SME and entrepreneurs: Tax update for 2025

Whether you're a business owner, company executive, or entrepreneur, staying informed about these updates will help you make well-informed decisions and navigate the evolving fiscal landscape effectively.

Tax-deductible interest on loans to shareholders and relatives: A rate rollercoaster

We have already addressed multiple times the tax issues related to a company granting a loan to its shareholder or close relatives, particularly concerning the loan itself.

In 2023 and 2024, in response to rising money market interest rates, the federal administration significantly increased and then maintained relatively high tax-recognized rates. However, with the economic outlook turning gloomier and interest rates declining across the board, the administration has now adjusted its stance, particularly in relation to real estate financing rates: 

The conclusion we reached last year on this matter remains just as relevant, despite the shifting trend: while interest rates remained stable for many years, it is now essential to stay vigilant, as they will likely continue to be influenced by market fluctuations in the coming months. The federal administration publishes these rates annually, typically at the start of the year, and they remain in effect for the entire year.

It is also worth noting that the downward trend in interest rates mentioned above does not apply to loans denominated in foreign currencies. Specifically, tax-recognised rates for currencies such as the euro and the dollar have remained stable between 2024 and 2025.

The repurchase of the 3rd pillar A : Coming into effect in 2025 and new tax uncertainties on pension capital

A recurring topic in our past newsletters, the introduction of buybacks in the 3rd Pillar A is finally taking effect this year. While this may seem like a positive step, the measure falls well short of initial expectations. Yes, buybacks in the 3rd Pillar A will now be allowed—but only for gaps accrued from January 1, 2025, onward. Consequently, the first buybacks won’t be possible until 2026.

As a result, we will have to wait a little longer to see the (modest) benefits of this new measure materialise.

In contrast, the Federal Council has launched a major initiative to improve public finances. As part of this effort, the preferential tax treatment of lump-sum withdrawals from the LPP (occupational pension plan) and the 3rd Pillar is being reconsidered. Currently, lump-sum withdrawals from the LPP and the 3rd Pillar are taxed at a rate equivalent to one-fifth of the standard scale. However, to boost tax revenues, applying the same tax rate to lump-sum withdrawals as to annuities—potentially at the standard rate—would significantly increase federal income. Unsurprisingly, this proposed tax hike has sparked strong opposition. While the project is far from finalised, it poses yet another threat to the few remaining tax advantages in the system.

Rental value: Abolition but only in theory

This topic that has generated much debate seems to be finally coming to an end: The abolition of the imputed rental value. Often deemed unfair, there have been numerous discussions over the past decades about ending this principle, but without any result until now. However, in December 2024, the Chambers finally agreed on a project for the complete abolition of the imputed rental value, which applies to both primary and secondary residences.

Broadly speaking, the abolition of the imputed rental value mainly results in reducing the amount of deductions, particularly in terms of maintenance costs. The table below explains the impacts on federal direct tax first, and then on cantonal and communal tax:

Source: Federal Tax Administration

If, at first glance, abolition seems assured, that is not yet the case. The end of the imputed rental value system is tied to the simultaneous introduction of a new property tax that could be levied on secondary residences. This tax aims to help cantons hosting secondary residences maintain their tax revenues, which would otherwise be lost with the abolition of imputed rental value. Its implementation is subject to a mandatory referendum, meaning the fate of the imputed rental value system will ultimately be decided by the people in the coming months.

Conclusion

In summary, while few new regulations will take effect in 2025, many projects are taking shape behind the scenes. It is crucial to keep a close watch on them to make informed decisions at the right time.