Obwalden has become the first Swiss canton to adopt a flat income tax rate, with more than 90 per cent of its population voting in favour of the move.

The decision, announced by the Obwalden authorities after a vote on Sunday, comes after a court ruled the canton's previous degressive tax model unfair.

In January 2006, Obwalden slashed its corporate levy and introduced an income tax scheme that set lower rates for the rich than people on lower incomes.

A communist politician took the canton to the Federal Court and won a ruling in June that the model was unconstitutional.

Obwalden's authorities then proposed the flat rate to lure wealthy foreigners back to the canton.

Swiss cantons compete with each other to set the lowest tax rates to attract wealthy individuals and companies.

This has attracted criticism both within Switzerland and outside its borders.

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