May 23 (Bloomberg) -- Switzerland is preparing for an influx of wealthy French emigres after Socialist Francois Hollande ousted Nicolas Sarkozy in presidential elections.
Hollande proposed a 75 percent tax in February on income exceeding 1 million euros ($1.27 million) as part of his plan to cut France’s budget shortfall. The levy may push rich French citizens to relocate to Switzerland and lower their taxes through the forfait system, a lump-sum cost for foreigners that is based on expenditure rather than income.
“It’s open hunting season on wealthy people in France,” said Francois Micheloud, a partner at Lausanne, Switzerland-based Micheloud & Cie., which helps foreigners relocate to the Alpine nation. “The number of French asking for assistance has tripled in the last 18 months.”
Switzerland, a haven for refugees since Jean Calvin arrived in Geneva in the 16th century, had 5,445 people in the forfait system at the end of 2010 and more than 33 percent of those are French, Micheloud said. Of the 300 richest people and families in Switzerland, 43 are French and include designer Daniel Hechter and the Peugeot family, according to a list published by Bilan magazine in December.
“We’ll see another wave of people and companies moving abroad,” said Olivier Cadic, a French businessman who moved his firm to the U.K. and is standing for one of the seats in Parliament reserved for nationals residing abroad. “The big wave will come in 2013, when people see the kind of taxes they are paying.”
Hunt for Rich
Hollande’s victory may push entrepreneurs to leave France for Switzerland, Baron Benjamin de Rothschild, chairman of Geneva-based Banque Privee Edmond de Rothschild, said in an interview published today in Bilan.
“This hunt for the rich, most of whom are entrepreneurs and contribute actively to the French economy, risks sparking an exodus,” said de Rothschild, the sixth generation since Mayer Amschel Rothschild and his five sons bankrolled European governments in the 19th century. “Geneva could benefit from this if it remains reasonably attractive for tax and the quality of its services.”
Should France introduce an income tax based on nationality -- something proposed by Sarkozy during the election campaign -- de Rothschild said he would probably give up his French citizenship.
The number of foreigners tapping the Swiss forfait climbed 31 percent between 2006 and 2010, according to figures from a body representing the finance directors of the country’s 26 cantons. The system was originally introduced by the canton of Vaud in 1860s to get wealthy British residents to pay for local services.
Under the forfait, expenditure is calculated at not less than five times the annual rental value of the individual’s home in Switzerland. Ordinary federal and cantonal tax rates are applied to this figure and there is no obligation to declare worldwide income or assets, and no tax is paid on income from securities holdings.
“The beauty of the forfait is its simplicity,” said Christian H. Kalin, a lawyer at Henley & Partners in Zurich. “You pay a fixed amount and you don’t need expert accountants. For very wealthy people, it’s a very attractive regime.”
While Swiss authorities don’t provide a breakdown of forfait nationalities, Vaud, the biggest French-speaking canton, had 1,394 residents using the system, according to cantonal figures for April. Neighboring Geneva had 690 and the canton of Valais 1,162, according to 2010 numbers from the Conference of Cantonal Finance Directors.
“There are more French people living around Lake Geneva than in all of Africa,” Micheloud said.
While 155,743 French people resided in Switzerland at the end of last year, according to France’s Ministry of Foreign Affairs, only a small number were part of the forfait system.
Time may be running out for French tax exiles in Switzerland and part of the threat comes from Hollande’s predecessor Sarkozy, who sought to lose his “candidate of the rich” label during the election campaign. Sarkozy introduced a 34.5 percent exit tax on capital gains from assets sold by French citizens within eight years of leaving the country.
That will deter wealthy French from leaving for Switzerland, said Patrick Michaud, a Paris-based tax lawyer.
“French who profited from previous tax accords won’t be able to anymore,” Michaud said.
Forfaits also are causing resentment in Switzerland, where the top rates of income tax exceed 40 percent in cantons such as Geneva. The canton of Zurich voted to eliminate the system in 2009 and Schaffhausen followed in 2011. Appenzell Ausserrhoden plans to end the system next January.
The Swiss Parliament is debating a proposal to increase the forfait to seven times the rental value of a residence and set the minimum taxable income at 400,000 Swiss francs ($424,000).
For one French millionaire, Michel Lacoste, chairman of Lacoste SA, the company that makes polo shirts with a crocodile insignia, the need to pay for schools, hospitals and roads makes the forfait system outdated.
“The forfait system is from an era that belongs to the past, something that was diverted from its original purpose,” said Lacoste, who lives in the canton of Geneva, and isn’t entitled to a forfait after becoming a Swiss national. “I pay as much, if not more, in taxes here than I would in France.”
French politics will mean more citizens depart for Switzerland, said Kalin of Henley & Partners, comparing Hollande’s victory with that of France’s last Socialist president, Francois Mitterrand.
“When Mitterand came to power, there was a significant wave of emigration,” he said. “We’re definitely going to see a further exodus of wealthy people leaving France.”
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