Tax relief for higher income compared to low-income earners? In Germany this is unthinkable. In Switzerland, on the other hand, such a model was introduced at short notice in the Canton of Obwalden in 2015. In addition, there are many benefits in Obwalden for high incomes. Individuals and companies find very attractive tax conditions in Obwalden. For example, it is advertised that corporate taxes are one of the lowest there and no inheritance tax and gift tax is levied. We analyze the tax models of the Canton of Obwalden. These include the “Obwalden model” with the flat-rate tax and the degressive investment from a certain income.

Before 2006, Obwalden was considered a small meaningless canton in the middle of Switzerland. In 2006, Obwalden attracted attention. There should be a tax reform there, which was decided by referendum.

For the first time in Switzerland, the degressive taxation of income over 300,000 francs and assets over 5 million francs was decided. Therefore, the tax burden fell relative to income from 300,000 francs compared to income below this value. As a result, higher incomes have been tax-relieved considerably. Lower incomes, on the other hand, were subject to a higher burden. This should prevent the brain drain and attract good taxpayers. In addition, the degressive disposition should bring the small canton of Obwalden into the focus of the public. For this reason, this tax reform also received an approval of more than 80 percent in the referendum at the time.

The Federal Court overturned the decision in 2007, however. The Federal Court has based itself on the principle of taxation according to economic performance. Consequently, the decision was declared unconstitutional and annulled. A week later, however, there was a new model, which connects to a so-called flat-rate tax.

The flat rate tax was also decided by a referendum. It received 91 percent approval at the time and has many benefits for the taxpayer. The flat-rate tax would like to grant the canton Obwalden as compensation for the poorer infrastructure compared to the large cantons. On the one hand, the calculation will be easier for the taxable person. Secondly, the tax burden is reduced. The progression is eliminated, as there is now a uniform tariff. Accordingly, the uniform tariff of 1.8 percent now applies across the entire income range. In contrast, the top tax rate for income tax in Germany is 45 %. The Obwalden model has modified the concept of a flat-rate tax to some extent. The reason for this is the tax exemption, which is 10,000 francs. Only with income over 10,000 francs is a tax of 1.8 percent owed. This is intended to achieve a certain progression.

But now the lower incomes are relieved more than the higher incomes. This contradicts the first model, which relieves higher incomes versus low incomes. Nevertheless, the additional burden for higher incomes by the flat-rate tax is not particularly high. In addition, Obwalden is one of the frontrunners in the area of low tax burden compared to the other cantons. The reason for this is the low burden with other taxes.

Relocation & transfer of registered office of the GmbH abroad (EU & third country)

Tax relief next to the flat-rate tax

In addition to the flat-rate tax, there are further tax cuts in Obwalden. This includes the low profit tax rate of 6.0 percent. In addition, the capital tax was reduced to 0.001% at the beginning of 2020. Dividends from investments of 10 percent are taxed there only half. At the beginning of 2017, the inheritance tax and gift tax were abolished.

Should you consider relocating your residence to Switzerland, you must always pay attention to the German exit tax. Our tax consultants are happy to advise you. Please make an appointment with our tax consultants.