Lump-sum taxation in Switzerland: prerequisites for “expenditure-based taxation”
What conditions you need to meet, and how your lump-sum tax is determined
Most Swiss cantons offer high-net-worth foreigners the possibility of being taxed on a lump-sum basis. If you choose this option, you do not have to disclose your entire income and assets, and you will often be better off in terms of taxation. But what does “high-net-worth” mean in practical terms? And can the amount of your lump-sum taxes be estimated in advance?
Normally, the amount you pay in Swiss taxes depends on two factors: your net income and your net assets. You declare both of these in your tax declaration and then receive a tax bill. However, for wealthy foreigners a special arrangement exists: the lump-sum tax.
If you can take advantage of this possibility, you will pay income tax based on a lump sum (forfait). Then, to determine the value of your net wealth, which serves as the basis for the wealth tax to be paid, the lump sum is simply subject to a multiplier.
“The threshold for this privilege is if you have a tax bill of around 150,000 francs.”
To benefit from this option, you must meet these three conditions
- You are moving to Switzerland for the first time, or are moving back after an absence of at least ten years.
- You do not perform a gainful activity in Switzerland.
- You are not resident in the cantons of Appenzell Ausserrhoden, Basel-Landschaft, Basel-Stadt, Schaffhausen, or Zurich. In all the rest of Switzerland, however, lump-sum taxation is still possible.
What are the advantages of lump-sum taxation?
First and foremost, this arrangement can be more favorable to you from a tax point of view. Another important advantage is that you are not required to disclose all your worldwide assets and income to the Swiss tax authorities.
Instead, it is sufficient to provide certain information once a year in the so-called “control calculation.” In this document, you must disclose in general any Swiss income as well as all assets located in Switzerland. This includes, for example, income from Swiss residential property, Swiss securities (shares, bonds, funds, etc.), but also bank account balances and physical gold held in Switzerland as per the end of the year.
How do I calculate the amount of the lump-sum tax?
The process is very clear. You simply need to determine, and then compare, four figures. The amount of the lump-sum payment you will make is assessed based on whichever of the following four figures is the highest:
- Your family’s annual and worldwide living expenses.
- Your annual housing costs, multiplied times seven.
- A minimum amount for a lump-sum payment, as specified by your canton of residence.
- Your income from Swiss sources, which you disclose in the control calculation.
The lump sum determined by this comparison is initially the basis for the income tax to be paid. Second, it serves as well as the basis for determining the value of your taxable wealth. Generally this amount is multiplied by a factor of 20.
LUMP SUM 1 LUMP SUM 2 LUMP SUM 3 LUMP SUM 4 Annual living expenses of your entire family Annual housing costs, times seven Minimum amount as per your canton of residence Income from Swiss sources
7 × 60,000 =
Relevant lump sum
In this example, the minimum amount set by the canton (lump sum 3) is the highest of the four values.
- Accordingly, your taxable income would be defined as CHF 500,000
- and your projected taxable wealth at 20 × CHF 500,000 = CHF 10 million.
For whom is lump-sum taxation worthwhile?
The “entry ticket” for this privilege begins with a tax burden of CHF 150,000. In order for lump-sum taxation to be attractive to you, you should have a taxable wealth of at least CHF 20 million.
FAQ: Things worth knowing about lump-sum taxation
Reclaiming withholding tax
If you arrange for lump-sum taxation in Switzerland, you can only reclaim foreign withholding tax under specific conditions. However, this is possible without any problems in the case of Swiss withholding tax.
Trusts and foundations
Are you a settlor or a beneficiary of a trust or foundation, or in control of a similar structure? In this case, you should consult a Swiss tax specialist. As a rule, at the beginning of any negotiations the tax authorities will want to know the approximate value and allocation of your worldwide net assets.
The “control calculation”
By taking advantage of forward-looking asset allocation, it is often possible to prevent this amount from being too high. This means that, to a certain extent, you can influence how high your lump-sum taxation will be.
Social security contributions
Until you reach retirement age, additional social security contributions of CHF 25,000 per year are due for each spouse. These function like a tax, so don't forget to factor them in.
Tax advice in context
If you are not familiar with the jungle of tax regulations, it is easy to fall into a tax trap. After all, not every taxpayer is able to keep abreast of possible “knowledge advantages” by being in direct contact with the tax authorities. Our experienced tax experts are able to negotiate Swiss tax issues of all kinds on an equal footing with the authorities and, where necessary, obtain binding tax rulings on your behalf.
Contact us, without obligation, to analyze your tax situation with our experts.