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Obwalden's new tax system creates interest

Picturesque Obwalden wants to attract wealthy taxpayers Keystone

Canton Obwalden is proving itself attractive as a tax haven, just days after a new fiscal system was introduced.

This content was published on January 7, 2006 - 15:38

According to local authorities, foreign citizens and companies are already enquiring about conditions for setting up shop in this quiet corner of Switzerland.

Germans have so far shown the most interest in moving to Obwalden.

"They came during the Christmas holidays to find out about our taxes on individuals and companies," the local economics minister, Niklaus Bleiker, told the Neue Obwaldner Zeitung on Saturday.

"I was rather surprised and pleased by the reactions we have had so far, even if we can't say whether companies will move here," he added.

Eleven companies have registered in the canton since the decision to drop taxes was taken.

By way of comparison, last year just three companies officially set up shop in Obwalden during the first three months of the year.

Last month, 86 per cent of citizens voted in favour of a degressive tax system which particularly benefits those earning above SFr300,000 ($236,000).

Luring the wealthy

Obwalden, one of the poorest Swiss cantons, hopes to emulate others such as Zug that have lured big spenders with the promise of tax breaks. It also wants to do away with its reputation as a fiscal hell.

The cantons have their own taxation systems and they are free to implement their own policies, often by asking citizens to decide at the ballot box.

Obwalden's new 6.6-per-cent corporate tax is the lowest in Switzerland and property tax is to drop by at least 30 per cent.

Individuals earning up to SFr300,000 will be taxed up to six per cent, while those in the highest bracket will see their burden sink from 2.35 per cent to just one per cent.

Obwalden has struggled to generate revenues because the cantonal economy is largely based on agriculture and residents have lower-than-average incomes.

Opposition

While the Obwalden tax scheme appears attractive on paper, some observers say the canton will struggle to attract wealthy taxpayers because of its geographical position and lack of major infrastructures.

It is also facing outside political opposition. The centre-left Social Democratic Party considers the degressive tax, which has also been introduced in canton Schaffhausen, to be unfair.

The party says it contravenes the Swiss constitution, which calls for taxes to be paid according to an individual's or a company's means.

The Swiss Federal Court could have the last word, with the Social Democrats claiming that at least one local resident in Obwalden is prepared to lodge an appeal against the new tax regime.

swissinfo with agencies

Key facts

Last month voters in canton Obwalden agreed by a majority of 86% to lower taxes.
The new rules, which came into force on January 1, make the canton Switzerland's newest tax haven.
Obwalden now has the lowest company tax in the country.

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In brief

In Switzerland, communes and cantons get the biggest share of taxes.

Federal tax on the other hand is fairly low, with the government earning most of its revenue from indirect sources (such as VAT).

Cantons and communes set their own tax rates, leading to competition for the hearts and minds of taxpayers.

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