In September 2015, the modification of the Vaud income tax law ("LI") has been voted by a large majority of the cantonal Parliament. Following said vote, two extreme left-wing parties launched a referendum against the revised bill. Last week end, the amendments of the bill have been approved by a surpringly vast majority of the voters (87% in favor of the new law).
The elements disclosed in the package that has been accepted can be summarized as follows:
1. Taxation of corporations
- Abolishment of all privileged tax regimes granted at cantonal / communal level – i.e. mixed company tax regime as well as the holding tax status (provided in art.108, 109 LI). The abolishment of the articles will be effective as from January 1st 2019 onwards;
- General reduction of the corporate income tax rate applicable at cantonal / communal level. The new rate will lead to a global effective tax rate (including federal, cantonal and communal levels), from January 1st 2019 onwards, of 13.79%;
- Adaptation of the tax rates applicable to the “minimum tax” (art, 126 LI);
- Harmonization of the capital tax. Regardless of the type of taxation applied to a company located in the canton of Vaud (art 118 LI), such entity will pay capital tax on the taxable equity at a rate of 0.06% to which communal multiplier will be applied (in general ranging from 2 to 2.5). The possibility to credit on the equity tax the income tax remains possible. This measure will enter into force from January 1st 2016 onwards.
2. Taxation of individuals
- Rental values determination (deemed income for individuals owning real estate): modification of the lump sum deduction (increase from 20% to 30%) applicable to real estate aged over 20 years. The aim of this measure is to reduce the taxable amount resulting from owning real estate for a long period of time (measure aimed for retired persons to whom rental values represent an important income tax burden);
- Increase of the lump sum deduction for health, life and accident insurance;
3. Taxation of individual who have the right to benefit from lump-sum taxation
Modification of the lump sum taxation principles as per the modifications voted at federal level. Such taxation principle is applied to non-Swiss resident who do not carry out any lucrative activities in Switzerland. Modifications are as follows:
- Such regime will not be granted to persons with a Swiss passport. In the past, this was possible for a Swiss citizen to be married to a foreigner who was taking profit of this privileged tax regime and be granted with said regime. It was also possible to request such type of taxation regime for a Swiss citizen returning from abroad to Switzerland in the course of the first fiscal year following the return;
- Requirements for the lump sum taxation will have to be met by both spouses;
- Minimal lump sum amount to be determined as follows (maximal amount of the three values mentioned below and will be provided in art 15, al.3 LI): - CHF 400’000 of taxable basis; - 7 times the rental values of real estate owned; - 3 times the costs of lodging – amounts paid for living.
- From January 1st 2016 onwards, lump sum taxation will also have to cover the wealth tax due by a lump sum taxpayer on its wealth attributable to Switzerland. In the canton of Vaud, it results in an increase of the minimal lump sum amount to CHF 415’000. If the determination as per the rental value or the lodging costs lead to a higher amount, percentage applied on such value or on such costs will be used to reflect wealth tax value in the determination of the lump sum amount.
4. Modification applicable to both corporations and individuals (admin matters only)
- Payment of the taxes due. The system will be modified for corporations to align it on the one applied to individuals (monthly payment of corporate income tax amount – applicable for FY16 onwards);
- Formal modifications of the Vaud tax law in order to reflect latest adjustments of the Swiss commercial code – formal requirements regarding the presentation of the financial statements of a company, etc.
5. Further modifications
The above mentioned bill does not include all elements currently under discussion at the federal level (Patent Box, Notional interest deduction, step-up mechanism). However, please note that there will be a transition clause that in case Vaud tax law has not legalized the step up, which will set up tax treatment of hidden reserves after abolishment of special regimes, or other federal tax reform elements into its Cantonal law as per 1 January 2019. Such transition clause will ensure that the introduction of the reduced tax rate and abolishment of special regimes as per 1 January 2019 in Vaud is aligned to the benefits to be introduced by federal tax reform timing wise.
A complete summary of parliamentary debates can be found on PWC newsletter.