The tax burden is as high as in Germany and Austria

The rich had it more comfortable. In Switzerland they were startled by the Young Socialists with their inheritance tax initiative. The Juso want to impose an inheritance tax of 50 percent on assets worth over 50 million francs. Some rich people are now considering moving away as a precaution.

Pressure is also increasing worldwide. The G-20 countries recently decided to support higher taxes for the super-rich. They are following the demands of the French economist Thomas Piketty and his disciple Gabriel Zucman. One idea is a wealth tax of 2 percent annually for billionaires.

Behind these initiatives is the belief that the rich contribute too little to the community. But this does not apply to Switzerland, even though the country is often referred to as a tax haven. An analysis shows that the tax burden on assets is already high. The rich pay a similar amount of taxes as in Germany and Austria – also in two high-tax countries.

Searching for clues in three countries

Comparing the tax burden of the rich across countries is a complicated matter. The tax systems differ. Since rich people hardly ever disclose their tax returns, one can only rely on model calculations for typical multimillionaires and billionaires.

The Tax Justice Network and Oxfam Germany recently published such model calculations. The organizations are critical of globalization and advocate “fair” taxation of the rich. However, the model calculations are solid and provide a good data basis for a country comparison.

The study for Switzerland was carried out by inequality researcher Isabel Martínez from the Economic Research Center at ETH Zurich (KOF). The one for Austria comes from the Momentum Institute in Vienna, the one for Germany from the Tax Justice Network in Berlin. The NZZ has supplemented the results with its own calculations of the tax burden on the rich.

The wealth of a typical multimillionaire

At the beginning of the analysis there is a Swiss multimillionaire – let's call him Peter Hasler. The 55-year-old entrepreneur is one of the richest people in Switzerland. Hasler is a typical representative of the top 0.1 percent. He has a net worth of around 83 million francs (which, according to official tax data in the reference year 2019, was the average for this group).

Most of Hasler's wealth is in the family business, which he owns together with his sister (65 million). Hasler also has a large house and some properties that he rents out (13.5 million). He has investments in the stock market (3.5 million) and owns cars and works of art (1.5 million).

Hasler’s income situation is particularly relevant for taxes. The patron runs the family business and receives a CEO salary of 0.65 million francs per year. He also generates income from the rental of the properties (0.5 million) and from his stock market investments (0.1 million). The largest part of Hasler's income comes from his company's profits – around 5 million. In total, Hasler has a gross income of 6.3 million per year.

Pay in full or optimize taxes?

How much is the multimillionaire Hasler taxed in Switzerland? To assess this question, it is important to know that Hasler, like other rich people, has two options.

The first variant is that Hasler has the entire company profit distributed to him in the form of dividends. Then he has to pay 6.3 million in taxes on his entire gross income. The advantage of this variant is that the money is in his private account and he can use it for consumption.

But many rich people don't want that much money in their account because the options for consumption are limited. They therefore use a second, tax-saving option. Hasler can distribute the company's profits to an investment company that he owns. The rental income also flows in this investment company. The advantage of this variant is that this income remains largely tax-free. Hasler can also reinvest this money. Only when he wants to use it for consumption and has it paid out to his private account does the full taxation apply, as in the first variant.

This is how much taxes multimillionaires pay

On this basis, the KOF study calculates the tax burden of the model millionaire Hasler. According to the analysis, Hasler pays 27 percent taxes on his gross income if he chooses the first option without tax optimization (1.7 million francs). If Hasler opts for the tax-saving option instead, he will incur around 19 percent tax on his gross income (1.2 million francs).

The largest part comes from the company's profits, which flow into the investment company tax-free, but were previously properly taxed at the company level. This is followed by wealth taxes (canton and municipality) and income taxes (federal, canton and municipality).

This tax burden applies if Hasler lives in Zug – the cheapest canton in Switzerland. This assumption is not made out of thin air because Zug is particularly attractive from a tax perspective for the rich. Multimillionaires also live elsewhere in Switzerland.

Hasler's tax burden would be significantly higher if, for example, he lived in the city of Zurich, just 30 kilometers from Zug. According to NZZ calculations, Hasler would then pay 31 percent taxes on his gross income (2 million) with the tax savings model. Without tax optimization, the tax burden rose to 46 percent (2.9 million).

How does Peter Hasler compare to rich people in Germany and Austria? Let's call his counterparts Christian Schmidt and Stefan Berger. Both are also entrepreneurs, and they are among the richest thousandth in their countries.

According to the analysis by the Tax Justice Network, the multimillionaire Schmidt paid 29 percent taxes on his gross income in Germany. However, the authors only considered the tax-saving option with an investment company. If Schmidt had his entire gross income paid out to his private account, according to NZZ calculations, he would have a tax burden of 41 percent.

According to the analysis by the Vienna Momentum Institute, colleague Berger in Austria has a tax burden of 30 percent of gross income in the tax-saving variant. Without tax optimization, the tax burden would increase by 46 percent.

This means that multimillionaires in Germany and Austria pay more taxes than Peter Hasler in Switzerland. But that is only the case if Hasler lives in the tax-efficient train. Living in Zurich, he pays more taxes than his counterparts in neighboring countries.

This fund applies to most areas in Switzerland. Zurich is in the middle for tax purposes. In many other cantons and municipalities, Hasler's tax burden would be even higher. In Germany and Austria, on the other hand, the tax burden is practically the same everywhere. For Peter Hasler, Switzerland is anything but a tax haven.

The heirs of Roche, BMW and Red Bull

Above the multimillionaires, there is a group that floats in a sphere of its own: the billionaires. According to Forbes magazine, there are 86 billion in Switzerland, 120 in Germany and 9 in Austria. The study authors picked out typical billionaires for the tax comparison.

André Hoffmann died in Switzerland. The 66-year-old is one of the Roche heirs, lives in the canton of Vaud and is, among other things, Vice President of the Roche Board of Directors. How much Hoffmann's assets and income are is not publicly known. The study authors can only make rough estimates.

Hoffmann's assets, which mainly consist of his Roche shares, are likely to have amounted to around 2.6 billion francs in 2022. His income consists primarily of Roche's distributed dividends and his share of undistributed corporate profits. That's an estimated 174 million francs in 2022.

The Swiss billionaire Hoffmann is compared to Susanne Klatten from Germany and Mark Mateschitz from Austria.

Klatten is a BMW heir and owns 21 percent of the German car company. Her fortune is estimated at 50 billion euros for 2022. Their income also consists mainly of BMW dividends and their share of undistributed company profits.

Mark Mateschitz is considered the richest Austrian since he inherited his father Dietrich Mateschitz's Red Bull shares. Mateschitz's assets are expected to be around 32 billion euros in 2022. His income essentially consists of dividends and his Red Bull profit.

This is how much taxes billionaires pay

When it comes to taxes, billionaires have two options. In the tax-saving variant with an investment company, Susanne Klatten pays around 26 percent taxes on her gross income, according to the analysis by the Tax Justice Network in Germany. Essentially, this is the tax burden on BMW company profits. According to the Momentum Institute, Mark Mateschitz is likely to hand over around 26 percent of his gross income to the tax authorities.

It would be different if the two billionaires had wanted full access to their money – and had it paid out to their private account. Then the tax burden rose massively. According to NZZ calculations, in Germany it would be 45 percent and in Austria 46 percent.

How does the Swiss billionaire André Hoffmann compare? According to the KOF analysis, in the tax-saving variant he delivers 32 percent of his gross income to the tax authorities (56 million francs). Without tax optimization it would be 47 percent (82 million).

Hoffmann also paid more than his fellow billionaires in neighboring countries. Network-fair taxation is therefore surprised to find: “Switzerland, of all places, taxes billionaires more heavily than Germany and Austria.”

This is because Hoffmann chooses to live in the high-tax canton of Vaud. If he were to move to Zug, his tax burden would be lower; in the tax-saving variant it would fall to 20 percent.

On the other hand, Switzerland has an actual tax on the rich. It is now almost the only country in the world to levy a wealth tax.

Wealth tax fleeces the Swiss rich

“The wealth tax in Switzerland acts as a substitute for an otherwise low tax on company profits and income,” says study author Isabel Martínez from KOF. This is shown by the example of André Hoffmann. The rich could use tax structures to reduce their income taxes. “But the wealth tax remains with Hoffmann as long as he owns the Roche shares.”

In order to be able to equalize his tax bill, Hoffmann also has to actually have part of his Roche dividends paid out to his private account. High federal, cantonal and municipal income taxes are due on these distributions. Through this mechanism, the Swiss wealth tax results in a tax burden for billionaires that tends to be higher than that in Germany and Austria.

Nevertheless, Switzerland is repeatedly described as a tax haven for the rich. This is due to flat-rate taxation: Some assets are not taxed according to their income and assets, but only according to their cost of living (at least 0.43 million francs). However, flat taxation only applies to rich people who move from abroad. In addition, these people are not allowed to work in Switzerland.

However, for rich people with Swiss passports like Peter Hasler and André Hoffmann, Switzerland is not a tax haven. In most cantons you pay a similar amount as in the high-tax countries Germany and Austria. The ideas of redistribution preachers Thomas Piketty and Gabriel Zucman have almost already been implemented. The wealth tax ensures that the rich in Switzerland are properly asked to pay.