14 February 2006
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Canton Schwyz Intensifies Swiss Tax Competition
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Schwyz has become the latest Swiss canton to cut taxes on business and personal income after residents voted on Sunday to accept proposals aimed at attracting companies and wealthy individuals to move to the locality.
Although the canton already has one of the lowest tax burdens in Switzerland, voters have approved new measures that mitigate double taxation of share dividend income and will reduce taxes on the net assets of individuals.
Schwyz is the second canton in recent months to cut corporate and personal taxes as competition to attract high-net-worth individuals, holding companies and manufacturers heats up.
Last year, voters in the small central Swiss canton of Obwalden approved new laws substantially cutting income tax for individuals and corporations. As a result, from January 1, corporate tax in the canton was slashed to 6.6% - the lowest rate in Switzerland. Meanwhile, individuals earning up to CHF70,000 now pay 8% (down from 10%); those with income up to CHF300,000 pay up to 6%; and those earning more than CHF300,000 had tax cut to 1% from 2.35%. Property tax also fell by at least 30%.
However, the regressive nature of Obwalden's new tax laws excited opposition from left-leaning political groups, particularly the Social Democrat Party, which has warned that a "race to the bottom" on tax will endanger Switzerland's public finances.
The European Commission has also complained that certain aspects of the Swiss tax system may distort trade within the EU, and the recent move by the authorities in Schwyz is likely to provoke further opposition.
Schwyz, a German-speaking canton in central Switzerland just to the south of Zurich, has made no secret of the fact that is wants to attract individuals who "particularly value entrepreneurial freedom."
The canton is also keen to tempt more businesses to relocate, especially small- and medium-sized enterprises, boasting that the area has "no dominating industries." Almost 90% of all companies in the canton employ fewer than ten employees and only 0.6% of the canton’s firms have a workforce of more than 100, a statistic that Schwyz officials say makes the area more immune to the after effects of economic recession.
Companies moving to Schwyz can enjoy special tax breaks for a maximum of ten years after relocation, while preferential tax treatment can be sought by companies in accordance with special directives
Schwyz is also the only canton in Switzerland with no inheritance or gift tax.
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