This year a German court ruled that tax evaders owing more than 1 million euros in taxes should automatically face prison time. The news comes at a time when Switzerland is unveiling much of their banks secrecy pertaining to German customers. The announcement has caused outright fear among wealthy German residents.
This is particularly true as non-declared taxes are taxed at twice the normal income rate which by itself, can be as high as 45% not including the solidarity tax, church tax, interest due on unpaid taxes, and other payable fees. Hence, if you are a German resident with a substantial (say a million euros as it is pretty much all taxable anyhow) unreported bank account in Switzerland it is a tricky situation indeed. The options seem to either self-report – and many have done so - and have the government take virtually all your funds or don’t report and have the government take the funds and likely imprison you as well.
It gets worse as the original account beneficiary might have died and left the funds to an “innocent” heir. Imagine having a rich father who left money in a Swiss bank account for you to which you (knowingly or not) have access. You might end up in prison because your father left too much money for you in an unreported bank account with your name on it. Sounds absurd but the ruling seems to leave little ambiguity, and Germans tend to follow rules exactly.
Yet the strangest thing is that all this only matters if you are a German tax resident. This is so because Germans, unlike Americans, are taxed on residency rather than citizenship. So many of these taxes and prison sentences only apply if you actually live in Germany as your primary residence or gain your income from German sources. You can easily, and completely legally, opt out of this system by moving somewhere else.
Leaving a country like Germany – or Italy – can make a lot of economic sense and give you a real sense of liberty if you are industrious, rich or if a parent happened to leave a bunch of money in some unreported foreign bank account. It is little wonder that so many Germans are leaving the country each year and that so few choose to return and stay for any length of time in Germany once they have worked in a less punishing environment.
It is a sad reality that both work (with over 80% real taxation between employer and employee) and savings (25% tax) have become highly penalized activities and few people can accumulate their own meaningful savings for old age. The situation is even worse in countries like France or Italy as the vicious cycle of ever higher taxes and regulations are driving out more and more entrepreneurs and businesses along with jobs and wealth.
This is in stark contrast to countries like Singapore where a self-reinforcing virtuous cycle of low taxes leads to savings, leading to investments and more jobs and it is all based on making work rewarding rather than encouraging idleness.
If you are industrious and cannot get ahead in your home country, look beyond your country’ borders as the grass really is much greener somewhere else, sometimes.
by Gregor Gregersen