Cantons weigh up value of lump sum tax

Zurich's "Gold Coast" lost half of its former lump sum tax foreigners when the system was scrapped RDB
This content was published on October 6, 2014 - 11:00

Some of Switzerland’s wealthy foreign residents have been packing up and leaving towns that have done away with favourable tax perks. With lump sum taxation going to a nationwide vote in November, how much money do tax-friendly cantons stand to lose?

Studded with luxury villas and serviced by a yacht club, a Michelin-starred restaurant and other high class amenities, the sun-kissed slopes of Küsnacht that rise up along lake Zurich’s ‘Gold Coast’ are a magnet for well-heeled Swiss and foreign residents. 

But such attractions were not enough for some of Küsnacht’s foreign residents, who left once canton Zurich voted to abolish their ‘lump sum’ tax perks in 2009. The same scene could be observed throughout the canton, with around half of the ‘lump sum’ beneficiaries deciding to make themselves scarce once the system disappeared.

An initiative on scrapping lump sum tax nationwide on November 30 could bring the same results, perhaps an even greater exodus from Switzerland as no canton would be able to offer the modest rates that have been labelled socially-unjust by critics.

The 5,634 lump sum tax residents in Switzerland could soon face a choice: do you want to stay for stunning scenery, political stability, low crime rates and relative anonymity – or for a simple, low-cost tax system that ignores overseas earnings by typically charging a flat annual levy of between five and seven times the rental value of your property?

Küsnacht had 19 lump sum tax beneficiaries in 2009, and now 13 of them have left. But the affluent community has hardly noticed their passing, according to Mayor Markus Ernst.

“When 13 residents leave out of a community of 13,000 it doesn’t make much of a difference,” he told “Last year we observed around 1,290 people arriving and 1,147 leaving our community for a variety of reasons.”

“The loss of these foreign residents has had little impact financially as they were not our biggest tax contributors by the very nature of the lump sum system,” he added. “They are international, highly mobile people who did not have deep roots in the community.”

Adding up the numbers

Zurich has also weathered the loss of celebrity residents after becoming the first of five cantons to end the lump sum tax scheme five years ago.

Of the canton’s 201 former lump sum beneficiaries 97 cleared off, mostly to other cantons but some out of Switzerland altogether (two also passed away). The departing individuals took CHF12.2 million in cantonal tax receipts with them.

This left over 100 wealthy foreigners remaining in the canton. Depending on how much wealth they had and how it was distributed, 55 ended up paying more tax and 47 less. Their total cantonal tax bill of CHF13.8 million more than made up for the losses, so the canton did better than break even.

But the financial contribution of such wealthy foreigners does not end there, according to opponents of November’s initiative. They inject far greater sums into local economies by buying and maintaining properties, employing local business for a range of services, eating out, buying yachts and cars from local dealers and attracting their rich friends on holiday.

Furthermore, the loss of wealthy foreign residents would have a disproportionately adverse effect on cantons that could not fill the wealth gap left by departing rich residents as easily as Zurich - Switzerland’s financial centre.

Disproportionate effect?

Cantons Vaud (with 1,396 lump sum tax residents), Valais (1,300) and Ticino (877) appear to have more to fear from the vote. According to Credit Suisse the 268 lump sum residents in Graubünden contribute a relatively high 3% of total tax receipts while Geneva (710) is nervously awaiting changes to corporate tax laws - forced by the European Union - that could further reduce revenues.

Vaud, which was the first canton to introduce the lump sum tax system in 1862, predicts dire consequences if lump sum tax is abolished across the whole of Switzerland.

“It is quite possible that more than half of these residents could leave Valais, and perhaps Switzerland, if lump sum tax is abolished,” Maurice Tornay, Valais finance director, told “In addition to the CHF84 million generated in communal, cantonal and federal taxes, these residents spend up to CHF200 million on properties and CHF150 million on other local services.”

The construction industry in rural cantons has already been hit by a vote two years ago to restrict the number of holiday homes being built in Switzerland, according to Toni Amonn, a tax advisor at the consultancy Relocation Switzerland.

“Wealthy foreigners who come to live in Switzerland invest significant sums in property,” Amonn told “There is clearly an opportunity to attract people who will build a relatively small number of high value properties and live in them, thus avoiding the problem of cold beds in holiday regions.”

“There is a grave danger that this opportunity will go down the drain because it is clear that demand from wealthy foreign individuals who want to come to Switzerland will slow down if lump sum tax is abolished. There are other countries in Europe, such as Britain, that could offer more attractive tax conditions for foreign residents.”

Breath of fresh air

Nobody knows how many foreign residents will pack their bags if the lump sum tax system is abolished in Switzerland. For example, Küsnacht retained such an enduring appeal for Tina Turner that she recently renounced her US passport to become a Swiss citizen despite losing lump sum tax privileges.

“The priority is the fresh air. It’s the lushness of the green,” she told Blick newspaper on being asked why she is staying.

If the experience of Zurich is anything to go by, others are bound to leave to find a better financial deal elsewhere. Voters will have to decide if the lump sum tax system is an invaluable and reliable source of income to be enjoyed by all or an unjust, anachronistic tax scheme that panders to the rich.

Lump sum tax in numbers

The lump sum (or forfait) tax system was first introduced in Canton Vaud in 1862 to cope with the rising number of wealthy foreigners (mainly British) who were settling there. The system neatly sidestepped the need to calculate the often complicated wealth, income  and tax arrangements of such individuals that could be spread over many countries. Other cantons soon adopted similar programmes.

According to the Conference of Cantonal Finance Directors, there were some 3,106 lump sum residents living in Switzerland in 1999. This increased to 5,003 in 2008 and 5,634 by the end of 2012 (latest figure). The rate of increase has slowed from 47.4% between 2006 and 2008 to 4% between 2010 and 2012. In 2012 the lowest amount paid by any lump sum individual was CHF10,000, the highest was CHF8,230,326. The average payment was CHF123,358 (up from CHF94,549 in 2006).

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How the lump sum tax system works

The lump sum tax system places a levy on the living expenses of wealthy foreign residents, whilst ignoring their overseas earnings and wealth. It is only available to people who do not conduct any business activity inside Switzerland. Sports stars and artists can also benefit from the system.

In 2012, the government decided to tighten up the lump sum tax rules in the face of growing opposition to the system from Swiss voters. From the start of 2016  lump sum beneficiaries must be charged at least seven times the rental value of their property at federal and cantonal level (this raises the level from five times the rental value of property at present, although some cantons have already raised the minimum levy bar).

To qualify for federal lump sum treatment, foreign residents will also have to prove a minimum income of CHF400,000 ($420,000). For example, a foreigner who buys a property in Switzerland that has a rental value of 5,000 per month will pay a minimum tax of CHF420,000 (CHFF5,000 x 12 x7). Other expenses, such as cars, yachts and school fees may also come into account when calculating the annual tax charge.

Lump sum tax can be claimed by foreigners coming to the country for the first time or returning to Switzerland after an absence of at least 10 years.

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