Relocating to Switzerland – Lump-Sum Taxation Regime for Individuals

One of the benefits of relocating to Switzerland is the taxation regime. Foreign nationals who wish to reside in Switzerland may choose to pay an expense-based tax instead of ordinary income and wealth tax. This regime is called the lump-sum taxation regime. In this article I would like to provide insight into the key requirements and conditions for obtaining a lump-sum taxation in Switzerland.

CHOICE OF CANTON

Most of the 26 Cantons in Switzerland offer a lump-sum taxation for foreign nationals, with the exception of

Zurich
Basel Stadt
Basel Land
Schaffhausen
Appenzell Ausserrhoden

There are a number legal and economic requirements foreign nationals need to meet in order to be taxed according to living expenses instead of ordinary income and wealth. These requirements include:

• no Swiss citizenship and
• first-time legal residence for tax purposes in Switzerland and
• no employment or professional activity in Switzerland.

COMMENCEMENT AND DURATION OF THE SWISS LUMP-SUM TAXATION

Lump-sum taxation commences as soon as you establish your permanent legal residence in Switzerland.
The right expires once your permanent legal residence is no longer in Switzerland and the requirements listed under point 2 are no longer met.

ASSESSMENT BASIS

As of January 2016, the tax base for the lump-taxation is calculated based on the annual living expenses incurred by you and your family worldwide. These worldwide living expenses typically include accommodation (real estate) costs, schooling costs, leisure/hobby costs etc.

At the federal level, the total amount of all the above mentioned annual living expenses must amount to at least seven times the annual rental expenses or rental value of your principal residence in Switzerland. In addition, a minimum taxable income of CHF 400’000 will be deemed to apply for the calculation of federal income tax.

The canton of your choice, is also required to do its own calculation and may include certain thresholds, taking into account both cantonal and communal income and wealth taxes. Please be aware that these may vary significantly from canton to canton. Typically, for income tax purposes the same criteria as for federal taxes apply: CHF 400’000 will be the tax base.

In many cantons, the assessment base for wealth tax purposes, amounts to at least twenty times the deemed taxable income. The assessed wealth that is subject to taxation in Switzerland is taxed at the ordinary wealth tax rates. These wealth tax rates may vary significantly from canton to canton.

The Swiss tax authorities will then check this minimum basis (as described above) and they will compare it with revenue from Swiss sources. This procedure is called the “Control calculation”. Swiss sources include income from Swiss real estate, securities issued by Swiss companies and Swiss-source pensions or royaltie.

Considering the complicated nature of these calculations and the assessment itself, it is strongly advised that you involve a tax specialist