Switzerland was long considered a preferred residence for international multimillionaires. However, signs are emerging that these individuals are increasingly deciding against the country.
Tax experts, politicians and cantons are sounding the alarm, warning that the uncertainty surrounding the planned inheritance tax initiative is scaring off potential residents and could have long-term, grave financial consequences.
One canton in particular, Nidwalden, is showing the situation in a stark light. The government is warning of significant tax losses if wealthy residents, who are considering leaving the country due to the impending tax burden, actually do depart.
According to an official response to a parliamentary inquiry, the government council states that of the 100 resident multimillionaires with a net worth of over 50 million francs, all 59 live in Hergiswil. If most of these individuals were to leave, this would result in a 60% reduction in inheritance tax revenue and a 13% decline in income tax revenue. For the affected municipalities, drastic tax increases would be necessary, with Hergiswil potentially facing a doubling of its tax burden.
Already half a year ago, the canton reported that the first wealthy individuals had left in response to concerns about the inheritance tax. Now, a further development is emerging: new residents are not arriving.
“It’s been a long time since we’ve had any new, very wealthy individuals move in” the Nidwalden state chancellery emphasizes, adding that this is also related to the inheritance tax initiative.
International consultants are also sounding the alarm.
Not only the cantons, but also experts in the financial sector are observing a trend of departure.
A recent survey by the consulting firm PwC shows that 84% of the tax experts, trustees and lawyers interviewed report that wealthy foreigners are opting for other Swiss cantons instead, while 57% have clients who have deliberately chosen not to move to Switzerland due to the initiative.
Jürg Niederbacher, a partner at PwC Switzerland, sees a clear connection: “These are strong indicators that the Switzerland has lost wealthy foreigners who would have otherwise moved here.”
Italy, in particular, is benefiting from this trend, as it offers a attractive flat tax of 200,000 euros per year, regardless of income or net worth.
The federal government is warning of the possible negative consequences of the Juso initiative, which proposes a 50% tax on inheritances and gifts over 50 million francs in favor of climate protection. In its submission to parliament, the government argues that such a tax could lead to a departure of wealthy individuals, resulting in long-term tax losses for the cantons and municipalities.
Moreover, the federal government criticizes the initiative as a problematic intervention in the federal tax competition and highlights the complex implementation and the state-political risks of a retroactive tax.
The Juso, however, dismisses these warnings as a “red herring of the rich lobby.” Juso President Mirjam Hostetmann criticizes the PwC survey as “irrelevant” and accuses the rich lobby of trying to divert attention from the real issue.
Even independent researchers like Marius Brülhart, a professor of economics at the University of Lausanne, see a deterrent effect of the initiative. Studies from the US and Switzerland show that wealthy older individuals are sensitive to inheritance taxes and can relocate.
“Therefore, one must indeed assume that certain multimillionaires who were willing to move to Switzerland are now hesitating due to the current uncertainty caused by the initiative” Brülhart said in an interview with Swiss media.
If the initiative is accepted, a further wave of departures can be expected. Brülhart calculated in a report for the Swiss Federal Tax Administration that 49 to 74% of the affected individuals could leave. This would not only affect the inheritance tax itself, but also result in significant losses in income and wealth tax revenue. In the best-case scenario, the state could expect an additional 300 million francs in revenue, but in the worst-case scenario, it could lose up to 700 million.
The federal government has clarified that the disputed Juso initiative will not apply retroactively. A post-hoc taxation of inheritances and gifts would be “highly problematic from a state-political perspective” and a ban or restriction on the departure of wealthy individuals is not an option. This stance is likely to reassure wealthy entrepreneurs who had previously threatened to leave the country.
The federal government has already emphasized that the initiative is not a suitable means to achieve the climate goals and could harm the economic attractiveness of Switzerland. Moreover, the rich already contribute significantly to the state’s finances through progressive income and wealth taxes.
Concrete measures like a departure tax are rejected by the government, as a move abroad cannot be generally considered a tax evasion. However, a post-hoc taxation of gifts after a departure is conceivable, but there are legal and practical concerns.
The federal government has announced that it will present a detailed draft for the possible implementation of the initiative by February 2025, taking into account legal provisions and the principle of proportionality.
The debate on the initiative is reaching its climax. In March, the first parliamentary discussion is scheduled and a vote in the summer is expected in the Council of States. FDP President Thierry Burkart is warning of the “devastating consequences” of the initiative and is urging a rapid decision to eliminate the uncertainty.