Accounting & taxation, Blog: 27.10.26Tax-deductible provisions: what a Swiss SME can still book before 31 December

Between the end of October and 31 December, the owner of a Swiss SME still has a window to act on 2026 taxable profit. Provisions are the main lever, provided they stay within what the tax administration accepts. This article reviews the provisions that are legally deductible, the recognised calculation rules, and the ones not worth attempting.

A provision is not an accounting freedom: it is an entry governed by the Swiss Code of Obligations (CO) (art. 960e) and by the Federal Act on Direct Federal Taxation (DBG/LIFD) (art. 29 for legal entities). A provision is only tax-deductible if it covers a probable loss or an existing obligation on the balance sheet, and if it is charged to the financial year in which the risk arises. In short: it must be booked before the closing, not after.

October, November and December are therefore when the business owner compares forecast figures with the balance sheet under construction and decides which year-end adjustments to book. Waiting until January means losing the lever.

This is the most common provision, and the one most often built incorrectly. As soon as a customer presents a risk of non-payment, a provision for bad debts must be booked.

The tax authorities accept two approaches:

• Individual assessment. For each receivable identified as doubtful (proceedings under way, more than 90 days overdue, adverse information), a provision matching the actual risk. This is the method required for significant receivables.
• Flat rate on Swiss and foreign receivables. Without an individual assessment, a flat rate of 5% on Swiss receivables and 10% on foreign receivables on the balance sheet is accepted in most cantons. This flat rate covers the general risk and does not replace a separate provision for receivables identified as doubtful.

Two frequent traps. Applying the 5% flat rate to the whole trade receivables balance without first removing receivables already written off: those receivables leave the balance before the flat rate is calculated. And providing for an intra-group receivable as if it were owed by a third party: the tax authorities systematically refuse it.

Article 960c CO requires inventory to be valued at the lower of cost and market value. As soon as market value falls below cost, the difference must be booked as a provision for impairment.

In SME practice, three situations lead to an inventory provision before 31 December:

1. Identified obsolescence. Stock that has not moved for more than twelve months, an unsold seasonal product, a product generation that has been replaced.
2. Collapsed market price. A raw material whose price has dropped, a finished product whose list price has been cut.
3. One-third flat rate. Most cantons accept a flat write-down of one third (33 1/3%) on inventory at closing, without specific justification. Anything beyond that must be documented.

A physical stock count at 31 December remains the condition for acceptance: without a count, the provision can be challenged.

Any company that sells products or services under a contractual warranty (joinery, IT, construction, technical services) can provide for the estimated cost of future warranty work.

Two approaches are accepted. Either a statistical calculation based on history (the average percentage of warranty costs observed over the previous three to five financial years, applied to the turnover still under warranty). Or an individual estimate for significant contracts, when the warranty terms are specific.

The mistake to avoid: providing out of pure caution, with no history and no contract. A warranty provision requires a contractual obligation. No commitment, no provision.

They only apply to fixed assets whose nature justifies heavy periodic work (industrial boilers, roofs, fleet vehicles, machine tools). The provision anticipates the cost of a repair that is not a capitalisable investment but a maintenance expense deferred over time.

Two conditions apply. A documented maintenance plan, setting out the nature and frequency of the work. And a provision spread over several financial years, aligned with the repair cycle. A one-off, last-minute provision with no plan behind it will be adjusted by the tax authorities.

As soon as a dispute is under way (labour court, civil proceedings, a claim from a customer or supplier), a provision must be booked for the probable cost, including legal fees.

The amount follows the progress of the proceedings and the advice of legal counsel. For a labour court case, provide for the maximum compensation that can be expected, not only the employee’s initial claim. For an ongoing tax dispute (supplementary tax assessment, contested assessment ex officio), the provision must cover the potential additional tax and late-payment interest.

A dispute that arises in November or December and that the external fiduciary has not been told about often remains without a provision, for lack of time to adjust the accounts. This is one of the areas where dialogue between management and the accountant needs to be closest before the closing.

Corporate income tax due for the 2026 financial year is provided for in the 2026 accounts. The 2026 tax return is generally filed in 2027, and the tax administration most often issues the assessment in the year of filing. A late return can push the assessment to 2028. In every case, the expense belongs to the 2026 financial year, and that is where it must appear.

The method: estimate taxable profit before the tax provision (that is, profit adjusted for excessive depreciation, non-deductible expenses and so on), apply the combined rate of direct federal tax and cantonal and communal tax for the canton of domicile, and book the result. Many SMEs use a flat combined rate of around 14% in Geneva, to be adapted to the canton.

Forgetting this provision shifts the whole tax charge to the year of assessment, with a doubly unwelcome effect: an overstated 2026 profit, and a 2027 profit (or 2028 in case of late filing) that is artificially reduced.

Three provisions regularly tempt business owners and in-house accountants at year end, because they look prudent or logical. The tax authorities systematically adjust them.

Provisions for unidentifiable future risks. Out of excessive caution, a business owner may want to book a “general provision for business contingencies” just in case. Not deductible: in Switzerland, a provision requires an identified triggering event at the closing date, not a general concern about the future.

Provisions for the early retirement of directors. A shareholder-director who wants to smooth their departure may be tempted to book a balance sheet provision to “top up the pension”. Not accepted: the director’s retirement savings go through the 2nd pillar (LPP) and the 3rd pillar, not through the company’s balance sheet.

Provisions for future investments. “I know I will buy a machine in 2027, so I provide for the expense in 2026 to smooth the charge.” Refused: when the investment is made, it will be capitalised and then depreciated over its useful life. It is not expensed in advance.

A provision forgotten in December 2026 cannot be caught up in January 2027. The tax window closes with the financial year. The 2026 profit stays overstated in the annual closing, tax is calculated on it, and the probable loss that would have justified the provision hits the year in which it materialises. The cash impact can be significant for an SME that counts on spreading its tax charge.

Conversely, over-providing exposes the company to an adjustment by the tax authorities, with interest, and to a profit restated upwards. The entry has to withstand scrutiny: prudent, but justifiable.

Year-end provisions are not last-minute adjustments. Each one rests on a factual analysis, a recognised calculation method and documentation that must hold up if the tax administration asks to see it. Between reviewing receivables, the physical stock count, estimating disputes and calculating current tax, it is a sequence that takes several weeks, not an afternoon in December.

Unsure what can still be booked for the 2026 financial year? Let’s talk.