Foreigners Flee Zurich In Tax Perk Protest

By Editorial 13 January, 2011

The abolition of the highly attractive flat rate tax privilege (Pauschalversteuerung) accorded to wealthy foreigners in the Swiss canton of Zurich resulted last year in an exodus of the rich and famous. Many have simply relocated to the neighbouring Swiss canton of Schwyz.

Following the people’s vote in favour of the initiative designed to overturn the controversial tax privilege, for state and municipal taxes at least, the flat rate of tax benefiting super-rich foreigners was abolished from January 1, 2010 in Zurich.

In effect since 1999, the special rule provided that wealthy foreigners not working in Switzerland were subject to a flat rate of tax instead of income tax. Determined by the local authorities, the amount of the lump sum tax was based on at least five times living costs.

Yet the super-rich have reacted swiftly to the decision, voting with their feet. According to information from the finance directorate responsible, 201 individuals registered in Zurich benefited from the flat tax privilege at the end of 2008. Since then, however, 92 have moved away. While some have relocated abroad, the majority have reportedly simply settled in other cantons in Switzerland where the tax perk is still applied.

Although it is difficult to immediately assess how the exodus of the super-rich will affect the cantonal funds, opinion remains very much divided as regards the special tax.

Switzerland’s Finance Directors maintained back in February last year that it is vital to maintain the flat rate tax privilege, given that it is economically beneficial (job creation) and that it generates additional tax revenue for the country. The flat rate tax is a strategic instrument designed to secure the attractiveness of Switzerland as a location for individuals, they emphasized.

Supporters of the initiative claim in stark contrast, however, that the total abolition of the privilege will serve to avoid tax competition between the cantons for the super-rich residents.

Tags: Individuals | Expatriates | Tax | Investment | Entertainers | Entrepreneurs | Sportsmen | Switzerland | Tax Breaks |


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