Swiss Lump Sum Taxation And Residency Program : A Strategic Guide For Global Investors

Harvey Law Group is proud to assist clients relocate to Switzerland under the Swiss Lump Sum Tax framework.

The Swiss Lump Sum Taxation and Residency Program offers a strategic opportunity for wealthy individuals seeking to optimize personal wealth management, leveraging on Switzerland's robust and secure financial system; whilst enjoying Switzerland's exceptional living and education standards, stunning landscapes and services.

1. Advantages of Switzerland

Switzerland has once again ranked World No. 1 country, according to the 2024 U.S. News Best Countries Ranking, which evaluates various nations based on a wide range of criteria including economic influence, stability and innovation, quality of life, education and sustainability.

Switzerland occupies a very special place at the heart of Europe:

• Four languages are spoken in Switzerland: French, German, Italian, and Romansh.
• Key location: It borders France, Germany, Italy, Austria, and Liechtenstein.
• Incredibly safe: Ranked 6^th (out of 163) on the 2024 Global Peace Index
• Swiss residency gives visa exemption for travelling within the Schengen Area (90 days out of 180 days periods)

• Swiss residency gives access to high quality and free public education up to the age of 16 (and only modest fees would apply thereafter).
• Possibility to apply for permanent residency after 5 or 10 years (depending on nationality).
• Path to citizenship after 10 years.

Switzerland is also renowned for tax efficiency and financial privacy. The Swiss Lump Sum Taxation regime aligns with these principles, as it does not require detailed disclosure of worldwide income and assets.

2. Advantages of Switzerland Lump Sum Tax and Residency Program ?

The Swiss residency and tax program allows foreigners to take up residence in Switzerland and opt for pre-determined negotiated lump sum taxation based on annual living. This system is particularly attractive to individuals with significant income and assets outside Switzerland, as it offers certainty with a fixed annual tax amount agreed in advance and completely unrelated to overseas income.

Lump-sum taxation has been well and long established. It has its origins in the Canton of Vaud in 1862, was introduced in Geneva in 1928, existed at federal level since 1934, and was enshrined in the 1990 Federal Act on Direct Federal Taxation (DFTA).

Rules and rates vary from Canton to Canton. Five out of 26 Cantons have abolished the lump sum taxation (i.e. Zurich; Appenzell Ausserrhoden; Basel-Landschaft; Basel-Stadt and Schaffhausen). More recently, in 2014, the Swiss public was called to vote on an initiative to abolish lump-sum taxation – voters rejected the initiative by an astounding majority of almost 60% - demonstrating that Switzerland and its people continue to welcome foreigners opting for lump sum taxation with open arms.

3. Eligibility : Who can benefit from Switzerland's Lump Sum Tax and Residency Program ?

• The applicant should be at least 18 years old
• The applicant/spouse should have a clean criminal record
• The applicant/spouse must not have Swiss nationality
• The applicant/spouse must not have had a tax residence in the Switzerland for at least the last 10 years
• The applicant is not required to have any specific minimum level of education
• The applicant is not required to pass any language test

• The main applicant can include in their application their married spouse (same sex allowed) and unmarried children below 18 years old.
• Language requirements apply to dependents for family reunification: A1 oral level or proof of enrolment on a language course.

• Disqualifying factors: as noted above, criminal records; Swiss nationality or previous Swiss tax residency are disqualifying factors.

• Restrictions:
  • Physical residency requirement: Each person included in the application (main applicant and dependents) must spend at least over 6 months per year in the selected Canton
  • No right to engage in gainful employment within Switzerland

4. From Application to Approval: Navigating the Swiss Tax Residency Process

The process is two-fold, and normally takes 3 to 6 months to complete.

As far as possible, the goal is to negotiate both the decision on lump-sum taxation and the granting of the residence permit before any arrival in Switzerland. However, the cantons are competent for issuing permits and may require the applicant's presence is required in Switzerland at some point during the process on a case-by-case basis.

Immigration Part: Obtain a residency permit for main applicant, and for dependents based on family reunification process.

The granting of residence permits on the basis of family reunification is an administrative procedure that falls within the remit of the same administration that grants the permit for the main applicant. It is usually initiated at the Swiss embassy when a visa is required. Family reunification application is submitted at the same time as main applicant (but subject to main applicant's approval).

For family reunification, a distinction must be made between EU nationals, who can include children from a previous relationship (subject to the other parents' consent), and non-EU nationals for whom there is no such right but a discretionary assessment by the authorities instead.

Fiscal Part: Negotiate and agree the lump sum taxation with the Canton's fiscal authorities so that they confirm the "Fiscal Interest" as may be required to the Canton's immigration authorities before they agree to issue the residency permit. Obtain from the tax authorities a tax ruling that is conditional on obtaining a residence permit. Assessment of the lump sum taxation is on a case-by-case basis and subject to negotiations.

5. The Calculation Method: How Lump-Sum Taxation Is Determined in Practice

The tax rates applied to the taxable base depend on the selected Canton's ordinary tax rates (could vary from 22% to 45% or so).

Generally speaking, tax base is calculated on the taxpayer's expenditure. The total expenditures must not fall below the minimum levels set by federal and cantonal legislation:

• CHF 434,700;
• 7 times the annual rent of the applicant's principal residence in Switzerland (if renting);
• 7 times the annual rental value of the applicant's principal residence in Switzerland if the applicant own his place of residence; or
• the family's annual (worldwide) living expenses.

Under the regulations of the control calculation, the level of tax calculated according to the above principles should not be less than the amount of tax (wealth and income) calculated along the following criteria:

1. Real estate assets situated in Switzerland and revenues thereof;
2. Moveable objects situated in Switzerland and revenues thereof;
3. Movable capital situated in Switzerland including debts secured by the pledge of a property and the revenues thereof;
4. Copyrights, patents and similar rights being used in Switzerland and the revenues thereof;
5. Pensions and annuities from Swiss sources;
6. Revenues for which the taxpayer requires either temporary or full foreign tax relief under a double taxation treaty entered into by Switzerland.

The amount of tax calculated on expenditure and the amount resulting from the control calculation do not combine. Only the higher of the two amounts is due.

We recall that the information provided in this article is general and each situation should be carefully considered on a case-by-case basis, notably as each Canton enjoys a certain level of autonomy to set its own tax rates and rules. For instance, the Cantons of Vaud and Geneva are known for imposing higher thresholds and rates compared to other Cantons such as Zug.

A trusted adviser will help you navigate through the complexities to achieve your goals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.