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Tax relief for venture capital firms

On April 1 2000 new legislation entered into force in Switzerland which foresees tax relief for venture capital firms. This federal legislation is temporary in nature and is valid for 10 years. The new Act grants tax relief not to the young entrepreneur directly but, instead, to the investor firm. In this regard, the English venture capital trust served as a model.

A Swiss joint-stock company whose object is to offer venture capital to certain Swiss enterprises is deemed to be a capital venture firm. The venture capital firm must invest at least 50% of its resources in new enterprises with innovative, internationally oriented projects relating to products and services. The target enterprise must, moreover, have its registered office in Switzerland and cannot be listed on a stock exchange, other than an exchange specializing in small and medium-sized companies.

The tax relief relates solely to the federal tax. Thus, the venture capital firm is exempt from the federal stamp duty on issuances. Moreover, the participation exemption, which results in a reduction of the profit tax, already applies in the case of a 5% participation. The new legislation likewise foresees tax relief for individuals who grant subordinated loans to venture capital firms for purposes of preparing for its formation.

With respect to the taxes at the cantonal and communal level, cantonal law is determinative. Various cantons have now begun to grant tax relief to venture capital firms or newly formed companies in general.

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