. The 70% cap limits the total reduction to CHF 7M (70% x CHF 10M). The company must pay cantonal CIT on CHF 3M regardless of how large the individual incentives are.

Canton-by-Canton Implementation

Federal law (StHG Art. 24a, 25a, 25b) sets the maximum relief percentages and the 70% cap but allows cantons to offer less. Cantonal laws implement the incentives within this federal framework. Key points:

Canton	Patent box reduction	R&D super-deduction	Software qualifying
Zug	Up to 90%	150%	Yes (with technical character)
Zurich	Up to 90%	150%	Yes
Schwyz	Up to 90%	150%	Canton-specific rules
Lucerne	Up to 90%	150%	Canton-specific rules
Basel-Stadt	Up to 90%	150%	Yes
Geneva	Up to 90%	150%	Canton-specific rules

Confirm the specific canton's implementing ordinance before relying on software coverage or the exact reduction percentage. Cantonal rules can change, and advance tax rulings are the definitive way to confirm treatment for specific IP and R&D activities.

Interaction with Pillar Two

For MNE groups above the EUR 750 million consolidated revenue threshold, the patent box and R&D super-deduction reduce covered taxes in the GloBE ETR numerator. This can push the entity's GloBE ETR below 15%, triggering top-up tax under MinStG that partially offsets the incentive benefit. For groups below EUR 750 million - the vast majority of Swiss IP and R&D companies - Pillar Two has zero impact and all incentives are fully preserved.

Practical Planning Considerations

Advance tax ruling: Obtain a cantonal tax ruling before the first year of claiming the patent box to confirm the qualifying IP, the qualifying income calculation method, and the nexus ratio calculation approach. Rulings are typically free from cantonal tax authorities.
Transfer pricing documentation: If the IP company charges royalties to related operational companies, transfer pricing documentation is essential to defend the arm's-length royalty rate used as the basis for patent box income.
Nexus ratio tracking: Maintain separate tracking of own R&D costs versus related-party and acquired IP costs from the start. Retroactive calculation of the nexus ratio is complex and subject to audit challenge.
Combined cap modelling: Model the 70% cap impact when using both patent box and R&D super-deduction simultaneously. The cap can limit the stacking benefit for companies with large R&D expense bases relative to IP income.
Canton selection: If software IP is material, choose a canton that expressly includes software (Zurich being the clearest). If only patents are involved, all major cantons offer equivalent treatment.

Frequently Asked Questions

What is the Swiss patent box and how much tax does it save?

StHG Art. 24a allows cantons to reduce cantonal CIT on qualifying IP income by up to 90%. Combined with federal CIT (unchanged), the effective total rate on qualifying IP income in Zug is approximately 8-9% before the nexus ratio adjustment.

What IP qualifies for Switzerland's patent box?

Patents, SPCs, plant variety certificates, and data exclusivity rights always qualify. Software qualifies in some cantons (including Zurich). Trademarks, brand names, and non-technical copyrights never qualify.

What is the OECD nexus ratio in the Swiss patent box?

Own R&D + unrelated third-party R&D (with 30% uplift) divided by total R&D (including related-party and acquired IP). Companies performing all R&D in-house have a nexus ratio of 100%. Companies relying on related-party or acquired IP have lower ratios, limiting the benefit.

What is the Swiss R&D super-deduction under StHG Art. 25a?

Up to 150% deduction on qualifying Swiss domestic R&D expenditure for cantonal CIT. Own staff payroll and unrelated Swiss contractor R&D (80%) qualify. Related-party and non-Swiss R&D do not qualify.

What is the 70% combined cap under StHG Art. 25b?

The combined cantonal tax reduction from patent box and R&D super-deduction cannot exceed 70% of pre-incentive net cantonal taxable income. At least 30% remains taxable at full cantonal rate regardless of incentive size.

Does Switzerland's patent box cover software?

In some cantons including Zurich, copyright-protected technical software qualifies. Other cantons may have narrower rules. Always confirm with the canton's implementing ordinance or obtain an advance tax ruling.

Does the patent box interact with Pillar Two minimum tax?

For EUR 750M+ groups: patent box can push GloBE ETR below 15%, triggering top-up tax that partially offsets the benefit. For sub-threshold groups: zero interaction. Full patent box benefit preserved below EUR 750M.

Can a Swiss shelf company benefit from the patent box or R&D super-deduction?

Yes. Both incentives are activity-based, not status-based. A shelf company that acquires qualifying IP or employs Swiss R&D staff qualifies from its first year of activity. No special designation is required.