New Salary Laws for Switzerland

April 29, 2010 Taxation in Switzerland

Doris Leuthard - World Economic Forum Annual Meeting Davos 2008The Federal Council (FC) of Switzerland has instructed the Swiss Federal Department of Finance (FDF) to create three new pieces of legislation regarding salary schemes and compensation practices, targeting primarily inappropriate pay packages in financial institutions.

In a meeting held on April 28th the FC issued a directive to the FDF to create drafts for three new laws concerning the regulation and taxation of compensation issued in Switzerland. With the current international focus on financial sector salaries and bonuses, Switzerland has already begun making strides toward stricter compensation regulations. The current proposed legislation changes are aimed at supplementing current standards and binding them into law, while allowing for competitive remuneration and industry stability.

The FC has recommended the FDF to implement legislation dictating that any financial institution receiving monetary Government assistance will be subject to federal compensation-practice supervision. While the Swiss Government has voiced similar sentiments since late 2008, the FC now hopes to bring the idea into law.

The second proposal reclassifies profit-dependant salary components as profit distributions and not personnel expenses for companies. The change would result in the applicable sum becoming taxable as a corporate profit. The FC has proposed that the altered classification only be applied on firms with total distributions that are dependent on company profit exceeding CHF 2 million (approx. USD 1.8 million) per employee. No alterations have been proposed to the tax treatment of bonuses for the recipient.

As the third proposal, the FC has recommended that tax treatment of employee stock options be altered to see taxation levied at the time of exercise, and not the instrument issue date. The change is aimed at creating an equal level of certainty and tax treatment between stock options and other forms of compensation.

While the FC recommendations are not completely binding to the FDF, industry analysts predict that the final drafts for law change will not be significantly different than their current proposals. The FC has requested that final law drafts for the first two proposals be completed in late 2010, with the third proposal being due in May 2010.

Photo by World Economic Forum