Büsingen am Hochrhein is a small village. There are many of them in Germany, but none is as special as Büsingen. Because Büsingen on the High Rhine is an exclave in Switzerland. This requires many peculiarities in the everyday life of the Büsinger. But also in the field of taxes, many exceptional rules apply, which have even been negotiated separately and in detail by state treaty between Germany and Switzerland. For some, this has tax advantages, while others pay more.

1st Büsingen am Hochrhein – Introduction

A country, a state, everyone knows what is meant by these terms. One imagines an area managed under unified political leadership. Often a nation is also decisive for the definition of a state. Even linguistic, cultural or political differences can play a role in a proverbial demarcation. Therefore, it is all too understandable to assume that countries, more precisely states, are self-contained in their territory. Far from it.

In fact, all over the world there are territories that are outside their actual territory and yet belong to it. In the case of islands, this is clear anyway, even if, like the Faroe Islands or Spitsbergen, they are quite far from their motherland.

But it gets even more complicated. Because there are areas that belong to one country but are surrounded by another. In this case, one speaks of exclaves or enclaves. Territories are called exclaves when viewed from the point of view of their native country. Conversely, the same area is called an enclave when viewed from the surrounding state. For example, Campione d’Italia is an Italian exclave and an enclave of Switzerland. The most famous example, however, is probably Gibraltar. The Austrian community of Jungholz, on the other hand, is not an enclave of Germany, because it is connected to it by a strip of Austrian territory, albeit by a very narrow strip, but by no road.

Germany also has an exclave, namely the municipality of Büsingen on the Upper Rhine. It is surrounded by Switzerland for a length of 17 km. For the inhabitants this is associated with many peculiarities, which are also omnipresent in their everyday life. In this post, however, we want to look at the tax extravagances of the place.

2. History of the town of Büsingen on the High Rhine

Before that, a small historical excursion to the beginnings. Because only from the historical perspective one understands why Büsingen could become an exclave and why this remained so.

2.1. Büsingen – from antiquity to the early Middle Ages

Since Büsingen is located on the Rhine, it is not surprising that people settled here early on. This is why archaeological relics from the Bronze Age have been found in Büsingen, among others. Later, the Romans also left their legacies near the village, because there the limes ran to Lake Constance. But at some point every rule comes to an end and another begins. So Alemannen settled in this place. They were also the ones who gave it its name, although today's Büsingen is only a corruption of the original name that has changed greatly over the centuries.

2.2 Dispute over Büsingen in the 17th century: Schaffhausen vs. Habsburg

It continues in time. We pass through the Middle Ages and reach the 15th century. In this epoch falls the integration of the town of Büsingen into the empire of the Habsburgs. Wars were commonplace at that time, because the Swiss cantons opposed the supremacy of Austria. Then came the Reformation and the Thirty Years War. In the course of these religious disputes, many Swiss professed to the Reformation. Others remained Catholics. So also the Vogt Eberhard Im Thurn, who was, among other things, Büsingen under. Members of his own clan abducted him to Schaffhausen in 1693 and imprisoned him there. The reason for this was politically and religiously motivated.

But since Eberhard Im Thurn managed fiefdom under the sovereignty of the Habsburgs, this power also intervened in the conflict, which was initially only of local importance. Among other things, this led to considerable economic sanctions on the Habsburg side. But only when military violence threatened, Schaffhausen gave up and released Eberhard Im Thurn. But the damage had already been done: Schaffhausen lost a whole series of places, including Büsingen.

2.3. How Büsingen became an enclave

After some time, successful negotiations led to Schaffhausen regaining control of the lost territories in 1728. Although there was a proud price, but ultimately it was paid: 221,774 guilders. Only Büsingen was excluded from this purchase, because the Habsburgs always wanted to remind the people in Schaffhausen of their shame. Thus, it was stated in the contract that Büsingen should remain Austrian "to the eternal annoyance" of Schaffhausen. And the Habsburgs maintained this despite several attempts by Schaffhausen to change it.

Büsingen became an enclave in Switzerland, however, only later. Because the surrounding places, which connected Büsingen with the countries outside the canton Schaffhausen, fell to the canton of Zurich. This also happened through a trade that took place in 1770.

Later, when Austria withdrew from the region, Büsingen fell to Württemberg. Over time, this relationship brought it to the German Reich and finally to the Federal Republic. Although there were several attempts to integrate Büsingen into the canton of Schaffhausen, they all failed so far. Among other things, this was also due to the fact that Switzerland could not offer Germany an adequate substitute for exchange. Finally, the district of Konstanz, to which Büsingen belongs, held on to the exclave. He torpedoed a near agreement with which Büsingen would finally become part of the canton Schaffhausen; The Büsinger had very much desired this. After all, Switzerland and Germany agreed by state treaty how to deal with the exclave in detail. With regard to taxes, we give an overview in the next chapter.

3. tax special features of Büsingen

Wherewith we have arrived in the present. So let’s look at how the inhabitants of Büsingen pay taxes.

3.1. Special allowances for income tax

First there is the obvious. As federal citizens who reside in the territory of the Federal Republic, Büsinger are taxable in Germany without restriction. But since many citizens earn their income in Switzerland, they receive their income in Swiss francs. However, because this currency has a higher purchasing power and many services, such as water supply, are incurred in francs instead of euros, special exceptions have been made for Büsingen in order to cushion the higher cost of living.

The means of choice was a special adjustment of the allowances. For this purpose, people who tax their income by means of individual assessments have been granted an allowance of 30% of their taxable income. However, if the income exceeds EUR 15.338, the allowance is 30% of this threshold. Furthermore, this assessment value for each child in the household of the taxable person increases by EUR 7,670. In the case of joint investment, however, a Community assessment value of EUR 30.675 applies.

However, it should be noted that this special regulation applies only to taxpayers who have their main residence in Büsingen. So in order to benefit from this special regulation, you have to submit a corresponding proof from the mayor of the place.

3.2.VAT instead of VAT

Büsingen belongs to the customs territory of Switzerland and is therefore outside the EU customs union. For Büsinger, this means that they have to apply the Swiss VAT rates to the local purchase of goods. The standard VAT rate of 7.7% and a reduced VAT rate of 2.5% apply to foodstuffs and books. In addition, there is a special VAT rate of 3.7% on tourist accommodation charges. As a further indirect tax, the Federal Mineral Oil Tax in Büsingen is also relevant. The logical consequence of this is that these indirect taxes are due to the Swiss Treasury. For this, no German sales tax must be paid when purchasing deliveries and services from Switzerland. However, if you buy objects of great value in Germany and bring them to Büsingen, customs accrue at the border with Switzerland.

In connection with VAT, it is perhaps still interesting as an anecdote that a former mayor, who was also a tax consultant, managed to recover the VAT amounts paid by the Federal Fiscal Administration. This proved to be a real rain of money for the community. For this reason, in 2000 Germany and Switzerland agreed that the latter would return part of the VAT to the municipality, in order to relieve the inhabitants of their special situation. The percentage of the amount is fixed every five years. The notice imposing this scheme was published in the Federal Law Gazette in 2002 (Part II, No 17, page 1044).

3.3. Further tax special features in Büsingen

Since Büsingen has unconventional income, the small municipality could afford to waive the collection of property tax. It is actually one of only 16 municipalities in Germany where property owners do not have to pay property tax. Other municipal taxes are also comparatively low. However, the relatively good financial situation is only one reason for the tax-advantageous special features in Büsingen. Indirectly, of course, this is very much related to the special situation as a German exclave in Switzerland.

The waiver of the municipality of Büsingen on the property tax thus has another, more important reason. It is an attempt to create an incentive for the people of Büsing to refrain from moving to Switzerland. Many inhabitants of Büsingen prefer Switzerland to the small German community. With what this accompaniment of the exclave Büsingen is connected, we reveal in the next chapter.

4.Büsingen – a tax haven?

If you look at the above information on the special features that apply with regard to taxes in Büsingen, then at first glance you may get the impression that Büsingen is a small tax haven in Germany. Who would voluntarily waive an increase in the basic allowance? Or who would want a tax rate of 19% when you can also buy VAT at 7.7%?

4.1.Income tax in comparison: Germany vs. Switzerland

At least in terms of income tax, however, the situation is actually far more complex. Because the current equity regulation by the Ministry of Finance, which has been in force since 2015 (it is already the third of its kind), was for good reason. On the one hand, this is related to the exchange rate of the Swiss franc in relation to the euro. Since the franc is a much more powerful currency than the euro, the cost of living in Büsingen is especially high for those who receive German income. In addition, wages and salaries are usually significantly higher in Switzerland than in Germany. For this reason, in Büsingen, the financial administration was originally approached to demand compensation.

An at least as serious reason from the point of view of the Büsinger, however, is that they incur significantly higher taxes in Germany than if they had to pay income tax in Switzerland. In some cases, the taxes for the citizens of Büsingen are twice as high as in the surrounding cantons. In combination with the significantly higher cost of living, which is at Swiss level, this results in a noticeable financial disadvantage if you live in Büsingen. It is therefore no wonder that younger people in particular are leaving Büsingen to settle in Switzerland.

The fact that this is also acute after the revision of the equity regulation in 2015 is shown by the letter with which the Mayor of Büsingen called for further adjustments in 2018 from the then Federal Finance Minister Olaf Scholz. Specifically, it was about a complete waiver of the income tax of all Büsinger. But this wish has been denied to the Büsingers so far.

4.2. Income tax in Büsingen as an advantage

For pensioners, on the other hand, also from Switzerland, Büsingen can offer tax advantages. If the income tax is already low due to the special regulations regarding pensions, this may well be a plus for Büsingen. However, it is by no means in the interest of Büsingen if the average age increases above average. Even now, Büsingen is among the municipalities with the highest average age. In 2022, it was already 51.3 years. For comparison: in 1995 it was still 42.4 years.

5. Büsingen am Hochrhein – tax haven and tax hell at the same time

If we draw a conclusion at this point, then certainly not one that confirms blanket claims of the existence of a German tax haven. Although it may have tax advantages to be based in Büsingen, these are associated with clear disadvantages. After all, no one would grant tax advantages if there were no good reason for doing so. And if even the financial administration sees a need for action here, then that certainly has something to mean.

On the other hand, Büsingen’s demand for the abolition of tax liability was certainly just as indisputable from the point of view of the Federal Ministry of Finance. However, if this should happen one day contrary to all expectations, the move to Büsingen might be worthwhile again. However, it is much more likely that Büsingen will still achieve his goal and become a federal community. Whether, however, the municipality of Konstanz, which in 1956 caused considerable resistance in the last attempt to achieve this, is still ready to fulfill the eternal desire of the Habsburgs, remains also open.