Taking up residence in Switzerland

The lure of Switzerland is often associated with breathtaking scenery and an enviable quality of life, however the tax advantages afforded by the lump sum taxation regime are an even more significant lure for wealthy non-Swiss individuals seeking alternative residence arrangements.

What is Lump Sum Taxation?

The Swiss lump sum taxation regime offers high net worth individuals the possibility to be taxed on their income and wealth on a fixed annual lump-sum basis obviating the need to report their actual worldwide income and wealth, unless the taxpayer voluntarily seeks treaty relief under a double tax treaty with Switzerland. 

Pauschalbesteuerung in German / forfait in French.

What Criteria needs to be met?

The foreigner looking to benefit from the lump sum taxation regime must not have been resident in Switzerland at any time in the preceding 10 years and is forbidden from being employed, or even self-employed in Switzerland.

• Foreigners can claim lump sum taxation for an indefinite period when moving to Switzerland.
• Each individual has to apply for a Swiss residence permit.
• Since the Agreement on the Free Movement of Persons between Switzerland and the EU took effect on 1st June 2002, residence permits are granted to all EU nationals who do not intend to work in Switzerland. There is moreover no age limit for EU nationals.
• Non-EU individuals have to be over the age of 55 years, and may take up residence in Switzerland if they have sufficient means to support themselves financially and also have close personal ties with the country.
• A suitable property, whether rented or purchased outright, has to be found.

Lump sum taxation seeks to establish taxable income by computing the foreigner`s annual cost of living expenses. As a minimum, the taxable income must correspond to five times either the actual annual rental payments or the imputed rent if the tax payer were to live in his/her own property.

The hypothetical income is negotiated up front with the tax authorities in whichever Canton / Commune the taxpayer wishes to become resident, and the tax rates applied will vary between the Cantons / Communes.

As far as wealth taxes are concerned, a hypothetical wealth tax base is calculated based on 5 times the annual rental value capitalized at 5%. There is no wealth tax at the federal level.

IFG does not provide taxation or legal advice. The information and expression of opinion expressed in this briefing note are not intended to be a comprehensive study or to provide taxation or legal advice. Specific advice concerning individual situations should be taken and IFG can provide introductions to advisers who specialise in this area.