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?
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.
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.
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.