Vaud is cutting taxes: what lies ahead for businesses

The canton of Vaud has approved a 12 per cent reduction in cantonal income and wealth tax. The ‘yes’ vote – 53.1 per cent according to La Télé and 53.14 per cent according to Renseignement économique – paves the way for very tangible tax changes for taxpayers in Vaud: the measure is due to come into force from the 2027 tax year.

For SMEs, the self-employed and their tax advisers, the implications go beyond simply a slightly lower personal tax bill for business owners. This decision alters the parameters for financial planning: directors’ remuneration, advance tax payments, personal cash flow, the canton’s attractiveness, and also the budgetary environment in which businesses operate. The State Council, which opposed the bill, had warned of an annual shortfall of 272 million francs, according to La Télé and Renseignement économique. The question therefore becomes twofold: how much will taxpayers save, and how will the canton absorb the fall in revenue?

A 12 per cent reduction from 2027, but not a new tax haven

The approved initiative provides for a uniform reduction in cantonal income and wealth tax. It applies to individuals: employees, the self-employed, business owners taxed on their income, pensioners and holders of taxable wealth. According to La Télé, more than 500,000 residents of Vaud are expected to pay less cantonal tax from 2027 onwards.

However, it is important to understand exactly what a reduction in cantonal tax entails. The total tax liability of a taxpayer in Vaud comprises several components: direct federal tax, cantonal tax, municipal tax and, depending on the individual’s circumstances, other charges linked to wealth or certain types of income. The reduction that has been voted through should therefore not be interpreted as a 12 per cent reduction in the total tax burden. It relates to a specific component of the tax. For proper planning, each individual case will need to be recalculated using the final parameters applicable in 2027.

RTS also points out that, despite this reduction – which is considered rare in terms of its scale – Vaud is likely to remain amongst the cantons with high tax rates. According to RTS, the canton ranks alongside Geneva and Basel-Stadt as one of those with the heaviest tax burden, and it is expected to remain near the top of the rankings for taxpayers with an income or taxable wealth of 100,000 francs or more. For an executive who is hesitant about where to base their residence or business, the reduction therefore improves the situation without completely changing it.

Executives and the self-employed: reviewing advance payments, not the principles

For a self-employed person in Vaud, the reduction may have a direct impact on disposable income after tax. Professionals, craftspeople, consultants and sole traders should therefore factor this change into their projections for 2027. However, it would be a mistake to anticipate a net saving too soon without taking the full picture into account: fluctuating income, deductions, social security contributions, business or private assets, family circumstances and municipality of residence.

In an SME, the impact will often be felt more by the owner or director than by the company itself. A public limited company or a limited liability company is taxed according to the rules applicable to legal entities; the initiative concerns the cantonal tax on the income and wealth of natural persons. On the other hand, a director who is an employee of their own company, a shareholder receiving a dividend, or an entrepreneur holding taxable assets in the canton may be affected in terms of their personal tax liability.

The first practical task for tax advisers will be to check the advance tax payments. In Switzerland, tax is generally paid on the basis of estimates and then adjusted during the final assessment. If the 2027 provisional tax payments do not accurately reflect the reduction, a family business or a self-employed person may tie up too much cash with the tax authorities, or conversely underestimate their actual tax liability if other factors change. A cautious adjustment avoids unpleasant surprises, without veering into tax optimism.

The issue of directors’ remuneration also warrants fresh consideration. Salaries, dividends, the creation of company reserves, pension scheme buy-backs and business investments: these decisions must continue to be guided by economic reality and by the applicable tax and social security rules, not by a single reduction in the tax scale. The announced reduction may, however, slightly alter the after-tax return on certain options. A personalised recalculation will be essential, particularly for executives whose income varies significantly from one year to the next.

The tax shield has already reignited the political debate

The referendum has not brought the Vaud tax issue to a close. According to Le Temps, a motion co-signed by 66 out of 150 members of parliament calls for a further change to the calculation of the tax shield with effect from 1 January 2027. The motion, backed notably by elected representatives from the PLR, SVP and Green Liberals, would incorporate elements of a reform adopted in December 2024, which lapsed following the acceptance of the 12 per cent initiative.

The tax shield is a mechanism designed to limit, in certain situations, the cumulative tax burden relative to a taxpayer’s income. It mainly affects high-net-worth taxpayers, for whom wealth tax can become a significant factor when returns on their wealth are low or irregular. In a canton with a high tax burden, this type of scheme is politically sensitive: its supporters see it as a tool for attracting residents and ensuring stability, whilst its opponents view it as targeted tax relief for the wealthiest.

RTS points out that the Vaud tax shield affects between 1,000 and 4,000 people. The State Council had made the fate of a reform to the tax shield contingent on that of the initiative. By accepting the tax cut, voters have ensured that the current system remains in place, which, according to RTS, would prevent further losses of 20 million francs a year for the canton and around 10 million for the municipalities. However, the motion reported by Le Temps suggests that the issue could return to the Grand Conseil shortly.

For trust companies, this uncertainty calls for a careful assessment of complex asset situations. Entrepreneurs who have sold their businesses, major shareholders, families owning property or substantial investment portfolios: medium-term projections must factor in a regulatory scenario that is still in flux. It would be unwise to make decisions regarding domicile, distribution or restructuring based on a legal framework that is likely to be subject to further debate.

Lower taxes, but budgetary pressure to watch

Trade unions have reacted with concern. La Télé reports on the SSP-VAUD’s fears for public services, particularly primary education and healthcare. The cantonal government had also recommended a ‘no’ vote and warned of the impact on revenue. The authorities have indicated their intention to consult with one another to draw up proposals, whilst pointing out that CHF 260 million worth of cost-cutting measures had already been implemented over the past three years, according to La Télé.

For a business, the level of taxation is just one aspect of the economic climate. The quality of infrastructure, education, healthcare, transport, public administration and economic justice also matters. If the tax cut leads to budgetary trade-offs, the indirect effects could affect SMEs: administrative delays, the availability of trained staff, the funding of public services, pressure on certain taxes or fees, or even future debates on other sources of revenue.

There is currently no way of knowing what measures will be taken. This is precisely why businesses must avoid jumping to conclusions. A tax cut has the potential to improve entrepreneurs’ cash flow and the purchasing power of certain households. It may boost local consumption or make it easier to recruit executives resident in the canton. However, its net effect will depend on the budgetary and political decisions that follow.

Planning for 2027 begins now

Businesses in Vaud would be well advised to factor this change into their regular financial year-end and budgeting schedule. For the self-employed, it will be necessary to distinguish between taxable business profit, social security contributions and personal income tax. For directors who are employees of their own companies, it will be advisable to update their personal tax projections, particularly if bonuses, dividends or asset-related transactions are planned. For employers, the impact may also come to the fore in salary negotiations: a reduction in tax can affect the net income perceived by staff, though it should not replace a structured remuneration policy.

Fiduciary advisors should prepare ‘before and after’ comparisons as soon as the final parameters are available. The aim is not only to quantify the savings, but also to assess any knock-on effects: advance tax payments, tax provisions, dividend distributions, investments, occupational pension schemes and coordination with local tax authorities. Taxpayers with substantial assets or those affected by the tax cap will need to follow the announced parliamentary proceedings closely.

The vote in Vaud is part of a wider trend in French-speaking Switzerland. RTS notes, in particular, an average effective reduction of 8 per cent in Geneva since 2025, tax relief in Valais, a planned review in Bern for certain middle and low incomes from 2027, and an initiative tabled in Neuchâtel in July 2025 to reduce the personal income tax scale by 10 per cent by 2030. This tax competition remains, however, constrained by strained public finances.

For SMEs in Vaud, the right approach is therefore to translate the political announcement into practical management tasks: running simulations, adjusting advance payments, documenting decisions and reviewing each case individually. The 12 per cent reduction is a significant figure, but it does not obviate the need for a comprehensive analysis. In taxation, the apparent saving on a single invoice line can quickly be put into perspective by factors such as income, wealth, the local authority, legal structure and future budgetary decisions.