Lump-sum taxation and its abolition in Zurich

Origins and federal framework

Taxation according to expenditure, known in German as Besteuerung nach dem Aufwand or Pauschalbesteuerung and in French as forfait fiscal, is one of the oldest instruments of Swiss tax competition. It allows foreign nationals who take up residence in Switzerland for the first time, or after an absence of at least ten years, and who do not pursue gainful activity in Switzerland, to be taxed on the basis of their worldwide living expenses in place of their actual income and wealth. The canton of Vaud introduced it in 1862 to attract wealthy foreigners to the shores of Lake Geneva. Geneva followed in 1928 and the Confederation in 1934. In 1948 the cantons concluded an intercantonal agreement to harmonise the conditions.¹ The companion volume on Geneva describes the role of the instrument on Lake Geneva, where it has always had far greater weight than in Zurich.

The federal framework was tightened in the years after Zurich’s abolition. Since 1 January 2016 the taxable basis for the direct federal tax must amount to at least seven times the rental value of the taxpayer’s home and to at least CHF 400,000. The cantons, whose law was amended with effect from 2014 with a transitional period, must also set a minimum amount and take the wealth tax into account.² At the end of 2018, 4,557 persons were taxed on the basis of their expenditure in Switzerland, paying a total of 821 million francs in taxes.³ Lump-sum taxpayers thus represented less than one in a thousand taxpayers, while each of them paid on average about 180,000 francs.

The political argument against the instrument has always been the same. It treats foreigners more favourably than Swiss citizens with the same wealth and income and so offends the constitutional principles of equal treatment and taxation according to economic capacity. The argument in its favour is equally constant. Its defenders point to the revenue it produces, to the spending of wealthy foreigners in the local economy, to their charitable donations and to their investments. They also warn that the individuals concerned would simply leave.

The Zurich vote of 8 February 2009

Zurich was the first canton to test these arguments at the ballot box. The Alternative Liste, a small party of the radical left, launched a popular initiative for the abolition of lump-sum taxation for cantonal and communal taxes. The cantonal government and the majority of the Kantonsrat opposed it. On 8 February 2009 the electorate accepted the initiative by 52.9 per cent, with a turnout of 50.4 per cent.⁴ The abolition affected only cantonal and communal taxes, since the direct federal tax is governed by federal law. According to contemporary reports, the instrument had played a minor role in Zurich compared with Geneva and Vaud, although some of the canton’s best-known foreign residents had used it.⁵

The abolition took effect on 1 January 2010. The canton’s Finance Directorate published a first assessment in January 2011. At the end of 2008 the canton had counted 201 lump-sum taxpayers, who had paid 32 million francs in taxes that year. By the end of 2009, 92 of them had left the canton, almost one in two, and about 70 per cent of those who left had moved to other Swiss cantons. At the time of the first assessment no data on the effect on revenue were yet available.⁶

A second assessment by the Finance Directorate in 2012 examined the fiscal balance. According to the account of the initiators, which quotes the report, the departures had cost the canton, the communes and the Confederation 12.2 million francs in taxes. The taxpayers who remained, now taxed on their actual income and wealth, paid on average 55 per cent more than under the old system, which produced additional revenue of 13.7 million francs. The net result was a small gain of about 1.5 million francs. The report also found that 47 per cent of the former lump-sum taxpayers actually paid less under ordinary taxation. Finance Director Ursula Gut warned that the modest gain could disappear quickly if further wealthy residents left.⁷

The Zurich experience became the most frequently cited evidence in the national debate. Supporters of abolition pointed to the neutral or slightly positive fiscal balance. Opponents pointed to the departure of almost half the taxpayers concerned and argued that Zurich was a special case, because its lump-sum taxpayers were few and the canton’s economy did not depend on them. Both readings are defensible. What the Zurich figures show clearly is the high mobility of the persons concerned. Most of those who left stayed in Switzerland and moved to a neighbouring canton that still offered the regime, above all Schwyz.

The federal vote of 30 November 2014 and the other cantons

Encouraged by the Zurich result, several other cantons abolished the regime. The Federal Department of Finance lists Zurich, Schaffhausen, Appenzell Ausserrhoden, Basel-Landschaft and Basel-Stadt as the cantons that no longer grant it.⁸ Elsewhere, however, the voters kept it.

The Alternative Liste, supported by other groups of the left, then took the issue to the federal level with a popular initiative entitled “Schluss mit den Steuerprivilegien für Millionäre (Abschaffung der Pauschalbesteuerung)”. The initiative would have prohibited lump-sum taxation throughout Switzerland, for federal, cantonal and communal taxes. On 30 November 2014 the electorate rejected it by a clear majority of 59.2 per cent, with only one canton in favour, although Zurich had abolished the regime for itself five years earlier.⁹ The result reflected a distinction that Swiss voters draw often. The electorate of a canton may decide to abolish a privilege for itself, but the same voters are reluctant to impose that decision on other cantons for which the instrument has a different weight.

Consequences for Zurich practice

For Zurich the abolition has had lasting consequences. Wealthy foreigners who wish to be taxed on their expenditure and who work in or near Zurich today settle in Schwyz, Zug or another neighbouring canton that still offers the regime. The drive from Wollerau, Freienbach or Zug to the Paradeplatz takes less than half an hour, so that the move costs little in terms of daily life. The canton of Zurich loses the tax revenue of these persons, but the Zurich private banks, asset managers, lawyers and fiduciaries continue to serve them. In this respect the abolition shifted tax revenue within the metropolitan area without much effect on the financial services industry itself.

For foreign individuals who move to Zurich, ordinary taxation applies from the first day. The combination of the wealth tax, the progressive income tax and the high communal multiplier of the city makes Zurich comparatively expensive for wealthy newcomers without Swiss earnings. For those with high earned income, such as senior bankers and executives, the relevant comparison is the ordinary tariff, and here Zurich competes with its neighbours on the combination of tax, schools, housing and access to the workplace.

Notes

1. Wikipedia (German), “Pauschalbesteuerung”, https://de.wikipedia.org/wiki/Pauschalbesteuerung, which records the introduction in Vaud in 1862, in Geneva in 1928 and at federal level in 1934, and the intercantonal agreement of 10 December 1948. No primary source for these dates could be consulted. ↩
2. EFD, “Besteuerung nach dem Aufwand”, https://www.efd.admin.ch/de/besteuerung-aufwand, which refers to the amendments of the StHG in force from 1 January 2014 and of the DBG in force from 1 January 2016. The minimum of CHF 400,000 and the multiple of seven times the rent are recorded by Wikipedia, “Pauschalbesteuerung”, cited above. ↩
3. EFD, “Besteuerung nach dem Aufwand”, cited above. The EFD notes that current figures must be obtained from the cantons. ↩
4. Tages-Anzeiger, “Gelingt der AL ein zweiter Coup?”, https://www.tagesanzeiger.ch/gelingt-der-al-ein-zweiter-coup-732824501459, recalling the result of 52.9 per cent and the turnout of 50.4 per cent in 2009. The date and the result are also reported by swissinfo.ch, “Zürich schafft Pauschalsteuer für reiche Ausländer ab”, https://www.swissinfo.ch/ger/zuerich-schafft-pauschalsteuer-fuer-reiche-auslaender-ab/7203506. ↩
5. swissinfo.ch, “Zürich schafft Pauschalsteuer für reiche Ausländer ab”, cited above. At the time the Zurich tax base for lump-sum taxpayers was at least five times the rental value of their home. ↩
6. Kanton Zürich, Finanzdirektion, media release of 7 January 2011, “Straflose Selbstanzeige und Abschaffung der Pauschalsteuer zeigen Wirkung”, https://www.zh.ch/de/news-uebersicht/medienmitteilungen/2011/01/004.html; see also swissinfo.ch, “Fast die Hälfte der Pauschalbesteuerten hat Kanton Zürich verlassen”, https://www.swissinfo.ch/ger/ch-fast-die-haelfte-der-pauschalbesteuerten-hat-kanton-zuerich-verlassen/29187690. ↩
7. Alternative Liste Zürich, “Pauschalsteuer-Abschaffung: Weniger Reiche zahlen mehr Steuern”, March 2012, https://al-zh.ch/blog/2012/03/pauschalsteuer-abschaffung-weniger-reiche-zahlen-mehr-steuern/, reporting the figures of the Finance Directorate’s report. The blog states that one-third of those who left had moved abroad and two-thirds to other cantons, above all to Schwyz. The source is the initiating party, and the figures should be read with that in mind. ↩
8. EFD, “Besteuerung nach dem Aufwand”, cited above. ↩
9. Wikipedia, “2014 Swiss referendums”, https://en.wikipedia.org/wiki/2014_Swiss_referendums, recording for the initiative “Schluss mit den Steuerprivilegien für Millionäre (Abschaffung der Pauschalbesteuerung)” 40.8 per cent yes and 59.2 per cent no, with one canton in favour and 19 cantons and 6 half-cantons against. The Ecopop and gold initiatives were voted on the same day. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.