How Switzerland turned tax competition into a national sport
The country’s 26 cantons compete fiercely for companies, wealthy residents and the taxes they bring
As countries across Europe compete to lure the world’s wealthy and their money, Switzerland has a peculiar advantage: it has spent decades competing with itself.
European governments are wrestling with how much they can tax highly mobile companies and wealthy individuals without driving them away — or how much they should offer to persuade them to come. Greece and Italy, particularly, are stepping up the competition to draw people and business in Europe.
But Switzerland has been conducting its own version of this experiment for decades. Its 26 cantons compete fiercely for companies, wealthy residents and the taxes they bring. When there is a dispute over where someone really lives, rivals can end up in court, with judges examining everything from water bills and supermarket shopping to toilet paper purchases to decide which canton gets to collect the tax.
Politicians are happy to join in. Heinz Tännler, finance director of low-tax Zug, has suggested that left-run cities such as Zurich drive away the taxpayers his canton attracts. He has described them as some of Zug’s most useful economic promoters.
The latest prize in this cantonal contest is Vontobel. The 102-year-old private bank said last month that it would move its headquarters and more than 1,500 employees from Zurich to a new campus in Baar, in Zug, from 2030. About 300 client-facing staff will remain in central Zurich.
For Zurich, it is unquestionably a loss. A prominent headquarters, jobs and tax revenues will cross the cantonal border. The move has revived debate over whether Switzerland’s largest city is doing enough to compete with its lower-tax neighbours.
The country’s highly decentralised federal system gives cantons wide powers over taxation, while municipalities also set their own rates. The result is something akin to international tax competition compressed into a country of 9mn people.
Lucerne this year narrowly dethroned Zug as the canton with Switzerland’s lowest corporate tax burden (11.66 per cent vs 11.71 per cent), compared with about 19 per cent in Zurich and 14 per cent in Geneva. For wealthy individuals the gaps can be wider still: the top personal income tax rate is about 22 per cent in Zug, compared with more than 40 per cent in Geneva. Schwyz, next to Zurich, has meanwhile become a favourite home for wealthy residents drawn by some of the country’s lowest personal tax rates.
SGS, the testing and inspection group that had long been headquartered in Geneva, completed its move to Baar in Zug this year. The company had said the “value creation” — or financial benefits — of moving to Zug, including incentives, was twice as high as relocating to another office in Geneva.
Geneva is responding to concerns. Its voters approved a corporate tax overhaul in 2019 that sharply reduced rates for many companies and backed cuts to personal income tax in 2024. And now the canton is pursuing another prize. Millennium Management, one of the world’s biggest hedge funds, is in discussions with the canton over a tax deal as it considers expanding its presence there.
Vontobel says tax was not behind its move. The bank needed space to bring together staff spread across seven Zurich buildings. Baar offered a modern campus, good transport links and room to expand. Daniel Leupi, Zurich’s finance chief, has also pushed back against suggestions of an exodus from his canton. Only one other company among the city’s 50 biggest corporate taxpayers has moved to a lower-tax canton over the past decade, he wrote in the Neue Zürcher Zeitung.
There are limits to playing Zug at its own game. Leupi estimates that cutting Zurich’s cantonal profit tax rate from 7 to 6 per cent would cost the city SFr150mn ($183mn). Replacing that revenue would require companies employing about 75,000 people. Zurich, he argues, simply does not have room for them.
That gets to the clever part. A company moving from Zurich to Zug is a defeat for Zurich, but not necessarily for Switzerland. Baar is little more than 20 minutes by train from Zurich. Companies and taxpayers can cross tax borders without leaving the same economic region, let alone the country.
Other governments are trying to decide how much sovereignty they can monetise to attract the global rich. Switzerland has made its cantons compete to do much the same thing.
“It’s good to try to be better than your neighbours,” said a Swiss executive at a business industry association. “That’s the way our federalist system works.”