- Canton of Vaud has reduced its tax rate on profits from 21.37 percent to 14.00 percent since 2019.
- With the implementation of the TRAF in 2020, the canton has made itself an even more attractive proposition as far as business taxes are concerned.
- Companies that benefit from TRAF measures are able to reduce their tax burden, particularly for their research and development activities.
- Vaud’s personal tax rate remains disproportionately high compared to the other Swiss cantons.
- To rectify the imbalance, the CVCI is demanding that the canton tackle the tax system for both wealth and income tax so as to stop pejorating the work tool and to retain its “major” taxpayers.
With this year’s “Vaud Tax Barometer”, KPMG and the canton of Vaud’s chamber of commerce and industry (CVCI) have once again analyzed how attractive the canton is from a tax perspective for companies and private individuals. In implementing the TRAF – the Swiss government’s reform of the tax system and the financing of old age and survivor’s insurance – at cantonal level, the canton of Vaud has gained a competitive edge in terms of corporate tax. Vaud is currently one of the cantons that tax companies at slightly lower rates than the Swiss average but still lags behind when it comes to personal taxation.
Making the business tax landscape more attractive and the challenges that lie ahead
Backed by a groundswell of public support, the canton of Vaud implemented the various elements of the corporate tax reform in 2019 and 2020. Specifically, it imposed a tax of 14 percent on profits and introduced several measures promoting research and development (R&D) and innovation. This reform set out to keep Vaud an attractive location for businesses, specifically subsidiaries of multinational corporations whose tax regime faced abolition and whose activities have a positive direct and indirect impact on the whole of the canton’s economy. Compared to when the Tax Barometer was last produced in 2018, Vaud has moved up the cantonal rankings in terms of corporate taxation, climbing from 21st to 13th place (standard rate).
The implementation of the TRAF ushered in various tax breaks for companies. The standard tax rate is now no longer the only relevant factor in a comparison: The minimum rate is the ordinary rate minus deductions for R&D activities and the patent box regime. Applying a profit tax of 14 percent and a minimum rate of 11.02 percent, the canton of Vaud is below the Swiss average on both counts (14.87 and 11.06 percent respectively).
International developments, particularly the introduction of a global minimum corporate tax rate of 15 percent, mean that the profit tax rate will no longer be a differentiating factor making the canton more attractive than other jurisdictions where the cost of living is more competitive. In view of this new reality, the canton of Vaud and Switzerland as a whole will need to find new tax and non-tax measures to maintain the same level of attractiveness and thus stand out from the crowd on the international stage.
Private individuals facing hefty tax bills
Unlike corporate taxes, those for private individuals have changed little in recent years. The average maximum income tax rate has hardly shifted at all in Switzerland: At 33.7 percent in 2021, it is virtually at the same level as the 34.9 percent charged in 2007. The canton of Vaud has one of the highest rates of personal taxation in Switzerland, which can be as much as 41.5 percent. Only Geneva (44.97 percent) and Basel Landschaft (44.22 percent) impose even higher tax ceilings on private individuals. “The tax breaks introduced in recent years have only had a very limited impact and so haven’t made a difference,” observes Janick Pochon, whose remit at KPMG includes corporate tax in the canton of Vaud. “In particular, both income and the wealth tied up in a business are still being taxed very highly.”
“What’s also remarkable is that you’ve got a small percentage of taxpayers contributing much of the tax revenue,” adds Claudine Amstein, Director of the CVCI. Within the canton, 7.5 percent of taxpayers generate a taxable income of over CHF 150,000 and thus contribute over 41 per cent of Vaud’s income tax receipts. “Given that just a handful of taxpayers make up a large proportion of the tax base, we need to keep the high-earning taxpayers in our canton,” Claudine Amstein says.
The canton of Vaud is also bringing up the rear in Switzerland in terms of wealth tax. High-net-worth individuals there face a tax burden that is six times higher than in the cantons with the lowest rates of wealth tax. “The prosperity of the canton and the jobs of its taxpayers depend on us having a dynamic, attractive economy,” Claudine Amstein concludes. “If we want to stay competitive, we have to tackle the tax system, for both income and wealth tax.”
Media Conference - Slides (PDF, in French)
Usually published every two years, the “Vaud Tax Barometer” is a systematic inter-cantonal comparison of the canton of Vaud’s attractiveness from a tax perspective, focusing particularly on its neighboring cantons. It assesses how attractive the canton is in terms of corporate tax and its positioning with regard to the taxation of private individuals. The “Vaud Tax Barometer” was created in partnership with KPMG and the chamber of commerce and industry of the canton of Vaud (CVCI).
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