Lump-Sum Taxation Regime for Individuals in Switzerland By end of 2014, Swiss voters decided by a clear majority to maintain the lump-sum taxation regime. At federal level the requirements to qualify for being taxed under the lump-sum regime will be slightly amended. Cantonal regulations also consider adjustments to ensure an attractive and pragmatic lump-sum taxation regime for selected individual tax payers.

Background is then subject to ordinary tax rates the Lump-sum taxation are Schwyz, Under the lump-sum tax regime, applicable at the place of residence. As Zug, Vaud, Grisons, Lucerne and Valais. foreign nationals taking residence a consequence, it is not necessary to In autumn 2012, more stringent rules in Switzerland who do not engage in report effective earnings and wealth. to tighten the lump-sum taxation were gainful employment in Switzerland may The lump-sum taxation regime may be approved by the Swiss parliament to choose to pay an expense-based tax attractive to wealthy foreigners given strengthen its acceptance. The revised instead of ordinary income and wealth the fact that the ordinary tax rates only legislation will be effective on federal tax. Typically, the annual living expenses apply to a portion of the taxpayer’s and cantonal level as of 1 January 2016. of the tax payer and his family, which worldwide income and assets. are considered to be the tax base, are Current legislation and rulings in disclosed and agreed on in a ruling Over the last years this taxation regime place continue to be applicable for a signed and confirmed by the competent has come under some pressure in transitional period of five years from cantonal tax authority prior to relocating Switzerland. In a few cantons it has 1 January 2016 for individuals taxed to Switzerland. Once the tax base has been abolished on cantonal level. under the current lump-sum taxation been determined and confirmed, it Attractive cantons remaining to offer regime. Requirements According to the revised regulations, foreigners can opt for the taxation based on their living expenses provided the following criteria are cumulatively met: 1. No Swiss citizenship. 2. Being subject to unlimited Swiss taxation for the first time or after an absence of at least ten years. 3. No gainful employment in Switzerland.

No Swiss citizenship social security system and have to pay cantonal and communal income and According to the revised regulations, social security contributions. wealth taxes. For income tax purposes only non Swiss nationals are granted typically the same criteria as for federal the opportunity to opt for the lump-sum Individuals being taxed under the lump- taxes apply, as such in many cases CHF taxation if they meet all other criteria. sum taxation regime who have not 400’000 will be the tax base. Swiss nationals as well as individuals reached the ordinary pension age, have with a double citizenship (one of them to pay social security contributions as In many cantons, the assessment base Swiss) are not allowed to opt for the not employed persons. In most cantons for wealth tax purposes amounts to at taxation based on their living expenses. the calculation of the contributions least twenty times the deemed taxable is based on the final tax assessment. income. Swiss tax residency The maximum contribution amounts to Only individuals being subject to CHF 24’100.– per year. If both spouses The individual tax assessment base is unlimited Swiss taxation for the first time have not reached the ordinary pension subject to standard tax rates applicable or after an absence from Switzerland age, the annual contributions of both in the canton of residence. of at least 10 years are entitled for the together amount up to CHF 48’200.–. lump-sum taxation. In cases, in which In case a gainful activity is performed Control calculation someone originally moved to a canton abroad it might be possible to apply for The assessment base according to in which the lump-sum taxation regime an exemption from the obligation to pay the before explained methods is then is not in force, it is still possible for the Swiss social security contributions. subject to a control calculation: the tax individual to move to another canton amount agreed on must must be at least that acknowledges the special tax Determination of the tax base equivalent to the taxpayer’s ordinary regime and to opt for the taxation based As of 1 January 2016, the tax base for the taxes payable on: on the living expenses. This applies, lump-sum taxation is generally calculated • Swiss-source income (mainly from however, only for individuals who meet based on the annual living expenses Swiss real estate, securities issued by all the above mentioned requirements incurred by the taxpayer and his family Swiss entities, Swiss-source pensions as of the moving date to Switzerland. (spouse and dependent children) in or royalties) and Switzerland and abroad. The worldwide • foreign income for which the benefits No gainful activity in Switzerland living expenses which are treated as of a double tax treaty are claimed The lump-sum taxation regime is only taxable income are housing costs (for specific jurisdictions all income available to foreign nationals who do (including heating, cleaning, garden from the respective country for which not perform any gainful, professional maintenance), costs of clothing and food, benefits of the applicable double tax or commercial activity in Switzerland. schooling for children, leisure time costs treaty are claimed have to be taken Gainful activities carried out outside of (expenses for hobbies, sport activities into consideration) Swiss territory are not affected by this and holiday), cars, boats, yachts and all requirement. other expenses linked to living costs. To sum it up: Under the revised legislation, at federal and cantonal level Married applicants must both meet the At federal level, the total amount of the minimum tax base will correspond above mentioned three criteria for lump- annual living expenses as determined to the higher of the following amounts: sum taxation. above must amount to at least seven worldwide living expenses, the minimum times the annual rental expenses or income of CHF 400’000, seven times the Residence Permit rental value of the taxpayer’s principal housing costs or the total gross income Wealthy foreigners qualifying for being residence in Switzerland. In addition, from Swiss sources according to the taxed under the lump-sum taxation a minimum taxable income of CHF control calculation. regime are generally granted the 400’000 will be deemed to apply for the residence permit B. calculation of federal income tax.

Social security contributions The cantons are required to define at Generally, individuals living or working their own discretion a minimum threshold in Switzerland are subject to the Swiss as well, taking into account both How can Grant Thornton help? Grant Thornton is experienced in advising international clients with complex structures in all tax issues and especially with respect to the Swiss lump-sum taxation regime. We analyze your personal situation to determine the most suitable solution from a legal and tax point of view. Due to our good relationship with the different cantonal tax authorities we are able to optimize your individual tax situation under the amended lump- sum taxation regime.

Contact

Bernhard Lauri Certified Tax Expert Partner Tax Grant Thornton Advisory AG T +41 43 960 71 10 E [email protected]

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