Wealthy French consider Swiss tax exile

Montreux and its balmy climate is just one potential destination for French tax exiles Keystone

The new French Socialist government has promised to reinstate the country’s old wealth tax rate and increase income tax, enough to make wealthy taxpayers think seriously about leaving for greener Swiss pastures.

“If François Hollande is elected president and the Left get a majority in parliament, the wealthy will move abroad,” warned Swiss lawyer and tax specialist Philippe Kenel in April.

Two months later, all the conditions for an “exodus” are fulfilled: the Socialist Party has an absolute majority the national assembly and its tax programme will be approved in the coming weeks.

“Taxpayers have been getting in touch with me, what I predicted has started,” admits Kenel. His Paris colleague Eric Ginter confirms that clients are worried, asking how to go about  leaving the country with their assets.

“Even if you can’t talk about a massive exodus, the wealthiest French residents are seriously thinking about a tax exile,” Pierre Dedieu, another French lawyer, told swissinfo.ch.

Their main concern is the wealth tax. Last year, the former French president, Nicolas Sarkozy, increased the asset threshold for taxation from a minimum of €720,000 (SFr865,000) to €1.3 million, while rates were set between 0.25 per cent and 0.5 per cent.

If the French parliament pushes through its reform of wealth tax as planned, the old rates – 0.55 per cent to 1.8 per cent – will be reinstated. Some issues, such as the tax threshold, are still being discussed.

Waiting game

“Our clients are waiting to see how the future wealth tax pans out,” said Dedieu. “If there isn’t a ceiling on the wealth tax based on actual income from assets or if that ceiling is limited, many of them will leave. For the richest of them, Switzerland is one of the main destinations.”

Besides the wealth tax, other measures await the upper classes. Taxation of donations and inheritances will be stricter.

For those with an income of more than €150,000, the base rate will rise from 41 to 45 per cent, and for the lucky ones earning more than €1 million, the rate will be 75 per cent for every euro over that number.

Enough to certainly make the wealthiest taxpayers think. “Among those considering whether to leave aren’t just elderly people living off their assets, but also people such as managers or company bosses who don’t want to pay 75 per cent of their income to the taxman,” points out Ginter.   

French daily Le Figaro said recently that Bern and London are both fighting over who will get the tax exiles. While British Prime Minister David Cameron is ready “to roll out the red carpet”, it wrote, “the Swiss authorities are playing the game quietly”.

Switzerland is a prized destination. Belgium is too, but political instability and the uncertain future of the euro have weakened its position.

Exit tax

The Swiss are hobbled by the cost of living and the French exit tax implemented by Sarkozy.  This 19 per cent tax targets gains on shares by taxpayers who have decided to leave the country for tax reasons. It is also higher for those who choose Switzerland over Britain or Belgium, for example.

The Swiss see this as a form of discrimination. “France has created an illegal hurdle that does not respect the equality of treatment foreseen between the European Union and Switzerland,” said lawyer Claude Charmillot recently in the Geneva newspaper Le Temps.

But the exit tax is unlikely to stop any “exodus”. There are often more reasons to leave than to stay, while the Socialist government could turn on the wealthy even more.

Hollande promised during his campaign election to review the dual taxation agreements between France, Belgium, Luxembourg and Switzerland, and would like to target tax exiles’ income and assets.

It could be far from simple though. “Revising the Swiss-French accord would raise a large number of issues, especially for cross-border workers,” warned Ginter. “But Paris could make certain demands and, for example, request the right to keep on taxing exiles.”

He points to the recent deal between Paris and Andorra, where expatriates face a tax bill if it can be proven they left for fiscal reasons.

“Switzerland is a much stronger partner than Andorra, but in the medium or longer term, Paris could get the same type of concessions,” he said.

The French in Switzerland

In 2010, Switzerland was home to 95,600 French citizens. This had risen from 73,500 in 2006, due largely to the implementation of the free movement of people agreement with the European Union.

The French represented the fifth-largest group of foreigners living in Switzerland (after Italy, Germany, Portugal and Serbia), although the number would be higher taking into account those who have not registered at the consulate.

(Source: Federal Statistics Office)

Lump-sum tax

Wealthy foreigners living in Switzerland with no Swiss revenue should still be able to be taxed in some cantons based on their expenditure and not on their income in the future.

These lump-sum tax agreements are set to become part of federal law this autumn. However rich foreigners can expect to pay more, since the tax will kick in at a minimal expenditure that is seven times – instead of the current five times – their rent or the estimated rental value of their residence.

For foreigners living in a hotel, the limit will be three times what food and lodging costs them, versus two times now.

For foreigners already benefiting from these agreements, a transition period of five years is planned ahead of the implementation of the new legislation.

(Adapted from French by Scott Capper)