Switzerland Remains Divided On Flat Tax Perk

By ExpatBriefing.com Editorial 27 September, 2012

Voters in the Swiss canton of Bern have rejected an initiative calling for an end to the controversial flat tax regime currently benefiting wealthy foreigners.

In Bern, 66.5% of voters opposed the initiative “fair taxes, for families”, compared with just 33.5% who voted in favour of the plans. However, a thin majority of 52.9% voted in favour of toughening existing provisions for the tax perk currently accorded to around 230 rich foreigners in Bern, compared with 47.1% who voted against.

To save the flat tax, the cantonal parliament put forward a counter proposal to the initiative proposing to increase the minimum taxable income threshold for application of the lump sum tax to CHF400,000 (USD427,000). It is expected that the measure will increase the tax burden of around 80% of individuals currently subject to flat tax.

Switzerland’s lump sum tax basis is currently accorded to wealthy foreigners provided that they are not gainfully employed in the Confederation. The tax is based on the cost of living rather than the individual’s wealth or income, making the benefit a highly attractive proposition. Opponents have increasingly criticized the provision, which potentially results in a significantly lower effective tax rate for foreigners.

In contrast, voters in the Swiss canton of Basel-Landschaft voted by 61.5% in favour of the initiative “end to tax privileges” thereby backing plans to abolish the system benefiting just 16 wealthy foreigners in the canton.

Of the twenty-six cantons in Switzerland, five have now voted to abolish the tax. Zürich was the first to end the regime in 2009, followed by Schaffhausen, Appenzell, and Basel-Stadt, which recently announced plans to abolish the system in 2014.

At the beginning of March, the Swiss Council of States backed a bill maintaining, although increasing, the minimum flat tax rates.

In accordance with the provisions, 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.

The Swiss National Council recently endorsed the bill.

Tags: Individuals | Expatriates | Wealth | Tax | Investment | Law | Offshore | Tax Rates | Switzerland | Individual Income Tax |


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