Swiss flat rate tax regime for foreigners should be retained according to the Swiss government.

The tax rate which is based on a person’s cost of living, rather than their wealth or income is critical to Switzerland’s appeal as a business location and any change would impinge on cantons’ fiscal autonomy.  Campaigners have argued that foreigners living in Switzerland should be taxed on the basis of their income and assets, like other taxpayers.

76% of all taxpayers subject to the regime live in one of four cantons (Vaud, Valais, Geneva and Ticino). The Council said that abolishing expenditure-based taxation would disproportionately affect these cantons. The Council believes that the decision on providing expenditure-based taxation should therefore continue to be left to the cantons.

After a previous challenge, changes were announced in 2012 which will see the tax base rise from five times the cost of living, to seven times the cost of living from January 1, 2016. As regards direct federal tax, a minimal taxable income of CHF400,000 (USD414,293) will apply, and the Swiss cantons will be allowed to determine their own minimum taxable amount.

According to the Federal Council, these revisions aim “to reach a well-balanced compromise between tax equity and locational appeal, which should not be called into question again.”