Vaud approves a 12 per cent tax rebate: SMEs affected

Taxpayers in Vaud have approved the so-called ‘12 per cent’ initiative, which provides for a reduction in cantonal income and wealth tax. The ‘yes’ vote, which secured 53.1 per cent of the vote according to LFM and France 3, marks the start of a new chapter in the canton’s tax policy: the measure is due to come into effect from the 2027 tax year and will replace the relief measures set out in the government’s plan.

For SME owners, the self-employed and their tax advisers, the implications go beyond the mere amount of personal tax. In a canton where many entrepreneurs run their businesses as sole traders, in partnerships or own their companies through their private wealth, the announced reduction may affect personal cash flow, decisions on remuneration and wealth planning. However, it also comes at a time when the 2027 cantonal budget had already been presented with a deficit, which could lead to adjustments in public spending and reignite other tax debates.

A cantonal rebate on income and wealth from 2027

The approved text provides for a uniform 12 per cent reduction in the Vaud cantonal tax on income and wealth. This does not, therefore, represent a reduction in the overall tax burden for a taxpayer in Vaud: municipal taxes, direct federal tax and other levies are governed by their own rules. For an SME or a self-employed person, this distinction is crucial when assessing the actual impact on a household or business owner’s budget.

In practical terms, the measure targets the cantonal tax payable by individuals. It therefore directly affects employees, self-employed people taxed on their profits as income, partners in partnerships and holders of taxable assets. For public limited companies (SA) or limited liability companies (Sàrl), the tax on the legal entity’s profits and capital is not presented in the sources as forming part of the rebate. However, the owners of these companies may be affected in their private capacity, notably through their taxable income and taxable wealth.

According to LFM, the initiative was passed with a turnout of just under 50 per cent. Le Matin reports a turnout of 53.14 per cent. Sources agree on the timetable: implementation is expected from 2027. This is an important point for tax planning: advance payments, simulations and remuneration decisions will need to be adjusted in line with the specific arrangements to be communicated by the authorities.

The Vaud State Council had advocated a different approach, through a ‘purchasing power plan’. According to LFM and France 3, this plan notably provided for a 2 per cent reduction in income tax in 2027, bringing the cumulative reduction to 7 per cent from 2024 onwards. This approach will be abandoned in favour of the 12 per cent rebate. Le Matin and 20 Minutes emphasise that the measures will not be cumulative: one should therefore not assume that the total tax relief amounts to 19 per cent.

Self-employed people and shareholder-owners: where the impact will be felt

In practice, the most immediate impact will be felt by those with a significant cantonal taxable income. A self-employed person taxed in their own name declares the profit from their business in their personal tax return. If their taxable profit remains roughly the same, a reduction in cantonal tax can improve their personal cash flow from the relevant period onwards. This may make it easier to finance personal expenditure, build up a safety net or repay private debts. However, the exact effect will always depend on the full tax situation: municipality of residence, marital status, assets, deductions, social security contributions and other income.

For a director who is an employee of their own company, the analysis is different. The company continues to manage its own expenses, salaries, VAT and taxes in accordance with the applicable rules. However, the cantonal income and wealth tax rebate may affect the executive’s net remuneration as a private individual. In some cases, this may make it worthwhile to review the mix of salary, dividends, pension provision and reserves within the company. This review must be approached with caution: remuneration decisions are not based solely on the tax scale, but also on social security contributions, occupational pension provision, the company’s liquidity requirements and economic justification.

Taxable wealth also warrants particular attention. Entrepreneurs often hold shareholdings, shareholder current accounts, property or accumulated cash in their private sphere. The tax relief also applies to cantonal wealth tax, which can reduce the annual tax burden on taxable assets. Here again, the effect is not expressed as a percentage of the assets, but depends on the actual tax assessment. A fiduciary would be well advised to recalculate the projections using the client’s latest tax data rather than applying a simplified calculation.

For SMEs that employ staff, the tax relief should not be confused with a reduction in wage costs. Social security contributions, insurance, employer’s contributions and obligations relating to wages are not affected by the vote, as reported by the sources. However, some employees resident in the canton could see their cantonal tax burden reduced from 2027 onwards, which may fuel discussions about net purchasing power. Employers should avoid being too quick to use this development as a bargaining chip in salary negotiations: the impact will vary significantly depending on individual circumstances.

Cantonal budget under strain: why businesses need to keep a close eye on developments

The vote comes against a backdrop of budgetary strain. LFM, La Liberté, France 3 and Le Temps report that the shortfall is estimated at 272 million francs less in cantonal revenue per year. The draft 2027 budget was already showing a deficit of 356 million francs, according to LFM, France 3 and Le Temps, despite the use of reserves. LFM mentions that reserves amounting to 440 million francs have been drawn down.

These figures do not immediately affect an SME’s costs. But they do have an impact on the local economic environment. A canton that has to absorb a fall in revenue may have to review certain expenditure, postpone projects, adjust priorities or seek other ways to balance the books. Sources report that the State Council will have to revise its draft budget for 2027 and, together with the Grand Council, find a way to incorporate the new circumstances. France 3 cites the announcement of measures designed to factor lower tax revenues into the budget and to meet the constitutional requirement for a ‘balanced budget’, notably through reductions in social security contributions.

For a company operating in public procurement, healthcare, social services, training, construction or services provided under public contract, the budgetary developments may therefore have indirect effects. Cantonal decisions may influence the timing of certain contracts, subsidies, investments or framework conditions. It would be premature to draw definitive conclusions, but not to take the political timetable into account.

The debate also has a tax competitiveness dimension. Supporters of the proposal, including business circles, have championed the idea of a more competitive canton and an increase in purchasing power. Opponents have warned that the tax relief would mainly benefit high earners and the wealthy and could undermine public services. For SMEs, these two perspectives converge on a very practical question: will the canton remain attractive to taxpayers, skilled workers, investment and the infrastructure on which economic activity depends?

Advance payments, provisions and simulations: the work begins before 2027

From an accounting and tax perspective, the referendum result should not lead to a hasty overhaul of all the parameters. Implementation is scheduled to take effect from the 2027 tax year. Previous tax assessments will remain subject to the rules in force for the periods concerned. However, it would be wise to factor the measure into medium-term projections, particularly for the self-employed and business leaders who manage their taxable income.

A first step is to distinguish between taxpayers affected in their private capacity and the companies themselves. For a sole trader, the operating profit is reported directly in the personal tax return. For a public limited company (SA) or a private limited company (Sàrl), corporation tax and the shareholder’s personal tax follow different logic. This distinction prevents the effect of the vote on the company’s net profit from being overestimated.

Tax advisers will also be able to review provisional tax payments once the official figures are available. In the canton of Vaud, as elsewhere, provisional tax payments serve to smooth the tax burden over time. If they are too high, they tie up liquidity unnecessarily; if they are too low, they may lead to an unpleasant surprise when the final tax bill is issued. For an SME whose director relies on distributions or fluctuating income, this adjustment forms part of cash flow management.

Tax provisions in the accounts must also remain consistent with the rules applicable to the financial year in question. It is not sufficient simply to automatically record a future tax rebate in the current accounts. The effective date, the tax period concerned and the accounting requirements must be complied with. A thoroughly prepared set of accounts will document the assumptions made and distinguish between personal effects and those relating to the business.

Entrepreneurs considering a business transfer, a restructuring or a change to their remuneration arrangements should take advantage of this change to request a comprehensive simulation. A discount on cantonal tax may shift certain balances, but it is no substitute for an analysis of social security contributions, pension provision, available liquidity, commercial risks and wealth management objectives. It is precisely in these situations that fiduciary advice helps to avoid decisions based solely on a single tax parameter.

Tax cap and political uncertainties: the matter is not yet settled

Several sources point to another consequence of the vote: the tax shield reform adopted by the Grand Conseil would become null and void. Le Matin reports that the government will have to review this matter swiftly, highlighting what it sees as the risk of certain wealthy taxpayers leaving the canton and of further tax losses. 20 Minutes also mentions a so-called ‘guillotine’ clause and the need for the State Council to find a solution to avoid increasing the cost beyond the estimated 272 million francs per year.

The tax shield is a mechanism designed to cap, in certain situations, the tax burden in relation to the taxpayer’s ability to pay. Without going into individual advice, it typically applies to situations where taxable wealth is high relative to disposable taxable income. For entrepreneurs, this can become a significant issue when the tax value of a shareholding or business assets is substantial, whilst personal liquidity does not always keep pace.

This aspect warrants close monitoring, as the final parameters may affect mobile taxpayers and those with substantial assets. For a family-run SME, the issue may arise at the time of succession, a gift, a disposal or a reorganisation of shareholdings. This is not about anticipating departures or restructuring solely on the basis of a vote, but about keeping the necessary documentation ready: up-to-date valuations, income records, a clear ownership structure and a clear view of cash flow.

The referendum result therefore points the way clearly: the people of Vaud have opted for a cantonal reduction in income and wealth tax. For businesses, the benefit will not be measured solely in terms of the director’s next personal tax assessment. It will depend on the implementation arrangements, the canton’s budgetary adjustments and the choices each business owner makes regarding remuneration, investment and pension provision. The sensible approach is to translate this policy announcement into quantified scenarios, whilst bearing in mind that the tax framework remains a holistic system: a tax rebate may provide some relief, but it is no substitute for comprehensive tax planning.