Are SME owners eligible for the tax cap?

In principle, yes. But in practice, SMEs are often too profitable to trigger the mechanism. For example, if the tax authorities value the shares of a SA/Sàrl at CHF 5 million and its owner receives an annual salary of CHF 200,000, the effective cantonal and municipal tax (approximately CHF 85,000) remains below the theoretical cap of the Geneva tax shield. For the shield to apply, total income would need to be reduced to approximately 1% of the value of the shares (i.e., CHF 50,000), which involves trade-offs that must be carefully analyzed. We are available to assist you with these procedures.

What should we do while we wait for the results of the vote in Vaud?

Since the reform proposed by the Grand Council includes a retroactive clause, it is recommended that taxpayers systematically file appeals against tax assessment decisions in cases where the pre-2021 version of the tax cap might apply. This step prevents the assessments from taking effect and protects the taxpayer’s rights, depending on the outcome of the vote.

Why is the Vaud coat of arms currently a topic of debate?

Effective January 1 , 2022, the Canton of Vaud has modified the calculation of the tax shield, notably by re-including in the reference income the portion of dividends from qualifying holdings that benefit from partial taxation. This change significantly reduces the scope of the tax shield for shareholders holding qualifying holdings (exceeding 10% of the capital). In the face of opposition from business circles, the Grand Council reverted to the system in effect prior to 2022, but made the implementation of this reversal contingent on the outcome of the vote on the so-called “12%” initiative, scheduled for September 27, 2026, in accordance with a mechanism whose validity was confirmed by the Federal Supreme Court in its ruling 9C_541/2025.

How does Geneva's tax cap work?

The Geneva tax cap limits the cantonal and municipal tax burden to 60% of net taxable income . However, when calculating this cap, the tax authorities assume a theoretical minimum return of 1% on net worth , even if the actual return is lower. For example, a taxpayer in Geneva with no income but with a net worth of CHF 10 million will be deemed to earn at least CHF 100,000 in income from their net worth. The cantonal and municipal taxes taken into account by the tax shield may not exceed CHF 60,000 (CHF 10,000,000 × 0.1 × 0.6). Direct federal tax, on the other hand, remains payable in addition and is not included in the calculation of the cap.

Which cantons have a tax cap?

Currently, seven cantons have a tax cap in place: Geneva, Vaud, Valais, Bern, Basel-Stadt, Lucerne, and Aargau. The other cantons do not have one, largely because of lower wealth tax rates.

What is the tax cap in Switzerland?

The tax shield is a mechanism in place in certain cantons to prevent taxpayers from bearing an excessive tax burden over the long term due to their wealth. In practice, the tax shield caps the amount of wealth tax and, depending on the canton, income tax. The goal is to prevent individuals from having to sell assets or continuously draw down their wealth to pay their taxes. The conditions and calculation methods vary from canton to canton. It is therefore important to examine each situation individually to determine whether the taxpayer is eligible for this mechanism.

Can a transaction involving SIAL shares affect all shareholders?

This cannot be ruled out in so-called “significant” transactions, namely the sale of approximately 10% of the share capital over a 12-month period. In such cases, the tax authorities could update the tax valuation of the securities based on the sale price and apply it to all shareholders, including those who did not participate in the transaction. However, this is not currently the case in Geneva.