Removal of Swiss tax privileges prompts super rich to move

The super rich living in Switzerland are moving around the country to make sure that they get the best possible tax privileges, it has been revealed.

The abolition of the highly attractive flat rate tax privilege (Pauschalversteuerung) given to wealthy foreigners in the Swiss canton of Zurich has resulted in people moving to the neighbouring Swiss canton of Schwyz.

They upped and moved when the flat rate of tax benefiting super rich foreigners which has been in effect since 1999 was abolished in the canton last year. Now moves are afoot for similar tax changes throughout the country.

According to information from the finance directorate responsible, 201 individuals registered in Zurich benefited from the flat tax privilege at the end of 2008. Since then, however, 92 have moved away.

While some have relocated abroad, the majority have reportedly simply settled in other cantons in Switzerland where the tax perk is still applied. But if it is removed completely some say they will quit the country.

Although it is difficult to immediately assess how the exodus of the super-rich will affect the cantonal funds, opinion remains very much divided as regards the special tax.

Switzerland’s Finance Directors have said that it is vital to maintain the flat rate tax privilege because it is economically beneficial and generates additional tax revenue for the country. The flat rate tax is a strategic instrument designed to secure the attractiveness of Switzerland as a location for individuals, they emphasized.

Opinion is divided over whether the tax should be abolished throughout Switzerland. Supporters of the initiative claim that it would avoid tax competition between the cantons for super rich residents. Residents of Zurich with an income of 350,000 Swiss francs pay around 110,000 of it to the taxman, while in the canton of Schwyz the rate is just half that.

Alfred Schindler, the billionaire owner of the Schindler lift and escalator company, said that his tax rate would increase to over 70% if the privilege was removed. He has said he will leave the country if it is abolished.

However, Rudolf Strahm, a former federal price regulator and supporter of the initiative, said he doubted the rich would carry out their threats to leave as nowhere would be as comfortable for them as Switzerland. ‘Where do these super rich think they're going to go? Basically their options are Singapore and eastern Europe,’ he said.

Estate agents have also entered the fray, arguing that the move would have a chaotic effect on the country’s property prices. ‘It would mean a huge devaluation of house prices in communities where taxes are lower,’ said Donato Scognamiglio, the head of IAZI, a property consultancy kin Zurich.