Switzerland, renowned for its economic stability, stunning landscapes, excellent healthcare and education options, and its safe and discreet environment stands as an attractive destination for those seeking an exceptional quality of life. The allure of the Swiss lifestyle has captivated retirees, investors, and individuals with substantial wealth, thanks to the innovative lump-sum taxation system, also known as the “forfait fiscal” or “Pauschalbesteuerung,” available to resident non-Swiss nationals not engaged in gainful activity in Switzerland. This unique approach calculates tax liability based on living expenses rather than global income, offering predictability and advantageous tax frameworks that enhance the appeal of relocation.
A focus on financial self-suffiency
At the core of the lump-sum taxation system is its focus on financial self-sufficiency, free from Swiss employment or social welfare ties. Switzerland’s lump-sum taxation system provides a clear and straightforward taxation framework, making it an optimal choice for those seeking to safeguard and optimize their wealth while embracing the Swiss way of life. Participating in residency in Switzerland under lump-sum taxation provisions may potentially also pave the way for obtaining Swiss citizenship later on.
Eligibility for the lump-sum taxation system varies across the cantons that offer the program, providing flexibility in the relocation process. Cantons may have specific criteria for financial self-sufficiency, requiring potential residents to explore options and select a location that aligns with their needs.
Zug, Schwyz, Geneva, Vaud, Valais, Nidwalden, and Ticino, are popular choices for foreign nationals seeking the lump-sum tax arrangement due to their relatively lower tax burdens and favorable living conditions. The cantons of Appenzell Ausserrhoden, Basel-Landschaft, Basel-Stadt, Schaffhausen, and Zurich do not offer lump-sum taxation.
Eligibility criteria
- No Swiss citizenship
- First-time residence in Switzerland or after an absence of at least ten years
- No gainful activity in Switzerland. Any professional activity needs to be physically performed abroad. Private management of one’s own personal wealth is permitted
- Married couples must both fulfill these requirements. If only one party qualifies, then the other will be recognized as a tax resident and be subject to income tax.
Calculation of the tax base
The taxable income is determined on the basis of the total annual living expenses or of a multiple (7x) of the annual rental costs of the taxpayer and his dependents. For federal tax purposes the minimum taxable income must be at least CHF 400’000. For cantonal tax purposes the tax base may be lower in some instances. The determination of the tax assessment base and the corresponding tax burden can be negotiated and is generally subject to a case-by-case ruling by the competent tax authorities in each canton.
Annual living expenses include
- Food and clothing
- Housing
- Personal staff
- Education and culture
- Traveling and vacation
- Health care
- Costs of vehicles (cars, boats, planes etc.) or animals (e.g. horses)
- Foreign taxes
- Other costs
Control calculation
Swiss laws require that the taxable income based on the annual expenditures be at least as high as the sum of the individual’s Swiss-sourced income. For this purpose, a parallel “Control Calculation” is made. The Control Calculation especially includes income from Swiss real property and from other assets located in Switzerland (including financial assets), Swiss intellectual property and Swiss pensions. Foreign-sourced income for which benefits from Swiss double tax treaties were requested is also included.
If the income under the Control calculation is higher than the lump sum determined based on the annual expenditures, the former will be the basis for the income tax.
In Switzerland, there is no capital gains tax on privately held shares or other securities. Therefore, as an example, a gain (or a loss) derived from the sale of shares in a Swiss or foreign company is tax-free and not relevant for the Control Calculation.
Capital gains derived from the sale of Swiss real property will however be subject to taxation.
Determination of the wealth tax base
In addition to income tax at a federal and cantonal level, cantons also levy wealth tax. The wealth assessment is subject to cantonal law and is mostly a multiple of the tax basis used for income tax. The assessed wealth is subject to the ordinary wealth tax rates. A control calculation is also required for wealth tax purposes. Relevant are Swiss assets such as Swiss real estate and shares issued by Swiss companies.
Immigration aspects
The conditions for non-EU/EFTA nationals are frequently more restrictive than for EU/EFTA nationals. The tax authorities expect higher tax revenues from non-EU/EFTA nationals in order to satisfy an “economic or fiscal interest”. Based on an economic or fiscal interest, immigration authorities will deliver the relevant immigration permits. For this very reason, lump sum taxation has always also been a popular immigration planning tool for citizens from countries that would otherwise need to observe stricter immigration rules into Switzerland (“third country nationals”).
1
Choose a canton of residence
2
Provide the required information to the cantonal tax authorities regarding:
- Personal and family situation (sometimes required: extract from police records at current domicile)
- Financial information: types of income, movable and immovable property, trusts, wealth structures, worldwide costs of living, etc.
- Written and signed confirmation:
- that the applicant has never been a Swiss tax resident so far;
- that he or she will not be carrying out any professional activity in Switzerland; and
- that he or she is not a Swiss national
3
Submission of a tax ruling request determining the taxable income and taxable wealth (it usually takes about approximately three to four weeks until it is granted)
4
After ruling approval, submission of immigration permit request with immigration authorities (duration of approximately one month)
Alpen Partners: Facilitating Swiss residency for global clients
Alpen Partners has a dedicated team specializing in Citizenship and Residence Planning, leveraging extensive expertise in advising global clients on Swiss lump-sum taxation options.
Our internationally-experienced professionals meticulously analyze individual circumstances to develop a tailored solution for optimizing tax perspectives.
With our long-standing connections, we can craft attractive and effective measures to address the unique needs and goals of our international clients including finding a suitable home, schools, and other relocation services.
Before relocating to Switzerland and adopting the lump-sum taxation system, it is crucial to conduct a thorough examination of your wealth and wealth planning structures. This presents an opportune time to reassess your overarching wealth planning strategy.
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