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Last Updated: Monday, 25 October, 2004, 22:43 GMT 23:43 UK
Zug: from bull market to cash cow
By Jorn Madslien
BBC News business reporter in Zug, Switzerland

Zug's nightlife
Zug's traders look more like students than financiers
Friday night in Zug.

The Mr Pickwick Pub, a British watering hole by the train station, is filled with 30- and 40-something expats, drinking beer and eating Walkers Crisps.

A tractor towing a cart stacked high with hay drives down the high street.

There's not a single suit in sight.

Many of the expats here work in high finance. "It is like the City of London," says an American oil trader, sipping his Brazilian vodka cocktail in a nearby bar on the shores of the lake Zugersee. "The metal traders, they're all Brits."

But that is where the similarity ends.

Island

In this small Swiss town, the traders often dress more like students than straight-laced financial market professionals.

Their attire of choice? Low-key designer wear or jeans. Their ties? Well, they are not wearing any.

Wealth in Zug is so low key that few would guess at this remarkable town's unique role in Swiss society.

"Zug is an island within Switzerland," says a senior Zurich businessman who works for the airline Swiss. "It is a haven for tax payers."

Urban spread

Zug is the capital of Canton Zug where a low-tax policy introduced in 1946 has been hugely successful in attracting both foreign companies and rich individuals.

Canton Zug's personal income tax peaks at 12.5%, though a more typical rate is 8% explains Hugo Wyssen, head of the local tax authority's competence centre.

Youth in Zug display their graffiti art
Zug's graffiti artists are loath to break any rules
In general, Zug's citizens pay half as much tax as those in Zurich, and a third of that paid by those in Basel, according to KPMG, the consultants.

At 16.3%, the corporate tax paid by companies located in the canton is internationally competitive too, especially since many pay much less.

Holding companies and firms with operations exclusively outside Switzerland pay less than half that and "this is the tax policy that attracts foreign companies," explains Mr Wyssen.

Urban spread

Zug's tax policy has done a great deal to develop this traditionally agricultural region.

The town's very own bull market, where cattle and meat stores compete for visitors' attention, is held regularly just a couple of hundred yards from the swanky yacht club.

But the market is little more than a colourful celebration of Zug's rural past.

Agriculture contributes just 3% of the canton's economic output while industry - such as electro technology and electronics - contributes 30%. Trade and services account for the remaining 67%.

The transformation from farming has sparked the rapid urban spread which has connected the former alpine villages Zug and neighbouring Baar. The road linking the two is flanked with warehouses and hypermarkets, car dealers and office blocks, creating the impression of a single town.

Discretion

Central Zug is more inviting. The luxury apartments in the surrounding hillsides offer panoramic views over the lake and the old town's 500-year-old chocolate box houses.

Brass plates and letterboxes
Brass plates and letterboxes: Thousands of foreign firms are domiciled in Zug

Young professionals fill the restaurants around the cobbled town square, while well groomed, bored-looking teenagers spray graffiti on a specially-designated wall.

Many local residents are professional, unmarried, hard working expats. One in five of the 103,000 people living in the canton are non-Swiss.

In the town of Zug itself it seems the proportion is greater, and the harmonisation of Swiss employment laws with the EU is helping to encourage more foreigners to come here.

Some of the expats are just passing through. A 40-something oil trader from London says he is here to fill his boots; as soon as he has enough he will leave both Zug and the industry.

Others are keen to build their futures in Zug. A similarly aged French trader praises the international school and the quality of life here and says his children love it.

"Internationally oriented staff find Zug attractive because, despite the high cost of living, they earn more money here," according to Zug's economic promotion office.

"It is the low taxation that makes the difference. In the Canton of Zug, taxpayers are considered as clients not debtors."

Such tax advantages have attracted the rich.

Three-times Wimbledon tennis champion Boris Becker lives here, alongside a slew of wealthy bankers and business executives who commute to nearby Zurich or Basel, including Novartis chief Daniel Vasella.

Brass plates

But if the influx of professional workers has been significant for Zug, it amounts to little when compared with the 18,000 companies registered here: there are almost as many firms as there are people in the town.

The energy giant Shell is one. Earlier this year, it set up Shell Brands International AG in Baar, a holding company which controls its intellectual property. Other major multinationals here include BASF and Johnson & Johnson.

Zug's old town on the shores of Zugersee, surrounded by mountains
Zug: a market town with a difference

Some firms have come to take advantage of the canton's skilled labour force and its business friendly set-up.

Others are nothing more than so-called "brass plate" or "letterbox" operations, domiciled in Zug because of the canton's tax regime, rather than to take advantage of local skills.

These make up about half the companies in Zug that qualify for privileged taxation treatment, estimates Mr Wyssen.

It is a winning formula for everyone involved. But the main winner is Zug itself which has become perhaps the richest canton in what is already one of the richest countries in the world.

For Zug, there is no going back to farming.


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