Canton votes to become a tax paradise

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Obwalden, a small canton in the middle of Switzerland, has joined its neighbours in becoming a tax paradise and is hoping for an influx of super-rich citizens.

On Sunday 86 per cent of voters in Obwalden backed new tax laws which will benefit all citizens but especially those earning more than SFr300,000 ($230,000).

As a result of the resounding yes vote – by 8,623 to 1,368 – taxes will go down for individuals, and companies will enjoy the lowest taxation in the country.

Until now Obwalden has had one of the country’s highest tax burdens – something the authorities weren’t particularly keen to highlight.

The main goal of the new tax strategy is to stop the exodus of rich people and attract those individuals and companies with financial clout.

Prosperous New Year

From January 1 Obwalden will join its cantonal neighbours Zug and Schwyz as a tax oasis.

Corporations will enjoy massively reduced taxes on profits and capital. With a tax on profits of 6.6 per cent, Obwalden is in pole position in Switzerland – at least until other cantons follow.

The financial burden will be eased for individuals on lower and middle incomes: anyone earning up to SFr70,000 will in future pay eight to ten per cent less tax; income of up to SFr300,000 will be taxed up to six per cent.

But it is the super-rich who really have reason to crack open the champagne. On an income of more than SFr300,000, the rate of tax will go down from 2.35 per cent to a mere one per cent.

In addition property tax will drop by at least 30 per cent.

Competition

The local government said it was satisfied with the result and maintained that everyone in Obwalden would benefit.

But not everyone is happy. The centre-left Social Democratic Party is taking its fight against tax perks for wealthy foreigners to Brussels.

It is estimated that around 3,000 wealthy foreigners are currently benefiting from fiscal incentives. Swiss cantons are free to set their own tax rates within the framework of the Tax Harmonisation Act, which came into force in 2001.

The party says it wants to help coordinate a Europe-wide campaign against what it calls “increasing competition” among countries seeking to attract the rich and famous.

“If Switzerland offers special tax rules, other countries will do the same and you end up with a race to the bottom, with every canton and country competing against each other [to attract wealthy foreigners],” senior party official Matthias Manz told swissinfo.

In October Finance Minister Hans-Rudolf Merz defended the Swiss tax system after the European Commission questioned low corporate tax rates in some cantons.

Merz rejected the idea of rigid tax harmonisation with the European Union.

Brussels had suggested that the corporate tax regimes in cantons Zug and Schwyz, which encourage large foreign companies to set up holdings, do not comply with the 1972 Free Trade Act.

swissinfo with agencies

Key facts

Canton Obwalden has a population of 33,000.

8,623 people (86%) in Obwalden voted in favour of the new tax laws, 1,368 against. All the communes approved the change.

Voter turnout was 44.4%.

In brief

The Swiss government classifies cantons according to their financial capacity to determine the financial standardisation.

Cantons with strong financial capacity are Zug, Basel City, Geneva, Zurich and Nidwalden.

Cantons with weak financial capacity are Graubünden, Fribourg, Uri, Jura, Valais and Obwalden.