Switzerland Tightens Foreigners Taxation Regime

Recently the Swiss Federal Department of Finance has announced that measures aimed at tightening the controversial tax regime benefiting wealthy foreigners are to apply fully from 2016.

The measures aimed at toughening the flat tax system are to enter into force through the country’s tax harmonization law on January 01, 2014. The Swiss cantons will have two years for changing their cantonal laws in the relevant way. From January 01, 2016 the new provisions will apply for direct federal tax. The measures will be implemented in two stages in order to ensure that the changes take effect at the same time for both direct federal tax and cantonal tax.

Swiss flat tax regime is based on the cost of living rather than the individual’s wealth or income. According to the new provisions, from 2016 the tax base for calculating direct federal tax and cantonal tax will be seven times the cost of living (currently it is five times).

For the purpose of direct federal tax, a minimal taxable income of CHF 400,000 (about USD 429,300) will be introduced. The Swiss cantons will determine their own minimum taxable amount. For any individuals subject to the Swiss flat tax regime at the time of the legislative changes' entry into force, the current regime will continue to apply for a further five years.

About 5,000 foreign millionaires currently benefit from the flat rate tax regime, which in 2010 brought tax revenues of around CHF 700 mln to the country’s budget.