03 Feb 2019 Obtaining Swiss Residency Based on a Swiss Lump Sum Tax Regime
|What is Swiss Lump Sum Taxation Regime?||Lump sum taxation is a special tax system, granted under certain circumstances, whereby Swiss tax is levied on the basis of expenses (amount can, to some extent, be negotiated with the cantonal tax authorities) rather than their worldwide income and wealth (ordinary taxation).|
|What are the 4 conditions to obtain the Lump Sum Tax Regime?||1. The applicant(s) shall not be Swiss National(s).||2. The applicant shall not have been subject to the ordinary revenue tax regime in Switzerland for at least the last 10 years.||3. The applicant shall not work in Switzerland.||4. If the applicant applies with his/her spouse, both shall meet the conditions and be subject to the Tax Lump Sum Regime.|
|What is the procedure?||
|How is the Lump Sum Tax Regime calculated?||The Lump sum tax regime is negotiated with the tax administration. As a basis for the negotiation, the applicant will need to proceed with the following “Calculation”. The “Negotiated Taxable Amount” will generally be the highest of the following calculations:||1.Calculation one – “Cost of Living”: the aggregation of the cost of annual living of the applicant (including his/her family if they join), including accommodation, general living expenses, cars, aircrafts and yachts, housekeeping and personnel in respect of all individuals (family members etc.) financially supported by the taxpayer, etc. OR||2.Calculation two – “Rent”: 7 times the value of the annual rent paid by the applicant in Switzerland. If the applicant purchases a house/apartment, then 7 times the rent he/she should pay to live in a similar house/apartment; OR||3. Calculation three – “Swiss Based Revenues”: The aggregation of the revenues generated out of Swiss assets by the applicant. The following income must be reported to Swiss tax authorities on an annual basis:
• Income from real estate assets located in Switzerland
• Patent and licence royalty income
• Income from Swiss bank accounts (interest)
• Income from Swiss investments (dividends and interest)
• Annual payments from Swiss Insurance policies
• Swiss investments within funds, even if held in foreign custody accounts.
|4. Calculation four – “The Minimum”: CHF 400’000|
|How much tax will the applicant(s) pay?||Subject to the Annual Control Calculation, the applicant will pay tax on the Negotiated Taxable Amount (see above) at the ordinary rate (approximately 40%).|
|How long does it last?||The applicant will benefit of the Tax Lump Sum Regime so long as the 4 conditions above are met. He/she will need to renegotiate every 5 years (depending on the Canton). The applicant will receive a resident B permit and after 5 years, a resident C permit.|
|What is the Annual Control Calculation?||The applicant must file his/her tax return every year on the basis of the Negotiated Taxable Amount. He will be required to carry out a comparison between the (i) Negotiated Taxable Amount and (ii) his/her Swiss Based Revenues (see above) for the year under review. This is called the “Annual Control Calculation”. The highest of the two will be taken into consideration as the taxable amount for the year under review.|
|Example||An applicant applied in 2017 for a Swiss Tax Lump Sum Regime in Geneva. Their wealth amounted to CHF 700’000’000 of foreign assets:
• Their Cost of Living (see above) was CHF 650’000 per year (Calculation one);
• Their Rent (see above) was CHF 588’000 (CHF 7’000 per month x 12 months x 7 times = CHF 588’000) (Calculation two);
• Their Swiss Based Revenue (see above) in 2017 was nil (they had no revenue based on Swiss assets in 2017) (Calculation three);
• The Minimum (see above) was CHF 400’000 (Calculation four).
The highest amount is the Cost of Living. Therefore, the Negotiated Taxable Amount was agreed at CHF 650’000.
In 2018, the applicant purchased Swiss assets and received CHF 200’000 of Swiss based dividends. The 2018 Swiss Based Revenues are lower than the Negotiated Taxable Amount. Therefore, in 2018, the applicant will pay taxes on the Negotiated Taxable Amount (approximately CHF 260’000 of tax 40% tax rate approximately).
In 2019, the Applicant acquired additional Swiss based assets and received CHF 700’000 of Swiss based dividends and interests. The Swiss Based Revenues becomes higher than the Negotiated Taxable Amount. Therefore, in 2019, the applicable will pay taxes on the Swiss Based Revenue (approximately CHF 280’000 of tax 40% tax rate approximately).
|Other Information about Switzerland||GDP: USD 678.9 billion||Political stability : Very high political stability.||Banks : Approximately 226 licenced banks||Official languages: German, French and Italian. English is not an official language but is widely spoken.||Practical considerations :
• Variety of climate; all four seasons.
• International airports: Zurich-Kloten Airport and Genève-Cointrin Airport.
|Disclaimer||This presentation is made in 2019. It is a summary of the Swiss Lump Sum Tax Regime and should be treated as such. It shall not be treated as advice. You are not entitled to rely on the presentation without specific advice. Should you want to receive specific advice on your tax treatment, lecocqassociate will be pleased to provide such advice based on a formal engagement.|
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