Vaud faces a debate over a tax system deemed too burdensome

The debate over taxation in Vaud is back in the spotlight. According to figures published by *Le Temps* regarding the Vaud Tax Barometer produced by the CVCI and KPMG, the canton is among the highest-taxed in Switzerland and has the third-highest tax rate in the country. For businesses, this is not merely a matter of election campaigning or public finances: it is a factor that affects the take-home pay of managers and staff, the attractiveness of job roles, investment decisions and, at times, the choice of location.

The Vaud Chamber of Commerce and Industry, which is one of the organisers of the ‘12% – Tax Cuts for All’ initiative, highlights a sharp rise in cantonal tax revenue. According to the data cited, these increased by 20 per cent between 2016 and 2025, reaching 7.26 billion francs out of total revenue of 12.55 billion. In a canton where many SMEs are operating with margins under pressure, the central question becomes very real: to what extent does taxation affect the ability to recruit, retain staff and invest?

A tax barometer at the heart of the Vaud vote

The publication of the 6th edition of the Vaud Tax Barometer comes at a sensitive political juncture: with less than three weeks to go before the vote on the ‘12% – Tax cuts for all’ initiative, the CVCI and KPMG have highlighted the canton’s weaknesses in an inter-cantonal comparison, particularly for individuals. The timing is therefore far from coincidental. It places taxation at the centre of a choice that directly affects households, but also, indirectly, businesses.

For an SME director, personal income tax is not a matter separate from the life of the business. In many family-run businesses, self-employed enterprises or small organisations, the owner’s income, the salary they pay themselves, any dividends and the ability to reinvest are closely linked. High personal taxation can reduce the business owner’s personal financial flexibility, but can also influence remuneration strategy, dividend policy or the timing of handing over the business.

The Barometer also highlights the progressive nature of the Vaud tax scale, described as particularly pronounced. Progressivity means that the tax rate increases as taxable income rises. This principle is standard in Swiss taxation, but its intensity varies from canton to canton. For skilled professionals, executives, entrepreneurs or the self-employed whose incomes fluctuate significantly from one year to the next, a high degree of progressivity can amplify the tax impact of good years. It is precisely this point that interests trust companies: anticipating fluctuations in income, avoiding unpleasant cash flow surprises and coordinating decisions relating to salaries, accounting and tax.

Why personal income tax is also relevant to SMEs

A business does not merely pay its visible costs. It also operates within a tax environment that determines the disposable income of its staff and directors. Two identical gross salaries do not necessarily feel the same depending on the canton, municipality, family circumstances or allowable deductions. For an SME in Vaud competing with employers in other cantons, taxation can therefore become a factor in salary negotiations, even when it does not appear on the payslip.

When an employee compares job offers, they rarely look at gross salary alone. They are interested in take-home pay, the cost of housing, commuting time, insurance, pension provision and, sometimes, taxation. A company recruiting specialists may need to compensate, at least in part, for a location considered less favourable. This can result in higher salary expectations, requests for additional benefits or increased pressure on the total wage bill. For the accounts and human resources departments, the challenge is to factor this reality into budgets without promising a tax treatment over which the company has no control.

Self-employed individuals are even more exposed to this interplay between business activity and personal taxation. Their taxable income depends directly on the profit from their business, after allowing for recognised expenses. A profitable year may result in a higher tax and social security burden, whilst a weaker year may limit available cash flow. In a canton with high tax rates, disciplined provisioning becomes essential: it is not enough simply to recognise the profit; one must also set aside sufficient funds to pay future advance payments and final tax assessments.

Rising revenue: how the figures are shaping the debate

The figure quoted by *Le Temps* carries significant political weight: cantonal tax revenue is projected to rise by 20 per cent between 2016 and 2025. It is expected to reach 7.26 billion francs, out of total revenue of 12.55 billion. The CVCI sees this as an indication that the canton is not short of revenue. Its director, Philippe Miauton, believes the problem lies with expenditure rather than revenue and rejects the idea that a tax cut would automatically lead to austerity.

For a tax consultancy firm, the debate is not about making a political judgement on this assertion. Rather, it is a matter of assessing its practical consequences. If a tax reform does indeed reduce the tax burden on individuals, some taxpayers could find themselves with more disposable income. This could boost local consumption, make certain jobs more attractive or give entrepreneurs some breathing space. However, the actual effects would depend on the specific measures adopted, the individual circumstances of each taxpayer and the canton’s budgetary choices.

Conversely, the absence of change would maintain the current framework, with its known effects on planning. For businesses, stability also has value: it enables them to draw up budgets and anticipate cash flows. However, stability in an environment perceived as a heavy tax burden can give rise to other costs: higher salaries to attract certain profiles, hesitation when setting up a business, or unfavourable comparisons with other cantons when planning for growth.

The debate on public revenue also highlights a reality that is often overlooked: tax is not merely an annual burden. It is a component of cash flow management. Advance payments, final tax assessments, adjustments following an exceptional year or payment delays can create strain, particularly when a business confuses accounting profit with actual available liquidity. An SME may show a profit on paper yet still lack cash if it has not factored in taxes, social security contributions, VAT and investments.

Salaries, dividends, pension schemes: trade-offs are becoming more sensitive

In a canton where personal income tax is the focus of criticism, decisions regarding the director’s remuneration must be carefully documented. Paying oneself a salary, distributing a dividend, increasing occupational pension contributions or retaining profits within the business are options that are treated differently for tax, social security and financial purposes. There is no one-size-fits-all solution. The right balance depends on the legal form of the company, its profitability, personal needs, the company’s financing and the applicable rules.

For a public limited company or a private limited company, the director’s salary is an expense for the company, but it gives rise to social security contributions and personal taxation. A dividend, on the other hand, requires distributable profit and is subject to a different set of tax rules. Occupational pension schemes can play a role in planning, but they must remain consistent with the scheme’s rules and the insured person’s circumstances. In a high-tax environment, these trade-offs become even more significant, as poor planning can tie up liquidity unnecessarily or result in an unexpected tax bill.

SMEs should also pay attention to irregular income. A one-off bonus, a one-off distribution, the sale of an asset or a sharp rise in profits can move the taxpayer into a higher tax bracket. Where the tax scale is highly progressive, the marginal impact can be felt more acutely. It is therefore prudent to run through several scenarios before making a major decision, particularly at the end of the financial year.

From an accounting perspective, this means that tax considerations must be factored in at an early stage, rather than treated as a mere formality at the time of filing the tax return. Closing entries, provisions, the recognition of income, the treatment of expenses and the separation of private and business expenditure must be strictly adhered to. This rigour also protects the business in the event of an audit or enquiries from the tax authorities.

Establishment and inter-cantonal competition: a signal not to be underestimated

The Tax Barometer highlights the canton’s unfavourable inter-cantonal positioning for individuals. For a business already established in the canton of Vaud, this does not necessarily mean that a relocation is required. A decision on where to set up depends on a range of factors: proximity to clients, the labour market, premises, infrastructure, the economic network, corporate taxation, taxation of directors and quality of life. However, when several cantons are under consideration, tax can become a deciding factor.

Start-ups and the self-employed pay particular attention to these trade-offs. When starting out, every franc counts. The choice of the founder’s tax residence, the company’s registered office and the actual place of management can have significant consequences. However, these factors must be handled with care: taxation is based on economic and personal reality, not just an administrative address. Artificial or poorly researched planning can create more risks than savings.

For SMEs in Vaud, the most useful advice is therefore practical. It is essential to know one’s effective tax burden, compare scenarios before making structural decisions, and avoid relying solely on gut feeling. A simple dashboard can already help: projected profit, planned remuneration, tax instalments, social security contributions, VAT, investments and available cash. When this information is monitored regularly, the business transforms a political debate into a management tool.

The canton of Vaud has a dense economic fabric and strengths that go beyond taxation. But the message sent by the CVCI and KPMG Tax Barometer is clear: the tax burden on individuals remains a sensitive issue, with very real repercussions for businesses. Whatever the outcome of the vote, business leaders would be well advised to review their forecasts, assess the impact of possible scenarios and seek expert advice before making any changes to their remuneration, dividend payments or business location. When it comes to tax matters, planning ahead is often cheaper than having to make corrections at a later stage.