Swiss Initiative Forces Flat Tax Referendum

By Editorial 29 November, 2012

The Swiss people’s initiative calling for an "end to tax privileges for millionaires” has succeeded in gaining the necessary 100,000 signatures to trigger a referendum on plans to abolish nationwide the controversial flat tax regime currently benefiting wealthy foreigners in Switzerland.

Launched by Switzerland’s Alternative Left party, the initiative, backed by the Green Party and the Social Democrats as well as by Swiss trade unions, collected 103,012 signatures. The referendum is likely to be held in two years’ time.

Around 5,000 foreign millionaires currently benefit from the generous tax regime, which in 2010 yielded tax revenues of around CHF700m (USD754m). The lump sum tax basis is accorded to wealthy foreigners provided that they are not gainfully employed in Switzerland. The tax is based on the cost of living rather than the individual’s wealth or income, making the benefit a highly attractive proposition.

However, the tax privilege has become increasingly unpopular in Switzerland over the last few years, with opponents criticizing the provision, which potentially results in a significantly lower effective tax rate for foreigners.

Indeed, since 2009, five of the twenty-six cantons have voted to abolish the flat tax system, including Zurich, Schaffhausen, Appenzell, Basel-Stadt and Basel-Landschaft.

In its autumn session, the Swiss National Council endorsed plans to maintain, although to increase, the minimum flat tax rates, contained in a bill backed by the Swiss Council of States at the beginning of March.

The bill provides that the tax base for calculating direct federal tax and cantonal tax will now be seven times the cost of living, compared with five times as is currently the case. For individuals staying in hotel accommodation, the rate will increase from two to three times the cost of board.

In addition, as regards direct federal tax, a minimal taxable income of CHF400,000 will apply. The Swiss cantons will be required to determine their own minimum taxable amount.

Although Bern recently voted to save the tax regime, it nevertheless voted in favor of plans to tighten the system by increasing the minimum taxable income threshold to CHF400,000. It is expected that this decision will increase the tax burden of around 80% of the individuals currently subject to the flat tax in the canton.

Tags: Individuals | Expatriates | Wealth | Tax | Investment | Sportsmen | Tax Rates | Switzerland | Tax Breaks | Individual Income Tax |


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