Sep 17th 2012
By Teresa Ambord
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Rich foreigners have enjoyed favorable tax treatment from Switzerland for a long, long time, causing the country to become a veritable magnet for the wealthy. Foreigners pay no taxes on their income or wealth, provided they don't earn income in Switzerland. Instead, they're taxed on the rental value of their property. That, along with the country's natural beauty, has attracted more than 5,000 well-heeled foreigners to call Switzerland home. Among those who have taken Switzerland up on the deal are Phil Collins and Tina Turner; Formula One driver Michael Schumacher; and Ikea founder, Ingvar Kamprad (who has lived there since 1976). However, that favorable tax treatment may be slipping away.
The low-tax gig is up and so are taxes
After a long run of beneficial tax deals, growing opposition among the populace has forced changes in some areas. The cantons of Zurich, Schaffhausen, and Appenzell have already voted to scrap the long-standing policy. The canton of Bern will vote on the issue on September 23. Bern includes the Alpine resort of Gstaad, which is known as a playground for many of the rich and famous.
In recent days, the lower house of the Swiss parliament voted to reject a proposal by the Social Democrats (SP) to end the special tax treatment. However, they did adopt a government plan, which if approved by the upper house, will raise the tax paid by most rich foreigners. Under the new plan, said Eveline Widmer-Schlumpf, the Swiss Finance Minister, 80 percent of those involved will pay more tax. "With this reform, we want to improve and strengthen the acceptance of the flat-rate tax," said Widmer-Schlumpf.
Much of the attention that's being given to this issue is the result of the huge tax increase that may soon hit France. France's Socialist President, Francois Hollande, has proposed a whopping 75 percent super tax on income above 1 million euros (about $1.29 million). Swiss property agent Sovalco told reporters that a French couple with assets of 16 million euros and income of 750,000 euros would pay about 500,000 euros of tax in France but could cut that to fewer than 40,000 euros by moving to Switzerland.
In the meeting of parliament, SP parliamentarian Susanne Leutenegger Oberholzer said "the population has had enough of this special regime." She continued, "It's an arbitrary regime, a regime that cannot be verified, a regime that means that only a part of the actual income and wealth of the affected people has to be taxed."
Though the SP bid was rejected, the Swiss government has proposed to increase the tax basis on which taxes are levied from the current level of five times the rental value of rich foreigners' homes to seven times the value. The tax increase, which hasn't yet been taken up by the upper house of parliament, would phase in over five years.
The special tax was initiated in 1862 when the canton of Vaud along Lake Geneva wanted to draw wealthy pensioners to Switzerland to help the tourist industry. The Swiss government says 22,000 jobs currently depend on healthy tourism.