In the run-up to the cantonal referendum on September 22, 2024, the people of Geneva will be asked to vote on an amendment to the Personal Taxation Act (LIPP) aimed at reducing the tax burden on entrepreneur-shareholders. Today, entrepreneurs in Geneva are taxed on the value of their company, limiting their capacity to invest and grow. The tax burden on entrepreneurs in Geneva is 3 to 4 times higher than in other cantons in French-speaking Switzerland, and even 10 times higher than in some German-speaking cantons. The aim of this reform is to make Geneva more competitive in terms of taxation, by bringing it into line with the practices of other Swiss cantons. In this case, what would the true impact of this measure be on entrepreneurs and their economic development?
Switzerland is one of the last European countries to tax the wealth of its taxpayers. Each canton has its own scale for applying this wealth tax, which has led to inter-cantonal competition. The people of Geneva are the most disadvantaged in this context, with a tax rate of up to 1%. This is considerably higher than in the canton of Nidwalden, for example, where the rate is just 0.12%.
This proposed amendment to the law (LIPP) only concerns people who have set up a company to develop their professional activity. Today, entrepreneurs are taxed on the retained value of the share capital they own. This is added to all their other assets. Currently, the Geneva tax authorities use the practitioners' method to determine the value of a company that is not listed on the stock exchange:
This method is regularly used to determine the value of small businesses in preparation for their sale. However, it should be noted that very few transactions take place on this type of asset. If no sale has taken place, the entrepreneur will have been taxed on a fortune that was never realised. As a reminder, the entrepreneur is already taxed on his company's net profit at a rate of 13.99%. The salary paid is also taxed at a progressive rate of up to 45%. Finally, profits are taxed a second time when they are paid out in the form of dividends (a 40% deduction is possible if the entrepreneur holds at least 10% of the share capital for the calculation at cantonal level, and 30% at federal level).
Entrepreneurs play a major role in the local economy. The Conseil d'Etat wishes to align itself with other cantons by changing its current practice.
This amendment to the law proposes a reduction in wealth tax on unlisted securities linked to business assets.
To obtain this discount, the following conditions must be met:
In this context, the vote on September 22, 2024 is of particular importance to entrepreneurs. By aligning Geneva's taxation practice with that of other Swiss cantons, this reform would reinforce Geneva's attractiveness as an economic and financial centre, while supporting the innovation and development efforts of local entrepreneurs. The impact of this reform could free up additional financial resources for entrepreneurs. This would enable them not only to reinvest in their businesses, but also to allocate more funds to their occupational pension plans, notably through voluntary plans.
Tax reform means that entrepreneurs need to rethink their approach to wealth management and financial planning. At Piguet Galland, we offer you personalised support to maximise the potential benefits of these new regulations. The reduction in wealth tax for entrepreneurs, combined with the optimsation of occupational pension provision through voluntary plans, opens up new opportunities to secure your financial future while continuing to develop your business.
Our financial planning expertise includes a comprehensive wealth assessment, essential for understanding the impact of the reform on your personal and professional situation. This assessment enables us to identify tax optimisation and wealth management levers tailored to your specific needs. By working with us, you benefit from a tailor-made strategy that incorporates solutions such as switching to a more advantageous legal structure or increasing your 2nd pillar contributions to better prepare for retirement.
With these tools and expertise, we can help you take advantage of the reform to strengthen your competitiveness and resilience in the face of economic challenges. So, the vote on the LIPP is not just a tax opportunity, but also a chance to redefine your overall financial strategy, ensuring both the growth of your business and the protection of your personal assets. Our wealth solutions experts are here to support you - contact us!