Canton Vaud to reshape its corporate Tax Law

in Tax, 11.04.2014

On 4 April 2014, the Canton of Vaud’s executive authority announced a plan for a massive decrease of the corporate tax rate to remain attractive in this regard.

Swiss Corporate Tax Reform III

The upcoming “Swiss Corporate Tax Reform III” aims at strengthening Switzerland’s attractiveness for international headquarters. Within the framework of this tax reform, the Canton of Vaud, where many multinationals have their international global or regional headquarters, published its roadmap on how to replace the various tax regimes questioned by the European Union by sustainable and effective new tax planning tools to maintain and even strengthen the attractiveness of the region. Key elements of this roadmap are

  • a general reduction of the corporate income tax rate at cantonal/communal level, and
  • the introduction of specific reliefs for financing and IP activities as well as of a notional interest deduction on surplus equity.

Mirroring the decisions of the authorities of the neighboring Canton of Geneva, which adopted similar decisions last year and announced a plan for a reduction of the effective tax rate to 13%, the steps taken by the Canton of Vaud should help maintain the Greater Lake Geneva region’s attractiveness for multinational companies even in the current environment.

Significant reduction of corporate tax rate

The Canton of Vaud is planning to significantly reduce the corporate tax rate from currently 22.33% to 13.8% by 2020. This effective tax rate includes cantonal and communal and federal income taxes, thus making the Canton of Vaud one of the most tax-efficient locations in Switzerland and Europe.

Other tools to decrease the corporate tax rate

In addition to the lowering of the corporate tax rate, the Canton of Vaud plans to introduce an IP Box reducing profits associated with patents and IP as well as a notional interest deduction on surplus equity. These two measurements will reduce the basis of the taxable income and further leverage the effects of the reduced tax rate.

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