Swiss Finance Directors Propose Reform Of Flat Rate Tax

by Ulrika Lomas, Tax-News.com, Brussels

04 February 2010

Eager to maintain the special flat rate tax privilege (Pauschalbesteuerung) accorded to wealthy foreigners, Switzerland’s cantonal Finance Directors have announced that the existing system of taxation is to be reformed, and that the conditions determining the application of the tax are to be toughened.

Key changes to the flat rate tax include the following:

• The minimum limit for global expenditure, for both direct federal tax and cantonal tax, will be seven times the annual rent or rental value of the taxpayer’s property, or three times the cost of bed and breakfast accommodation.
• Regarding direct tax, a minimal threshold of CHF400,000 has been agreed. Swiss cantons are to determine their own minimum threshold.
• The cantons will be required to take wealth tax into consideration in determining the flat rate tax.
• A transitional period of five years will be permitted.

Announced by the Finance Directors, these proposals will require amendments to both the direct Federal tax law (DBG), the country’s tax harmonization law (StHG), as well as the cantonal tax laws.

According to the Finance Directors it is vital to maintain the flat rate tax privilege, given that it is economically beneficial (job creation) and that it 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.

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