Switzerland May Axe Tax Breaks for the Wealthy Foreigners

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By EW News Desk | November 26, 2012 11:16 AM EST

Economy Watch

Switzerland could soon scrap tax breaks for wealthy foreigners after Swiss socialists and labour unions succeeded in putting the country's 150 year-old tax law up to a popular vote.

Opponents of the "scandalous" tax break have collected more than the 100,000 signatures needed for a parliamentary debate and national referendum, the Federal Council said in a statement on Thursday.

The referendum, put forward by the Alternative Left Party under the title, Stop Fiscal Privilege for Millionaires, would likely take place within the next two years, a government spokeswoman said.

The announcement comes two months after a regional vote in the canton of Basel-Landschaft approved a similar proposal.

Four of the nation's 26 cantons, including Zurich, have already decided to scrap the tax breaks for wealthy foreigners who are required to pay only a flat fee to their local canton instead of income tax.

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The special tax, also known as a forfait, was first introduced in 1862 to boost the tourism industry by encouraging wealthy British pensioners to move to the country.

Since then, Switzerland has attracted more than 5,000 wealthy foreigners who pay a flat tax, calculated using an amount at least five times the annual rental value of the individual's home in Switzerland, rather than their actual income or wealth, on the condition that they do not work in the country.

According to the Socialist Party, the forfaitcan result in a tax rate of less than 1 percent for billionaires such as Ingvar Kamprad, founder of furniture store IKEA, who moved from Sweden in 1976. Kamprad, worth $40.6 billion, is the world's fifth-richest person, according to the Bloomberg Billionaires Index.

Data from Economiesuisse, a business lobby, revealed that foreigners using the forfait paid an average of 122,681 francs ($131,280) of tax in 2010.

If the push to halt the tax breaks across Switzerland is successful, it would ease the resentment among ordinary Swiss who sometimes pay more tax than wealthy expats.

Romain de Sainte Marie, president of the Geneva Socialist Party, said:

It is an outrage that ordinary people should pay more tax than rich movie stars, singers and sporting celebrities. It is a form of tax evasion.

However, supporters of the forfait are worried that removing it will incite wealthy foreigners to leave the country, and point out that almost half of such millionaires left Zurich after it eliminated the scheme in 2009.

The government estimates that 22,000 jobs are at risk if the forfait is removed. 

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The article was first published by Economy Watch.

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