Not how deductions work. Say 20% corporate tax, a 100% deduction (which is the normal business expense) means you don't pay any tax. A 135% deduction means you'd get to expense 35% more, avoiding those 20% for a "total saving" of 7% compared to a normal expense.
A credit does, but a deduction does not. I'm not sure where the previous commenter is getting this information from, since I can't find any documentation of a 135% tax deduction for R&D in Switzerland anywhere online, but if it is a deduction and not a credit, it means that it just offsets taxes on other income.
I hear this a lot and it's difficult to reconcile with my experience. Every US company I've worked at (and that's always been in at-will states) has not made it easy to get rid of people. Even people with woefully bad records of losing money every year and having multiple harassment complaints filed against them were kept for nearly a decade. With one exception (I personally got fired from a tiny startup because I refused to commit timesheet fraud for the CEO), the stories I've heard of the lengths that European companies have to go through to fire someone sound exactly the same to the processes I've seen at all of my employers.
You describe a scenario where management didn't want to fire someone - that's why it was harder. In the U.S. only two things get in the way: A) venial corruption B) worrying about unemployment insurance (that's why HR makes you do paperwork documenting an issue).
In many European countries you have to file a ton of paperwork and justify it: ex. at Google, they're still working through _January 2023_ layoffs because you have to work with the government itself and there isn't a good* financial reason for it
* by European standards. "we need stonk to go up" doesn't fly if you're massively profitable
Ive worked at a lot of different earlier stage software companies in the US and we've always fired very quickly, especially if there was harassment, but also just for low performance. Were you working at bigger companies? (aside from the tiny startup where the ceo wanted you to commit fraud) This hasn't been my experience at all.
> Every US company I've worked at (and that's always been in at-will states) has not made it easy to get rid of people.
That's an internal choice they do, to avoid having a reputation of a company that fires people any second (but then you have companies like netflix which take pride in having that reputation, but make up for it by paying more).
However, it's very different from European companies where these processes are (often) driven by laws. In the US there are no employee protection laws (aside from protected classes) so even if the company has a rigorous internal process, they could at any second override it if someone high up says so and you'll be fired in the blink of an eye.
It's very easy to fire in Switzerland. The notice periods are usually longer than in North America, but everyone having unemployment insurance where they are paid ~80% of their salary for up to 2 years makes is not such a big deal.
Can you say more about unemployment insurance? I haven't heard of this [a us worker] and honestly I also wouldn't mind being more aggressive with my career if I can guarantee ~80% of my income for 2 years should I lose a job.
You have a mandatory deduction on your salary (2.2%, a bit less effectively if you make over 150k). You need to have contributed for at least a year in the past 2 years before you're eligible.
You get 70% of your salary (or 80% if you have children under 25) for two years, capped at 70% (or 80%) of 150k.
There are a lot more exceptions, special cases and so on, but that's the gist of it.
It's state by state and different states have vastly different rules.
Here in Virginia, the max, regardless of how much you made, is $378/wk, for a max of 12 weeks.
You can't claim it if you're also receiving a severance, and you also have to record at least 4 job applications each week, but the documentation required needs to include information like the hiring manager's full contact information, which usually means the company needs to have replied to your application within that week.
I got laid off back at the end of April last year. I got a month of severance, so I couldn't claim UC in May. In June, I was able to do some online sleuthing to figure it out for a few applications out of the dozens I was making in a week, but there were some weeks I wasn't able to scrounge together even 4. I ended up with 2 UC checks for a total of $756 gross (yes, had to pay taxes on it). I don't remember exactly how much, but I do remember I calculated it was less than 20% my original take home pay for a month.
Luckily, by the end of June I had a good line on a job and started in July. I got lucky that we could bridge a month of basically "no" income from me. I can't imagine what it would be like for a single-income family living here in one of the most expensive areas of the country.
It's a kind of a tax - computed from your income. Similar to health insurance (in Europe). There are caveats like "you must be actively looking for a job" and "you weren't fired for an offense".
You are mixing up EU and Switzerland, employment laws are very different (and each EU state has its own, but generally much more protective of employees than Swiss ones).
One of the reasons Google has long term big center in Zurich, if grass would be greener (since cheaper it is) in say Germany or Austria they would build there
> One of the reasons Google has long term big center in Zurich, if grass would be greener (since cheaper it is) in say Germany or Austria they would build there
I don't think Google has an office in Zurich because it's cheap. It's mostly due to a lot of talent available (ETHZ, EFPL, etc).
You MUST spread it over 15 years, which is brutal for most companies and will mean no longer hiring any foreign R&D or software development contractors.
My feeling is that an EoR (employer of record) like remote.com might be enough for everyone to be able to avoid R&D capitalization. The research happens in Canada, by a Canadian employee of a Canadian company. You pay an American company for outsourcing human resources. The American company pays the Canadian company for human resources services.
Then again, if you're paying another company for outsourced human resouces, but you have an IP assignment clause as part of that, maybe you would need to claim it as your R&D expense
So this year if I spend $150k on foreign research (which includes ANY software development), and then I also earn $150k in revenue: despite me having $0 in the bank, I will only be able to deduct 1/15 of that, or $10k. In other words, I’ll be taxed as if I made $140k of profit, despite me not having any actual money left over.
You can see how if this was 5 years, then I could deduct 1/5 and I would be taxed on $120k profit, which is still bad, but not nearly as bad.
I don't think it will stop foreign hiring for R&D, since the cost differential is often greater than the tax obligation would be.
E.g. if you pay $150K for local research, you expense $15K (10%) the first year (and 30K the subsequent year). You pay taxes on $135K of 'profit'. Let's say that's $45K (I have no idea what's realistic here.
Alternately you pay $130K for a dev from Canada, expense $4,333 (1/30) the first year, and pay tax on the remaining 'profit' of $125,666. Even after admin costs you're coming out ahead
Just as an aside - as a general accounting principle, no, wages are not always deducted.
The easy example is a car company, like Ford. If they buy a car factory, that is a capital asset, and the cost needs to be amortized over x years. If they decide to instead BUILD a car factory...they still end up with a capital asset, and the costs (including wages) need to be amortized over x years.
In most cases this is what companies want - they'll have revenues over x years and matching costs over x years is generally better for everyone.
This isn’t like a loan where the longer the term the smaller the payments. It’s the reverse.
You essentially pay taxes now on income, and can’t deduct costs for 5 or 15 years. So it’s kind of like pre-paying taxes and not getting the money back for 5/15 years. Say that you need to go borrow cash to cover the shortfall. Is it cheaper to borrow money for 5 or 15 years?
As far as I understand it, it’s normal to deduct most all kinds of payroll as an operating expense, and historically that’s included software developers too. The way it was explained to me, the tax man gets his bite when the people receiving the paychecks pay their own income taxes.
The recent changes mean you can still do that for most staff EXCEPT developers, even if the devs are doing operational work instead of work that feels more conventionally like R&D. So you have to come up with a bundle of cash now to pay tax on most of the developers’ salaries, even though they’ll give it back to you over 5-15 years.
Essentially you making a free loan to the government for a decade or whatever, except the money’s probably not free to you.
Of course I can think of situations where the development effort really was more R&D than operational, and the revenue stream matched: the first few years operated at a loss already, and the deductions might have more been useful in 5 years when the revenues were flowing in from a mature product. But I think they might have ways to carry forward losses to future tax years or something to deal with situations like that?
So if you run a McDonalds. Your cash flows is money coming in for finished burgers. Your expenses are workers salaries and to buy meat. Let's say your very simple business summary is:
* Total Revenue: $1,000,000
* Cost of food: -$200,000
* Employee Salary: -$600,000
* (potential profit): $200,000
Assuming you can deduct the cost of food and employee salary to sling your burgers.. you make a 200k profit, and pay taxes on 200k.
But now let's say you can't deduct employee salary. You now pay taxes on $800,000 of income despite only having $200,000 of income. Depending on tax rates etc. you might end up with $0 in your pocket, despite having a successful business.
Now replace McDonalds with bootstrapped startup, food cost with AWS bill, and keep employee cost. This is the real situation many small SaaS or other software companies are currently in.