Foreigners pay more to settle in Switzerland

Foreigners pay more to settle in Switzerland

By Haig Simonian in Zurich

Published: April 15 2008 16:48 | Last updated: April 15 2008 16:48

The cost to rich foreigners of tax exile in Switzerland has spiralled after sharply rising demand to reside in the most popular areas.

People directly involved in the negotiations with the tax authorities say that the cost of annual tax deals for wealthy younger foreigners in Geneva has surged from an average of SFr180,000 (£91,000, $179,500) in 2006 to SFr600,000 (£306,000, $601,000) because of a more selective policy by the local authorities and the effect of vibrant demand on stratospheric property prices.

The area around Geneva, has been seen as a prime candidate for attracting non-domiciled foreigners on tax, business and lifestyle grounds.

“Geneva is now seen as attractive for hedge funds, private equity and trusts, and not just private banking and trade finance,” says Steve Bernard, director of Genève Place Financière, a lobby for the city.

“We have seen a few arrivals, but it’s not been a tidal wave.” Details about one-off tax deals, known as “forfaits” in French or “Pauschale” in German, are secret and vary widely between the 26 cantons. Under the country’s federal constitution, cantons can negotiate such one-off arrangements, under which foreigners pay a fixed annual amount, provided they generate no income in Switzerland.

The system, created after the first world war in the canton of Vaud and taken up elsewhere, contributed SFr390m in tax last year from about 4,000 foreigners.

The average deal in Zurich, which opened its doors relatively recently, is double the national average and stands at SFr150,000 a year.

Even that is eclipsed by Geneva, where the average tax was paid by 593 foreigners benefiting from special deals. But the latest settlements are believed to be much higher.

Insiders say that reflects greater selectivity on the part of the Geneva authorities, now focusing on younger breadwinners, such as hedge fund managers, with families.

“Switzerland is one of a number of jurisdictions that could be attractive”, notes Stephanie Jarrett, a partner with Baker & McKenzie in Geneva. For particularly wealthy people, especially genuine retirees whose positions would not be complicated by the risk of local earnings, which would compromise their special tax status. “Switzerland can be particularly attractive”, she says.

“Switzerland doesn’t have to go out and sell itself. People know it is attractive, even if they sometimes have unrealistic expectations.”

Singapore and the United Arab Emirates could also be magnets because of their minimal taxation, particularly for people with jobs focused on Asia or the Middle East.

Spain, although part of the European Union, could appeal because of a preferential tax treatments for newcomers for the first five years, but Monaco is constrained by a lack of space.