Destination: Switzerland : OLD TOWN, NEW MONEY : Business and pleasure mix in the pristine lakeside town of Zug--a low-tax haven for foreign firms that’s nearly tourist-free despite its storybook setting

The coffers of Zug were not always brimming with gold. For most of its 700-year history, Zug (pronounced Zoog) was a poor little lakeside town 19 miles due south of Zurich, notable only for its catastrophes. On three occasions, in 1435, 1594 and 1887, large tracts of the town built along the curve of shoreline suddenly collapsed and slid into Lake Zug, each time devastating the community; the first and worst of these fatal events, late one March afternoon after an early thaw, wiped out a third of the population.

But shortly after the end of the Second World War, the fortunes of Zug--capital of a tiny rural canton of the same name--improved considerably. Tired of being poor and eking out a hardscrabble existence from the land, the citizens devised and voted to adopt a bold fiscal plan, startling in its simplicity. Zug would lure foreign corporations, operating mainly outside of Switzerland, to their canton with the golden carrot of low taxation. Gigantic, multinational corporations (and small, private firms as well) would pay their taxes--a fraction of 1% of their registered capital--to Zug; the citizens would benefit by significantly lowered taxes of their own, and the infrastructure of the town and its environs would remain virtually unchanged. Most of the 10,000 foreign firms that are today listed in Zug exist in boxes smaller than a case of Dom Perignon.

And so Zug, conjuring money out of thin air, prospered. The millions and millions of Swiss francs that flow in from companies registered with names such as Gnomes Securities Workshops Ltd., Savoir Vivre Ltd., and variations on the theme of Prudential-Bache Securities and Salomon Brothers, have changed the face of the once-shabby town.

The glittering nugget at the center of Zug is its handsomely and expensively restored Old Town at the edge of the lake. Period-perfect 15th- and 16th-Century houses, gabled and timbered, line this self-contained village’s two main streets, the Unteraltstadt and the Oberaltstadt (Lower Old Town and Upper Old Town), and surround the wide, cobbled passage known as Fischmarkt.

One particularly beautiful restoration is the early 16th-Century Rathaus, or Town Hall. Its Parliament Room features richly carved paneling in the late-Gothic style and a courtroom dominated by a massive 17th-Century ceramic stove, decorated with scenes from Greek mythology. At the harbor, near a turn-of-the-century aviary of parrots, a handful of lively cafes circles the broad, cobbled plaza. Known as Landsgemeindeplatz, it has been a gathering place since the 15th Century, when male citizens voted by raising their swords.

Quaint and pristine, the Old Town is as perfect as a movie set. Even the tall, beveled-in-stone letters identifying the imposing polizei station on the Kolinplatz gleam with fresh gilt.

Hovering high above Old Zug, and offering a quick, accessible escape from life in town, is the Zugerberg, a grassy, bucolic peak. The summit, 15 minutes straight up along the narrow Zugerbergstrasse, can also be reached by the little red funicular railway that makes frequent ascents throughout the day. Dominating the top of the Zugerberg is an exclusive private school, the Institut Montana, favored by the sons and daughters of foreign nationals working in the canton. Just a few yards away, on the other side of the funicular stop, is a simple, seasonal hotel and restaurant, the Hotel Zugerberg. Its terrace offers a panoramic view of Zug and the lake framed by mountains fading into the haze. Spreading out below the peak, like a lushly textured dirndl skirt, are broad, sloping acres of fertile farmland. Cherry orchards, high pasture and meadows full of wildflowers form a patchwork, laced through with well-marked walking paths from peak to base.

A popular refreshment stop for hikers, and a very pleasant spot for lunch or dinner when the weather is good, is the Blasenberg, a farm-restaurant with red-umbrella-topped tables on a stone patio outside and a rustic dining room within. Here, in a charming, terrace-roof farmhouse decked with flowers, chef Angelo Limacher prepares such honest country fare as platters of air-dried beef from the Grisons, salad plates of wurst and cheese in a mayonnaise dressing, wienerschnitzel and his specialty: free-range roast capons, prepared to order with a reservation 24 hours ahead.

Dotting the shores of Lake Zug, called the Zuger See locally, are small, pretty villages and hamlets that have become bedroom communities for executives working in Zug. In Cham (pronounced Hahm with a guttural first h ), on the west side of the lake, is the villa where the Nestle Corporation was born. (The giant food conglomerate began life in the mid-1800s as a condensed-milk factory founded by an American, George Page.) Cham is also noted for its beautiful shoreline park, often the setting for outdoor festivals and sculpture exhibitions, and for La Villette, a villa-restaurant now owned and operated by the town that takes full advantage of its wonderful lakeside setting. The reasonably priced food won’t be memorable, but the view across thick green lawns sweeping down to the water, where sailboats glide back and forth in front of an Alpine backdrop, will be.

The Zuger See landscape is rich with intriguing dwellings and old inns nestled under the tall firs. In Cham is the majestic St. Andreas castle, built in the early 14th Century. Further along the lake, in the hamlet of Buonas, is the Schlosshof Buonas, a castle built by the Knights of Buonas in the 11th Century. Also near Buonas is the spacious white house--owned by an aristocratic Englishwoman--where Margaret Thatcher frequently vacations. You may encounter the former prime minister if you stop in Buonas for a meal at the Gasthaus Wildenmann in the center of the hamlet. This atmospheric old tavern features grilled or roasted meats--appropriate fare at a restaurant whose sign depicts a wild man poised to club his dinner into submission.

With its storybook Old Town, the pastoral high country of the Zugerberg and the placid prettiness of the deep lake fed by Alpine streams, Zug would seem to be the poster-perfect stuff of a tourist’s dream. But as it happens, there are virtually no tourists in Zug. More than 90% of the visitors who pass through the city are here on business, and more than a few have very likely never seen the top of the Zugerberg, or even the oriel windows of the Old Town.

Zug today, in addition to being a tax haven to thousands of foreign firms-in-a-box, is the thriving base of hundreds of dynamic, on-site corporations, both domestic and international, all drawn by the variety of factors that make Zug a fiscal lure: the lowest taxes in Switzerland, a central location in Europe, proximity to Zurich and its international airport, the stability of the Swiss economy, the confidence inspired by Swiss banks and a very pleasant lifestyle.

The third smallest of Switzerland’s 26 cantons, Zug has the highest per capita income--about $58,000--in the confederation. Among American corporations with sales offices or subsidiaries here in the canton of Zug are Nutrasweet, 3M, Johnson & Johnson, Eastman Chemical and Hoover U.K.

Big business and foreign money have sparked the somewhat chaotic development of New Zug, a totally different, and significantly less charming, entity from Old Zug on the lake. Sprouting from the hills above the town, and rising from the sidewalks of the streets leading away from the railroad station, are clusters of mid-rise office buildings, apartment houses and shopping centers.

For the pioneer tourist to Zug, the town offers a good couple of days’ worth of quiet pleasure, away from the tour buses, the loudspeakers and the camera-slung hordes rampant in Switzerland’s more breathtaking destinations. With its travel trade geared to businessmen and women, however, the choice of hotels is less than exciting.

The best option is the City-Hotel Ochsen on the Kolinplatz in the Old Town. It’s a historic hostelry built in 1480 with a guest list that had included 19th-Century German poet Johann von Goethe; King Louis-Philippe, who abdicated his French throne in 1848, and Cardinal Borromeo, who visited Zug in 1570. The renovated lobby is a contemporary mix of copper, granite and terra cotta, while most of the 46 rooms are cloaked in a monastic palette of gray, brown and white. One recent guest described the decor as “luxury clinic,” but the rooms are not quite so antiseptic. The best room is No. 305, a large double with a little round breakfast alcove set within one of the building’s two oriel windows.

An alternative to the Ochsen is the Parkhotel, not far from the railroad station and the Metalli Center shopping arcade in the contemporary part of town. Sleek, bustling with business people, the Parkhotelhas a Hilton-esque, you-could-be-anywhere ambience designed to diminish culture shock in a foreign city.

For dining, there are several good restaurants in Zug and its environs with Old World atmospheres or memorable views. “Fish from the lake” are on almost every menu: They include felchen , a kind of whitefish; egli , or perch, and the Lake Zug specialty, rotel , a trout. The most acclaimed kitchens in town belong to the Rathauskeller (closed for renovation until August), the Aklin, the Hecht and the dining room of the Ochsen, all in the Old Town, and the Rosenberg, a hotel-restaurant high above town on the Zugerberg, with a terrace overlooking the lake.

For a light lunch or dinner there is the Fischmarkt, a popular little bistro run by the owners of the Aklin. You can get a generous ham-and-cheese sandwich on a baguette, pasta and salads, or daily specials of veal, chicken or lake fish.

At least one meal in Zug should end with the region’s most ubiquitous dessert--the famous Zuger kirschtorte , a heady, moist, cake-and-cream confection that makes ample use of the cherry eau-de-vie called kirschwasser distilled in town from the local cherries. (Many aficionados believe that the kirsch of Zug, powerful, pure and intensely fragrant, is the best in the world.) At Christmastime the Zug post office is kept busy sending out the 35,000 kirschtorte that have been mail-ordered from around the globe.

Visiting the shops and sights of the Old Town will take up the better part of a day. The Museum in Der Burg--with its collection of local art, history and culture--is a large and impressively restored 12th-Century castle usually empty of people but full of well-displayed prehistoric relics, religious art of the 15th and 16th centuries, traditional handicrafts, furniture, clocks, costumes, armor and weapons. Nearby is the handsome Kunsthaus Museum where six to eight temporary exhibitions a year feature 20th-Century art.

You can take a private peek at the inner workings of the Zytturm, the 15th-Century clock tower rising from the ancient town wall, by requesting the key at the police station. On one landing of the tower are two small wooden cages once used, in a less humanitarian age, as jails; on another landing are the exposed movements of the astronomical clock.

Down at the harbor, a short walk from the Landsgemeindeplatz, three excursion boats--the MS Zug, the MS Schwyz and the MS Reje-- depart mornings and afternoons for cruises that crisscross the lake, making two brief stops at each coastal village. On a warm, sunny day the trip is a nice way to improve your tan, but the three-hour ride begins to drag after the first 80 minutes or so. Rather than staying on the boat the whole time, disembark at the little port of Immensee, have a dessert or a coffee or a tall, cool drink on the terrace of one of the harbor-side restaurants, and pick up the boat again as it circles back about an hour later.

Zug by day is percolating with activity and deals; Zug by night is not. After dark, this is a very quiet town. Most Zugers prefer to spend evenings at home with friends or family, going out only when there’s a particularly intriguing performance at the lakeside Theatre Casino, a colonnaded pink-and-white edifice built in 1909. In season, between September and June, a wide variety of cultural offerings light up the hall.

The eclectic, worldly roster of performances, which also include opera and symphony orchestras, appeals to a sophisticated audience largely comprised of what local residents call “yoopies.” This ever-growing segment of the population is generously augmented by young executives and their families from other European countries and the United States. Zug, old as it is and provincial as it was, is now a cosmopolitan “yoopie” town full of youth, optimism and a distinct sense of well-being. The money, so many dollars, yen, pounds, pesos, marks, francs, riyals and dinars melted into one pot, helps.

The spirit of Zug, and the Zugers, has grown open and friendly, unafraid of the new, the foreign, the different. In a country noted for its insularity and its cool reserve, Zug is a deep pocket of warmth.

GUIDEBOOK: Discovering Zug

Getting there: Swissair flies nonstop from LAX to Zurich; lowest round-trip restricted fare $1,009 weekdays, $1,069 Friday-Sunday; fares higher June through August.

Where to stay: City-Hotel Ochsen, Kolinplatz, CH-6300 Zug, Switzerland; rooms about $170 per person, double occupancy; from the U.S., telephone 011-41-4221-3232, fax 011-41-4221-3032. Parkhotel, Industriestrasse 14, CH-6300 Zug; per person, double occupancy about $195, suites about $250; tel. 011-41-42-22-6611; fax 011-41-42-21-3929.

Where to eat: Aklin, Am Zytturm; closed Sundays, Mondays and three weeks mid-July to early August; local tel. 21-18-66. Blasenberg, Blasenbergstrasse; closed Tuesdays and Wednesdays; tel. 21-05-44. Golden Dragon, Unteraltstadt 12; tel. 21-20-10. Hecht, Fischmarkt 2; closed Thursdays; tel. 21-01-93. Rathauskeller, Oberaltstadt 1 (closed until August for renovations); tel. 21-00-58. Rosenberg, Rosenbergstrasse 32; closed Saturdays, Sundays and three weeks late July to mid-August; tel. 21-71-71.

For more information: Swiss National Tourist Office, 222 N. Sepulveda Blvd., Suite 1570, El Segundo 90245; tel. (310) 335-5980. Zug Tourist Office, Bahnhofstrasse 23, 6300 Zug; Switzerland; tel. 011-41-42-21-0078, fax 011-41-42-23-1823.