Service Swiss

A UK resident individual talks to the tax team at Sykes Anderson about relocating to Switzerland.

Please note this article is for general information only and does not constitute advice. Taxation is a complex subject and you should obtain advice specific to your circumstances. It does not constitute investment advice.

I want to move to Switzerland from the UK. How will I be taxed there?

There are two basis upon which you can be taxed. Firstly the “forfeit” basis and secondly the “normal” basis on which all Swiss nationals (except those who have been non resident for at least 10 years before returning to Switzerland) are taxed.

How does the forfeit basis work?

Your expenditure in Switzerland is calculated and the tax on the income you would need to support such a lifestyle is computed. The amount is negotiated with each canton.
The forfeit extends income tax and to wealth tax.  It is not limited in time as long as the conditions continue to be met (actual residency in Switzerland and no paid work in Switzerland).

How is the forfeit worked out?

They look at your income and cost of living.  The amount you are taxed on cannot be less than 1 ½ times your cost of living or 5 times the rental value of the property you rent or own.  No deductions are allowed from this amount.

What are the drawbacks to the forfeit basis?

You cannot work in Switzerland.  You can however work abroad.  If you become a Swiss national you will lose the right to be taxed on a forfeit basis.  You may fall outside the protection of Double Tax Treaties if you are taxed on the forfeit basis – this does not apply to the UK, but does apply to the US and France (and others).  It does not cover capital gains tax.

What happens if I work outside Switzerland?

It is not taken into account for Swiss income tax purposes if you are paying tax on the forfeit basis.

How does the “normal” basis work?

There are three levels of income tax: Federal, Cantonal and Communal.  There is also a Wealth Tax which is levied by the Canton.  The Federal tax is taxed per household, whilst the Cantonal and Communal taxes vary from Canton to Canton.  The Federal tax varies between 0% and 10%.  The Cantonal and Communal taxes vary between 15% and 30%. There is no precise definition of revenue. There are specific rules for expatriates who will be working in Switzerland for a limited period of time.

Who do I pay Swiss income tax to?

Federal tax is generally collected by a Cantonal office. The Cantonal and Communal taxes are collected in a variety of different ways depending on the Canton and Commune in which you live.

When do I have to pay the Swiss income tax?

The Federal tax is due on 1st March of the year following the tax year.  Cantonal and Communal taxes are levied in a variety of different ways.

What about capital gains tax?

There is capital gains tax at both Federal and Cantonal level.  Whether or not the different capital gains taxes depends on the nature of the asset (moveable/immoveable) and whether it qualifies as a private or business asset.  Generally, the gains from the sale of private moveable assets are exempt at both Federal and Cantonal level.  The gains from the sale of private real estate are generally only exempt at Federal level.  Business capital gains are part of the taxable income of the business.

Am I liable to Wealth Tax in both cases?

No.  You are only liable to Wealth Tax if you are taxed on the “normal” basis.  Debts are deductible.  The tariffs are generally progressive and vary from Canton to Canton according to marital status and whether or not you have children.

There are rules as to how the Wealth Tax is attributed between Cantons.

Am I liable to Inheritance Tax in both cases?

Yes.  There is no Inheritance Tax at a Federal level; it is applied only at Cantonal level.  Swiss inheritance tax is levied on each beneficiary (except in one Canton) and is levied on moveable assets in the Canton of the deceased’s residence and for immoveable assets in the Canton where the property is situated.  The rates and tax bands vary from Canton to Canton, however the trend is to exempt transfers to spouses and direct ancestors or descendants.

Am I liable to lifetime Gift Tax?

A similar system applies and the recipient is the tax payer wherever he is domiciled, but the tax is payable in the donor’s Canton, unless it is a gift of real estate in which case the tax is payable in the Canton in which the real estate is situated.

Are there any Inheritance Tax Double Tax Treaties?

Yes.  There are a number, including one with the UK and another with France, which cover Inheritance Tax, rather than Gift Tax.  The French Treaty is complex and contains anti-avoidance provisions which have been elaborated upon by the French tax authorities in various releases.  The UK-Swiss Treaty of 1993 is more complex than the older UK-French Treaty and often raises issues of domicile for UK residents moving to Switzerland.

March 2009

SykesAnderson LLP
Solicitors & Chartered Tax Advisors