Cantons and Tax Competition

How Switzerland's 26 cantons set their own taxes and compete for residents and firms, how low-tax Zug attracted companies, and how equalisation balances differences.

Switzerland has 26 cantons with significant powers.

Tax autonomy

Cantons and municipalities set their own income and corporate taxes.
Tax rates differ widely across cantons.

Tax competition

Zug cut taxes to attract companies and wealthy residents, becoming home to many firms and crypto companies (“Crypto Valley”).
Other cantons have higher taxes but offer different services.

Effects

Competition can keep taxes low and governments efficient.
It can also create inequality between cantons.

Equalisation

A national fiscal equalisation system transfers money from richer to poorer cantons.

Corporate tax reform

In 2019, Swiss voters approved abolishing special tax regimes for foreign companies, replaced by lower general rates.

Comparison with India

Indian states set some taxes but share GST, limiting tax competition compared with Swiss cantons.

The Zug move

A company moves its headquarters from Geneva to Zug to benefit from lower cantonal taxes.

Thinking tax rates are uniform within countries

Swiss cantons set very different tax rates.

Key takeaways

Switzerland has 26 cantons with tax autonomy.
Zug attracted firms with low taxes.
Equalisation transfers from rich to poor cantons.
Special foreign company regimes ended in 2019.