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Brexit, Pandemic, lock-down, wars, terrorist attack, failure of the Health system, climate change, politic instability, extremism, sudden change of legislation…
Current days are quite dark, this is a given. On top, it is no more a succession of crisis, but rather crisis adding to each other, at a faster pace than ever. What could be seen as solid and stable can very quickly become shaky and dangerous. In the middle of this ever-changing environment, there is one country that emerges like a rock mountain: Switzerland.
During those agitated times, we have seen a large increase in the number of people wanting to relocate to Switzerland. This article intends to provide you with some insights on Switzerland in general and on taxes and immigration in particular.
Switzerland in general
In all published rankings on worldwide competitiveness, Switzerland is usually ranked between places 1-3 and one of the main reasons for this success is Switzerland’s stability:
- Politics:
- Switzerland does not have one President that is right or left but 7 Presidents which do represent all political trends of Switzerland. Thus, every decision is a consensus that is peacefully accepted by the Swiss people, especially considering that in the democratic Switzerland, Swiss people can request a vote on almost every decision taken by the Government. Thus, legislation changes are slow, moderate and always a compromise. As an example, the abolition of the special corporate tax regimes largely criticized by the European Union and OECD took about 13 years to be implemented (from 2007 to 2020).
- Currency:
- Swiss currency has always been a refuge and considered as the most secured currency in the world in agitated times. Thus, those who invested into Swiss francs did realize strong results over the last few years. For example, the dollar was 2 to 1 in early 2000. Now it is 0.9 to 1. The GBP was almost 3 to 1 in early 2000, now around 1.15. Similar for the EUR, close to 2 to 1 when it was first listed, now almost 1 to 1. As an example, a British citizen who wanted to purchase a nice Chalet of approx. CHF 1Mio in 2000 had to spend about GBP 500’000. Now it is almost GBP 870’000…
- Security:
- One shall never say never but so far and because Switzerland is neutral and is involved in many mediations in international conflicts, there has been no terrorist attacks so far in Switzerland and at least Switzerland is not in the first line of potential targets for terrorists. Swiss people are calm and reasonable and rarely demonstrate or strike. You can never avoid stupid behaviors, but violence and criminal records are quite low in international comparison.
- Health system:
- Switzerland has one of the best Health system, medical equipment, hospital network and Health specialists in the world. Health coverage is mandatory for every Swiss resident. There is a wide range of choice between basic to full private coverage. Public coverage gives access to the best Health treatment, just like the private, without prejudice of patient treatment. Only the comfort and level of extra treatment included may differ between a private and a public coverage.
- Quality of life:
- Switzerland is seen as a quite, small country with big pieces of land and mountains very close for hiking and skiing. This small country has the denser railway network of the world and is largely connected to other destinations with three international airports in Geneva, Zurich and Basel. Swiss people are usually seen as calm, quite and respectful of the others. The quality of building is at a very high standard with very robust and state of the art architects and designs. Weather is quite stable from one year to the other, with 4 well differentiated seasons. There is hardly snow in the valleys in winter, it happens only once in a while during the winter. In the valleys, temperatures usually vary between 5 to 10 degrees. In the mountains, it can go much lower. In Spring, temperatures do vary from one region to the other, but it is usually largely sunny with a range of 10 to 20 degrees. In Summer, especially following the global climate change, there is usually a bright sun with temperatures between 25 to 35 degrees. October is a nice season with beautiful colors around the forests, nice periods of sun and temperatures around 15 degrees. Switzerland valleys are around 300 to 400 meters above see. Mountains can go up to 4’000 meters.
And for all those reasons, yes, it is expensive
What about taxes?
Switzerland is often seen as a tax heaven. This is not quite true. If Swiss and cantonal governments are usually very open in welcoming foreign entities for implementation of operations in Switzerland with temporary tax holidays, it goes a bit differently for individuals.
Switzerland is divided into 26 cantons, themselves divided into smaller locations (municipalities). Those regions are largely autonomous in deciding their applicable tax rate. Thus, there is a large competition between cantons and smaller cantons with little infrastructure usually have lower tax rates than cantons with big cities and significant infrastructures such as roads, universities, hospitals, etc. On that basis, we can only say at this stage that the income and wealth tax rates largely vary over Switzerland and strongly depends on the place of location. As a general rule, we can say that maximal rates do vary between 25% and 45% for income tax and 0.2% to 1% for wealth tax. 45% of tax may sound as high as in other countries. The significant difference is that all rates in Switzerland are progressive and depend on the level of income and wealth. In addition, the maximal tax rate is usually reached at high level of net income and net wealth, i.e. usually at CHF 1+Mio of taxable income and around CHF 5+Mio of net wealth. Again, those numbers are only to provide you with an idea of how the Swiss tax system works as for instance if one pays almost 1% of wealth tax in one canton, he may well pay only half of it just a few minutes away…
For an individual, there are two possible tax regimes applicable:
- Lump-sum tax regime
- The lump-sum tax regime is limited to individuals who do not have the Swiss citizenship and who have not been taxed under the ordinary regime in Switzerland for the last 10 years. Persons under that regime are also prohibited to have a paid activity (independent, employment, BoD, etc.) in Switzerland. Foreign activities are possible.
The basic concept is that the individual taxed under that regime should pay its taxes on an amount which shall correspond to his living expenses in Switzerland. Most of the cantons do offer the possibility to be taxed at this regime but not all. They also have largely different practices in terms of defining the applicable lump-sum. Thus, the lump-sum basis can significantly vary from one place to another, on top of the applicable tax rate to that lump-sum. In conclusion, you might not escape the support of a tax specialist in finding the most suitable place depending on your situation, shall you be interested by this regime. As a general rule, with some local exceptions, the minimal amount of the lump-sum is of CHF 400’000. On this amount, the individual is going to pay income tax. No wealth tax is due under the lump-sum regime. As an example, assuming a tax rate of 30%, this means an annual tax burden of CHF 120’000 flat, irrelevant of foreign income.
Special inheritance tax rules do apply for people taxed under the lump-sum regime. In some cases, they are more favorable than the ordinary regime but there are some cantons in which they are less favorable. In most of the cantons, there is no inheritance or gift tax for heirs in the direct line.
- The lump-sum tax regime is limited to individuals who do not have the Swiss citizenship and who have not been taxed under the ordinary regime in Switzerland for the last 10 years. Persons under that regime are also prohibited to have a paid activity (independent, employment, BoD, etc.) in Switzerland. Foreign activities are possible.
- Ordinary tax regime
- Ordinary tax regime is applicable to all individuals who relocate to Switzerland. While the tax at source regime may be applicable for some employees, without the obligation to file a tax return in some specific situations, an individual relocating to Switzerland is expected to file a tax return every year. The taxation rules are that a Swiss resident is taxed on his worldwide income and wealth, except on foreign properties and income and wealth excluded from Swiss taxation by virtue of a double tax treaty. Even if income and assets are excluded from Swiss taxation, they have to be declared for tax rate purposes. Indeed, tax rates are progressive, and one is always taxed at the rate corresponding to his worldwide income and wealth.
Special rules do apply for the withdrawal of pension assets, for the taxation of dividends and some other income such as insurance income. - One very important point is to keep in mind that Switzerland does not tax capital gains, with some exceptions that can be properly monitored in advance. Thus, many people do also come to Switzerland before the sale of significant investments.
Inheritance and gift tax is a cantonal competency only and thus, rules are very different from one canton to the other. While some cantons still do levy some tax in case of inheritance, most of them have simply abolished it between direct heirs and some have simply abolished the tax. Even if a tax is due, in international comparison it stays very moderate. Please note that there are only a limited number of international treaties regarding inheritance tax. Thus, a proper tax planning with an international network such as RSM is key.
- Ordinary tax regime is applicable to all individuals who relocate to Switzerland. While the tax at source regime may be applicable for some employees, without the obligation to file a tax return in some specific situations, an individual relocating to Switzerland is expected to file a tax return every year. The taxation rules are that a Swiss resident is taxed on his worldwide income and wealth, except on foreign properties and income and wealth excluded from Swiss taxation by virtue of a double tax treaty. Even if income and assets are excluded from Swiss taxation, they have to be declared for tax rate purposes. Indeed, tax rates are progressive, and one is always taxed at the rate corresponding to his worldwide income and wealth.
- Key tax questions
- We have a large practice in helping individuals to relocate to Switzerland. Based on our experience, we would like to share with you a couple of points of attention that we frequently deal with when one is looking for Swiss relocation:
- Lump-sum or ordinary regime: the answer depends mainly on the following questions: income or wealth? If income, foreign or Swiss source? If wealth, where is it located and what kind of assets? What are the level of income and wealth? And finally, where to relocate in Switzerland? Inheritance tax planning may also be part of the analysis. With all those parameters, we are then able to quickly let you know whether lump-sum could be interesting for you or not and if yes, then we can issue a comprehensive summary of pros and cons and a comparison of potential interesting places.
- Pension assets: Switzerland has an attractive taxation of pension assets if they are withdrawn in a form of a one-time payment. However, local legislation, Swiss legislation and double tax treaty have to be analyzed together in order to determine the best timing (before or after the move) and best way (regular pension payment or one time payment or transfer to a vested benefit account or to a trust, etc) to deal with those pension assets. The tax savings can be significant compared to an improper planning. With our presence in 120 countries, we have an easy access to qualified consultant to be able to provide global advice to this question.
- Trusts: Many people organize their assets and inheritance through the set-up of trusts. Switzerland does not have a trust legislation but do recognize the effects of the trust deed. It is key to mention that Swiss tax authority will analyze the deed of the trust to qualify it as a discretionary, revocable or fixed interest trust and not refer simply to the name of the trust. Thus, what may be recognized as a discretionary trust in one country could be treated as a revocable trust by Swiss authorities, leading not only to adverse tax consequences but also to improper inheritance planning. Thus, it is key to look at trust or family foundation set-up before the move to Switzerland.
- Gifts/inheritance: it is always important to compare local rules to Swiss rules before the move as it may be more beneficial to do gifts and arrange inheritance rules before or after the move, depending on the case. Thus, proper planning is also key in this area.
- We have a large practice in helping individuals to relocate to Switzerland. Based on our experience, we would like to share with you a couple of points of attention that we frequently deal with when one is looking for Swiss relocation:
Immigration
To reside and/or work in Switzerland, immigration rules are the following:
- For Swiss citizens: no limitation at all
- For EU nationals: the rules are quite similar as for Swiss citizens (freedom of establishment), but a request must be filed to get the authorization to stay and work. It is quite straight forward for people coming to Switzerland as employees. For those immigrating without being employed by a Swiss employer, they have to prove that they have sufficient income or assets to live without falling into the Swiss social security system.
- For non-EU nationals: there is a limitation on the number of permits granted every year to those people (quotas). Depending on the situation, it can be quite challenging. Other than this, the rules are similar as for EU nationals and for those who do not come to Switzerland under an employment agreement, they must demonstrate that they have sufficient income or assets.
Conclusion
Those are the main points of attention we often see in our practice. However, there are many others to consider when moving to Switzerland, such as VAT, custom duties, currency exchange, bank relationships, property acquisition, etc etc.
Our private client service team is able to assist you with your project of relocation from start to finish.
Please don’t hesitate to contact us for any questions you may have on this topic.
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