|Lump sum taxation in Switzerland|
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Switzerland offers you the possibility of paying a fixed amount of taxes every
year. This amount is based on your rental payments (or the rental value of your
home), and has no relation to your real income or wealth. Actually, you are
not even asked to declare your income nor your assets.
|Swiss Lump Sum Tax Advantages|
- Immutable - every year you pay the same amount of tax (indexed for inflation)
- Confidential - you are not required to report your full assets or income. Even if you have investments in a Swiss bank, as a Swiss lump-sum resident, such investments are not taxable and you have no obligation to report them anywhere.
- Simple - gone are the 50 page tax returns, complex tax-planning structures or shaky offshore loopholes. You enter into a written agreement with the Swiss tax authorities, signed by both parties, and mutually agree on the amount of tax you'll pay from now on.
- Flexible - you can now decide how to invest your money without worrying about future tax implications. If at some point you want to give up lump-sum taxation, you are free at any time to choose the regular Swiss tax system.
- Peace of mind - we can often obtain a tax ruling before you come to Switzerland so you'll know exactly how much you will pay in taxes before moving. In a sense, this is like a rental agreement which you would sign before moving into your new home - Switzerland.
This fiscal arrangement is based on Switzerland's federal law and is thus
available everywhere in the country. It is called Forfait fiscal in
French, or Pauschalbesteuerung in German, which translates as "lump sum
taxation". You sometimes also hear the expressions fiscal deal or fiscal arrangement.
This fiscal arrangement is a famous specialty of the Swiss tax system and has
been used for decades by many foreigners, including many celebrities.
Who can benefit from lump-sum taxation?
You need to be a Swiss
resident with a B or C permit, to be retired and not to have
worked in Switzerland for the last 10 years. By retired is meant no
day-to-day professional activity. You can oversee your investments but you can
work neither in Switzerland nor abroad.
Many cantons have unofficial minimums for the taxable income (see
below) before they grant you a residence permit. However, if you are flexible on
the selection of the canton, this amount is rather reasonable. As a rule of
thumb you should have a taxable income of no less than 150,000 Swiss francs a year to be
eligible (equivalent to $134,000 or EUR 102,000 or £94,000).
How is the annual tax computed?
The tax is based on your
spending - not your income. In practice, your annual rent is taken as
an approximation of your spending. Your taxable income is equal to 5
times this annual rent. You then pay the normal tax rate for the city
and canton you live in.
| ||Rental example|
| Let's assume that you rent an
appartment for 3,000 Swiss Francs a month (equivalent to $2,700 or EUR 2,000 or £1,900). That makes an annual rent of 3000x12 = CHF 36'000. Your taxable income will be 5 times
your annual rent, that is 36000x5 = CHF 180,000. Your annual tax bill would be in this case of approximately 180,000x30%, that is 54,000 Swiss Francs a year. Please consider that Swiss cantons want to have some real tax income and won't agree to a taxable income of less than 150,000 Swiss francs no matter how little you pay for your flat. |
| ||House purchase example|
| Suppose you choose instead to buy a house for 3,000,000 Swiss francs (equivalent to $2,687,000 or EUR 2,043,000 or £1,881,000). We will
first have to compute the rental value of your house, which is done with a variable capitalization rate. In this case we need to use 2.5%, subject to negociation. This makes for an annual rental value of 2.5% x 3,000,000 = 75,000 CHF. Your taxable income will then be 5x75,000=375,000 Swiss francs. Your annual tax bill, taking an estimated 30% tax rate, would be
approximately 112,500 Swiss francs a year (equivalent to $101,000 or EUR 77,000 or £71,000). The capitalization rate used decreases as the house increases in value. |
Please note that your overall tax rate depends on your city and canton, and
that there are great variations between cantons and sometimes cities.
There are several peculiarities when computing the overall tax bill,
especially if you own many Swiss assets or if you want to use the Swiss double
tax treaties to get back taxes paid abroad.
Micheloud & Co. specializes in helping foreigners to become Swiss
residents. A majority of our client choose the fiscal deal for its reasonable
cost and the privacy it offers. As part of our service we compute the exact tax
which you will owe in different areas, negotiate the taxable income with the authorities and help you get the residence