11Income taxes

The weighted average tax rate results from applying each subsidiary’s statutory income tax rate to the income before taxes. Since the group operates in countries that have differing tax laws and rates, the consolidated weighted average effective tax rate may vary from year to year according to variations in income per country and changes in applicable tax rates.

Reconciliation of income tax expenses

The effective income tax rate for 2025 was 23.9% (2024: 24.9%). In 2025, the effective income tax rate was impacted by income taxed at different tax rates in the amount of CHF 21.5 million due to participation exemptions on dividend income and withholding taxes on dividends, trademark royalties and interests.

Expenses not deductible for tax purposes in the amount of CHF 0.6 million mainly relate to disallowances of group charges for services, financing and other expenses in Mexico, India and Indonesia.

The effect of tax loss carryforwards and the related allowances for deferred income tax assets amounted to CHF 1.5 million and primarily reflects the utilization of tax losses under the U.S. Consolidated Federal Income Tax regime.

Prior‑year items and other reconciling effects include tax benefits of CHF 8.0 million arising from the increased Foreign Tax Credit and the Foreign‑Derived Deduction Eligible Income introduced by the U.S. One Big Beautiful Bill Act. In addition, this reconciling item comprises current tax refunds and receivables related to the Research and Development super‑deduction in China (CHF 3.0 million), as well as refunds from Research and Development tax credits in Brazil (CHF 2.6 million) and the United Kingdom (CHF 0.7 million).

The effective income tax rate for 2024 was 24.9% impacted by income taxed at different tax rates in the amount of CHF 25.5 million due to participation exemptions on dividend income and withholding taxes on dividends, trademark royalties and interests. Expenses not deductible for tax purposes in the amount of CHF 1.2 million mainly related to disallowances of group charges for services, financing and other expenses in India, Mexico, the UK and the USA. Effect of tax loss carryforwards and allowances for deferred income tax assets related to the utilization of tax losses in Germany, Ireland, UK and the USA due to the positive business development. Prior year items and others include current tax refunds and receivables from a Mutual Agreement Procedure in Switzerland (CHF 2.3 million), Research and Development super-deduction in China (CHF 1.5 million) and the refunds from Research and Development tax credit in Brazil and the USA. Additionally, a deferred income tax asset of CHF 2.1 million was recognized on a step-up in relation to the Swiss Corporate Tax Reform (TRAF) enacted in prior periods.

Summary of deferred income tax assets and liabilities in the balance sheet

Cumulative deferred income taxes recorded in equity as of December 31, 2025, amounted to  CHF –13.9 million (2024: CHF –4.8 million). The group does not recognize any deferred taxes on investments in subsidiaries because it controls the dividend policy of its subsidiaries – i.e., the group controls the timing of reversal of the related taxable temporary differences and management is satisfied that no material amounts will reverse in the foreseeable future.

Movement of deferred income tax assets and liabilities in the balance sheet

Tax loss carryforwards (TLCF)

Deferred income tax assets are recognized for tax loss carryforwards to the extent that the realization of the related tax benefit through future taxable profits is probable. No deferred income tax assets have been recognized on tax loss carryforwards in the amount of CHF 94.7 million (2024: CHF 88.8 million) or on some step-ups in relation with the Swiss corporate tax reform (TRAF), which entered into effect on January 1, 2020.

Global minimum top-up tax

Sulzer is subject to the global minimum top-up tax under Pillar Two legislation. The top-up tax relates to subsidiaries in Bahrain, Ireland, Qatar and the United Arab Emirates, where the statutory tax rate is below 15% and top-up tax is levied on Sulzer under the Income Inclusion Rule or domestic minimum top-up tax. Sulzer benefits from transitional safe harbors in 44 countries. The Group recognized a current tax expense of CH 0.9 million related to the top-up tax (2024: nil).

The Group has applied the temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax. The Group recognizes the top-up tax as a current tax when it incurs.