Wealth exodus: Billionaires leave Norway in response to rising taxes
The government of Norway has recently introduced stricter rules for taxing its citizens in light of reports that more of the country’s billionaires have moved abroad or are considering leaving. The move comes as a response to an increase in the number of wealthy individuals looking to avoid the country’s high taxes.
One of the key changes being implemented is the abolition of the five-year period for exit taxation of unrealized gains on shares and other assets. This means that any gains on assets such as shares will be taxed immediately upon transfer or sale, rather than being taxed over a five-year period. Additionally, the rules will be extended to include transfers of shares to close family members living abroad.
Immigration to Switzerland is popular
However, the increase in taxes has not gone unnoticed by Norway’s billionaires. According to reports, the number of billionaires considering a move, as well as those who have already emigrated, has risen sharply. Many of these individuals, whose net worth exceeds 1 billion Norwegian kroner (approximately 100 million euros), have reportedly relocated to countries such as Switzerland.
Rich country with hefty taxes
One of the reasons for this trend is the significant difference in tax rates between Norway and other countries. According to an analysis by the Heritage Foundation, the top tax rate in Norway is 47.8%, while the country’s total tax burden is 39.9% of total domestic income. In comparison, Switzerland has a top income tax rate – depending on place of residence – of only between approx. 25 % to 40 %, and its total tax burden is 28.8% of total domestic income. The economic freedom in Switzerland is ranked 2nd freest economy in the world according to the Heritage Foundation Rankings and 1st out of 45 countries in the Europe region.
Corporate taxes in Norway
Furthermore, some of the wealthiest Norwegians have exhausted options that for years allowed them to avoid paying dividend tax by reducing their companies’ equity to the legal minimum. Norway does not tax payments to shareholders that are considered a return of paid-in share capital.
The main problem is that corporate profits are taxed at 28%, dividends are taxed again at 28% income tax rate. This double taxation leads to a de facto tax of 48.16 % on company profits.
If, for example, a company is worth the equivalent of CHF 10 million, the owner as a natural person of the company is subject to a wealth tax of CHF 110,000 (= 1.1%). To be able to pay this tax, the company must achieve a profit before taxes of approx. CHF 215,000, in order to have an amount of CHF 110,000 available for the payment of the wealth tax after profit and dividend tax:
- CHF 215’000 Profit before tax
- CHF 60’200 Profit tax 28 %
- CHF 154’800 Profit after tax = dividend
- CHF 43’334 Income tax 28 % on dividend
- CHF 111’456 Dividend after tax = amount to cover wealth tax
If the company cannot generate a profit in this amount, the owner (natural person) gets into payment difficulties.
In comparison, Switzerland mitigates such problems with the following measures:
- lower profit taxes (between approx. 12 % and 20 %)
- lower income taxes (dividend privilege; between approx. 13 % and 30 %)
- lower wealth tax (0.1 % to just under 1 %)
- certain cantons have regulations defining the maximum tax burden to prevent confiscatory taxation in special cases (especially in the case of large non-income-producing assets).
Tax systems of Norway and Switzerland – a brief comparison and recent developments
The Swiss tax system is generally considered advantageous for high-net-worth individuals compared to other countries for several reasons:
- Low tax burden: Switzerland’s federal, cantonal, and municipal tax system allows for relatively low tax rates, especially for high-income earners. In addition, Switzerland has favourable tax treatment for certain types of income, such as dividends and capital gains. Dividends from significant shareholdings (10% or more) held as part of an individual’s private assets are subject to preferential taxation. Capital gains from the sale of private assets are generally tax-free. An exception is capital gains on Swiss real estate, which are taxed under a special regime.
- Cantonal tax competition: The Swiss tax system is decentralised, with each canton having the power to set its own tax rates. This leads to a high degree of tax competition between the cantons, which can result in lower overall tax rates for individuals and companies.
- Tax privacy: Switzerland has strict banking secrecy laws that provide wealthy individuals with a high degree of privacy and discretion in their financial affairs. However, the legendary Swiss banking secrecy law does not protect undeclared assets or assets of criminal origin, as Switzerland is part of the international automatic exchange of information and applies strict anti-money laundering regulations.
- International network of tax treaties: Thanks to its extensive network of double taxation treaties, double taxation and foreign withholding taxes on dividends can often be avoided or significantly reduced.
- The rule of law: The rule of law is a fundamental principle in Switzerland and is seen as a key aspect of the country’s stability, prosperity, and reputation. The rule of law means that everyone is subject to the same laws and that these laws are enforced fairly, clearly and consistently. The relationship between tax authorities and taxpayers is one of mutual respect and trust. Tax laws are constantly updated and adapted to international or economic developments. However, massive, short-term changes are extremely rare due to Switzerland’s consensus-oriented but time-consuming political decision-making processes.
- Quality of life: Switzerland is known for its high standard of living, excellent infrastructure and high-quality health and education systems. This can make it an attractive location for wealthy individuals seeking a stable and prosperous environment.
In general, Switzerland is known for having a lower overall tax burden for individuals compared to Norway. Norway, on the other hand, has a relatively high overall tax burden, with high income tax, VAT rates and wealth tax.
|Wealth tax||Switzerland does not have a federal wealth tax. However, the cantons and municipalities in Switzerland levy wealth taxes on their residents. The rate and amount of these taxes can vary widely from canton to canton and municipality to municipality. The lowest wealth tax rates are in the cantons of Zug, Schwyz, Uri and Nidwalden at around 0.1% to 0.25%. The highest rates of up to 1% are found in the western cantons of Geneva, Neuchâtel and Vaud.||In Norway, the wealth tax rate varies according to the value of the individual’s net assets. The tax is levied on an individual’s total net wealth, which includes assets such as property, savings and investments, less any debts or liabilities. The tax rate in 2022 is 0.95% for net assets between NOK 1.7 million (approx. USD 170,000) and NOK 20 million (approx. USD 2 million), and 1.1% for net assets above NOK 20 million. You don’t pay any tax on net assets below NOK 1.7 million.|
|Capital gains from sale of shares as private assets||Generally tax-free. In some cases, the Federal Supreme Court has considered capital gains to be ordinary income under certain circumstances. Capital gains from Swiss real estate are subject to a separate real estate capital gains tax, which applies only at the cantonal and/or municipal level.||According to Norway’s 2023 budget proposal, the effective tax rate on dividends and capital gains from the sale of shares will increase from 35.2% to 37.84%.|
|Taxation of dividends||Dividends from significant shareholdings (10% or more) held as private assets are subject to privileged taxation. Depending on the canton, only 50% to 70% of the gross dividend is subject to ordinary income tax. The relief and the resulting income tax rate vary from canton to canton. However, the lowest taxation of dividends can be found in the cantons of central Switzerland, such as Zug, Schwyz or Nidwalden, where a dividend tax in the region of 13 to 15 % of the gross dividend could be realised.|
(updated: February 2023)
Taxing unrealized gains
In response to this trend, the government is also considering legislative changes to ensure that unrealized gains accrued in Norway up to the time of emigration are also taxed there. The government also sought to increase the state wealth tax and abolish the valuation discount on shares, but such plans were not mentioned in the recent agreement.
It is worth noting that Norway and Switzerland are two of the few countries in Europe that still have a wealth tax. The Nordic country is known for its high taxes and strong welfare system, but the recent changes and the increasing number of wealthy individuals leaving the country suggest that the government may need to reassess its approach to taxation.
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