Canton of Vaud lagging behind on taxation of natural persons

The canton of Vaud, with a corporate tax rate of 14%, is slightly below the Swiss average of 14.6%. As is the case in other cantons, businesses in the canton of Vaud benefit from various tax incentive measures introduced as part of the Federal Act on Tax Reform and AHV Financing (TRAF). Thanks to these measures, businesses in Vaud are able to reduce their taxation rate on profits to as little as 11.03% (Swiss average: 10.95%).

With the introduction of the global minimum tax (Pillar 2), the tax rate on profits will become less significant as a differentiating factor – in terms of helping to make the canton more attractive compared with jurisdictions offering a more competitive cost of living.

As regards Pillar 2, the canton of Vaud has decided to introduce a progressive tax scale on profits from 2025. So the effective tax rate will remain the same as now, namely 14%, on the portion of taxable profits below CHF 10 million, while the portion above will be taxable at a rate of 14.7%. 

Bearing in mind that only 2.4% of Vaud-based companies have net taxable profits in excess of CHF 1 million (the published statistics for Vaud do not show the percentage of Vaud-based companies making profits of above CHF 10 million), only a fraction of Vaud-based companies are affected by this increase. 

The familiar tax incentive measures associated with the canton of Vaud, such as temporary tax exemptions and TRAF measures, will continue to apply to Vaud-based companies not affected by the global minimum tax, although there is a risk their effects will be nullified for those affected by Pillar 2.

“So the canton of Vaud has to think about coming up with new measures, making sure these have no negative effects on the global minimum taxation level, or as few as possible. This means having them accepted by the OECD and the EU in particular,” comments Vincent Thalmann, Head of Corporate Tax Western Switzerland at KPMG.

Unlike for businesses, taxation on natural persons has not changed much in recent years. The average maximum income tax rate has remained practically constant in Switzerland. For example, the rate in 2007 was 34.9%, and this is almost the same in 2023 at 33.45%. 

The canton of Vaud has one of Switzerland’s highest taxation levels, with a maximum rate of 41.50% for natural persons. Only the cantons of Geneva (44.47%) and Basel-Landschaft (42.17%) apply higher ceilings in terms of personal taxation.

The canton of Vaud has some of the heaviest income tax rates among Switzerland's cantons, and this certainly applies to the middle- and higher-income classes as a whole. “What’s more, despite the multiple deductions introduced in recent years, the surveys conducted for the various editions of the Vaud Tax Barometer show that the situation for taxpayers in Vaud is generally getting worse as compared with other cantons,” points out Janick Pochon, the Corporate Tax Manager for the canton of Vaud. The ranking in this area is markedly different from how other cantons such as Geneva or Zurich are faring. For example, a Vaud family with two children and a gross income of CHF 125,000, so before any tax or social security deductions, will have a tax burden nearly twice that of a family in Geneva (+91%) or Zurich (+86%).

As regards taxable wealth, the canton of Vaud has some of the heaviest taxation rates among the cantons. Besides the rankings, the difference in rates between cantons is particularly significant. For example, a Vaud family with two children and net wealth of CHF 150,000 will pay 15 times more tax than a Geneva household and eight times more than a Zurich family. 

"Taxation in the canton of Vaud is the heaviest in intercantonal comparison. It is a disincentive for all taxpayers, particularly those with a high tax-paying capacity. There is a risk of an exodus, but attracting new taxpayers does not seem to be on the agenda. The 'tax cut for all' initiative, which provides for a 12% tax allowance, would not fundamentally improve our intercantonal positioning, but it would already provide substantial relief for Vaud taxpayers", emphasizes Philippe Miauton, Director of the CVCI. As for the 3.5% rebate decided by the Grand Council, its impact on the canton's intercantonal positioning is practically nil, especially as it does not include wealth. "A complete reform of Vaud's tax system for natural persons must therefore be implemented.