CORPORATE INCOME TAX REFORM VD IN FORCE ON 1.1.2019

The Vaud Government (Conseil d’Etat) just communicated a very important update for all companies doing business in the canton of Vaud in the sense that the decision has been made that the cantonal corporate tax reform (CIT III VD) would already be implemented on January 1st, 2019.

This cantonal tax reform takes place in the more general context of the corporate income tax reform at federal level (one of the purpose of which is to abolish the special tax regimes, in particular the holding and the mixed cantonal regimes). At its level, the canton of Vaud had adopted measures consisting in particular in a corporate tax rate reduction to 13.79% (cantonal, communal and federal tax), that had been approved by a popular vote of 87% of the cantonal voters.

The entry into force of the cantonal reform was foreseen for January 1, 2019. It is however linked to the federal corporate income tax reform that is currently still in progress at federal level with an uncertain date of entry into force. As you are aware, the initial federal project (federal CIT III) was rejected by a popular vote in February 2017. This project was intending to abolish, as mentioned above, the special tax regimes, and to introduce specific tax measures (e.g. patent box, NID, etc.) to (partially) compensate the end of these tax regimes. It was also providing for financial compensation mechanisms between the Confederation and the cantons. After the popular refusal of the federal CIT III, a new draft law (PF 17) was issued and is currently in discussion at the federal level. As indicated, the legislative timetable of this federal project is not clearly defined yet. Its final content, as well as the date of its entry into force at federal level, are therefore, still uncertain.

In this context, the question was whether the Vaud Government would maintain the entry into force of the Vaud cantonal tax reform on January 1, 2019 or, whether due to the uncertainty at federal level, would recommend to the cantonal parliament to defer the cantonal reform.

This point has now been clarified while the Vaud Government announced today its program for the calendar years 2017 to 2022. The entry into force of the CIT III VD has now been confirmed for January 1, 2019, On this date, the effective ordinary corporate tax rate will be reduced to 13.79%.

This is obviously a very good news for all corporations doing business in the canton of Vaud, irrespective of their mode of taxation (ordinary or special tax regime). Companies with a special tax regime may now envision to waive their privileged tax regime in order to be taxed under the ordinary tax regime at an effective tax rate of 13.79%, as this option may appears to be preferable for them in the international context. If these companies rather elect to keep their privileged tax regime until the entry into force of the federal reform, the Vaud corporate tax reform gives them a clear view on their tax treatment in the near future and this independently of the discussions at federal level.

And of course, the entry into force of the Vaud corporate tax reform in 2019 represents a substantial incentive and improvement of the attractiveness for the canton of Vaud that will offer a competitive corporate tax rate and an improved legal security for corporations taxed in Vaud or who would choose to implement their activities there.

Needless to say, OBERSON ABELS SA would be pleased to discuss this with you or answer any question that you may have.