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Why Switzerland is no longer the tax haven it used to be

In financial circles, the mere mention of ‘Switzerland’ has become synonymous with ‘tax haven’, a reputation the country has long denied. Is this still the case?

Why Switzerland is no longer the tax haven it used to be
It's not as easy for rich people to skimp on taxes. Photo by Fabrice Coffrini/AFP

For decades, Switzerland has been known as a destination for ‘fiscal tourism’. 

Fiscal tourism refers to wealthy individuals or foreign corporations that set up their residence in Switzerland to save money on taxes.

Some cantons had long attempted to lure these well-heeled entities.

READ MORE: Why Switzerland is no longer on the EU’s black list of tax havens

Authorities in the canton of Schwyz, for example, encourage newcomers to come to their canton because it “has one of the lowest tax burdens in Switzerland. Its fiscal policy…makes it an attractive location for both legal entities and individuals”. 

Other low tax rate cantons are Obwalden, Zug, Uri, Appenzell Innerrhoden and Nidwalden. The highest income tax rate in one of these cantons is around 17 percent, compared to about 30 percent in Vaud, Bern, Geneva and Zurich.

However, the practice of fiscal tourism is becoming a thing of the past, according to a report by Swiss public broadcaster RTS.

It based its findings on an analysis by the University of Basel, which shows that the days of cantons and communes competing to attract wealthy taxpayers may be over.

READ MORE: Tax rules cross-border workers in Switzerland need to know

For the first time in decades, the tax on high incomes has increased by 4 percent.

Schwyz too “had to raise its level of taxation after years of deficit accounts”, RTS said.

Another reason why Switzerland is becoming less appealing to rich taxpayers is because, due to tighter controls, it is not as easy as before for wealthy people to register as residents in a municipality with low tax rates, but live elsewhere.

In the past it was common for the wealthy individuals to set up an official address in low-tax canton or municipality, but reside somewhere else.

But is Switzerland still considered a tax haven?

In 2017, the country was placed on the EU’s list of tax havens  because “it intentionally attracted foreign investors by allowing corporations and wealthy individuals to pay a low, lump-sum tax on the money they kept in Swiss banks”.

However, Switzerland was removed from the list in 2019 because that year Swiss voters accepted a legislation which introduced major changes in the Swiss tax system by ending some preferential tax schemes and replacing them with new regulations which are in line with international standards.

READ MORE: Reader question: Can I deduct working-from-home costs from my Swiss taxes?

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Sunday shopping and financial aid: How Switzerland’s referendum results will affect you

Aside from the three issues voted on the national level on Sunday, citizens of six Swiss cantons cast their ballots on a total of 11 proposals. Here’s an overview of what the issues were.

Sunday shopping and financial aid: How Switzerland's referendum results will affect you
The nationality of foreign offenders will be revealed in Zurich. ALLISON DINNER / AFP

Basel-Country: Revised law against illegal work

After years of controversy over labour market controls in the construction industry, the canton will now revise illegal employment laws. 

The revision of the law on combating undeclared work was approved by 85.4 percent of the votes. And 84 percent voted in favour of the related revision of the Labour Market Supervision Act.

Bern: Sunday shop openings rejected, anti-smoking initiative approved

The proposal sought to extend Sunday sales in the canton to four Sundays a month, instead of the current two.

But 53.9 percent of voters rejected this proposal, in line with recommendations from trade unions and green parties.

At the same time, 72.9 percent of the electorate voted in favour of improved protection of minors from smoking. The same legal requirements now apply to e-cigarettes as to conventional products.

Geneva: Financial aid for people with low incomes

More than 68 percent of voters accepted a proposal to compensate residents who suffered financial difficulties due to the coronavirus pandemic.

The law provides for compensation of 80 percent of income, capped at 4,000 francs per month. This aid is to be paid out retrospectively for the period of the first shutdown, from March 17th to May 16th, 2020.

Luzern: University location to be expanded

Luzern will establish a public company that will expand and operate the Lucerne University of Applied Sciences and Arts campus in the municipality of Horw on the canton’s behalf.

Nearly 69 percent of the canton’s electorate approved the project.

Additionally, a loan of 26.1 million francs for the improvement works to the K36 cantonal road in the communities of Schüpfheim and Escholzmatt-Marbach was approved by 82.7 percent of votes.

The road is at risk of falling stones and authorities want to make it safer for drivers.

Zurich: Nationalities of criminals to be divulged and municipalities to employ social detectives

The initiative by Swiss People’s Party, which required authorities to disclose the offenders’ migration background, was turned down, but the watered-down counter-proposal of the cantonal council was approved by 55.2 percent of voters.

Zurich police would now have to indicate the nationalities of suspects in their media releases, but not their ‘migration background’ or ethnicity.

READ MORE: Should a suspect’s ethnicity be made public by police?

More than 67 percent also cast their votes in favour of allowing Zurich to employ ‘social detectives’ to track down insurance claimants they suspect of cheating the system.

Zug: Tax rate is lowered

The canton’s proposal to  lower the tax rate over the next three years was approved by 66.4 percent of the electorate.

The tax cut will be implemented  to deal with the financial consequences of the coronavirus pandemic.

READ MORE: Reader question: Can I deduct working-from-home costs from my Swiss taxes?

On the other hand, just over 65 percent rejected a proposal to extend shop opening times in the canton by one hour — until 8pm on weekdays and 6pm on Saturday.