Swiss lump-sum taxation is a special feature of the Swiss tax system, which has attracted many foreign taxpayers for decades.
The principle of this system is to calculate tax on the basis of the individual’s expenses and lifestyle, rather than on income or wealth, in place of ordinary taxation.
What?
Lump-sum taxation, also known as “expense-based taxation” or “forfait fiscal”, is a simplified tax assessment procedure available to foreign nationals (under certain conditions, see below) who settle in Switzerland.
Not only is this method easy to apply, it can also significantly reduce a person’s tax burden.
How much?
When applying lump-sum taxation, the higher of the following amounts is used as the tax base instead of the taxpayer’s worldwide income:
✔ The taxpayer’s annual lifestyle (1), or :
✔ Seven times the taxpayer’s rental expenses, or :
✔ A lump sum of CHF 434,700, or :
✔ Gross income from Swiss sources.
(1): These expenses include the cost of living, housing, healthcare, education, travel… These expenses are evaluated by the Swiss tax authorities according to various criteria and indices.
This limited tax base is then subject to ordinary tax rates, which vary from canton to canton.
Worth knowing:
Although the rules for the application of lump-sum taxation are harmonized at federal level, each canton has its own tax authority, and can implement more detailed rules to define the tax base and/or negotiate on a case-by-case basis. The cantonal authorities may therefore propose a higher or lower flat-rate tax. We can support you in this respect.
Please note:
Non-European nationals are generally offered a higher flat-rate tax than Europeans.
Who?
Individuals are eligible for lump-sum taxation if they meet all of the following conditions:
- Non-Swiss nationality: Only foreign nationals may apply.
- First tax residence in Switzerland: The person must be establishing tax residence in Switzerland for the first time, or after an absence of at least 10 years.
- No gainful activity in Switzerland: The taxpayer must not carry out any professional or commercial activity on Swiss territory.
How?
The procedure is very simple: once the relevant tax office has approved a flat-rate tax application, it can be applied indefinitely as long as the above eligibility conditions are met.
Taxpayers are not required to declare foreign income or assets. The tax base is pre-determined, guaranteeing the predictability and legal certainty of tax obligations.
Where?
The cantons of Zurich, Basel-Stadt, Basel-Landschaft, Schaffhausen and Appenzell Ausserrhoden have abolished this special tax regime, which was contested because of the advantages it offered.
21 Swiss cantons have retained it.
Geneva is one of the most sought-after locations, but also one of the most expensive.
What are the advantages?
Visit 3 main advantages of the tax package :
- Tax benefits
The Swiss lump-sum tax system offers advantageous taxation for wealthy new residents. Unlike a traditional income-based tax system, lump-sum taxation is based on an individual’s expenses and standard of living. This means that wealthy residents are only subject to fixed taxation on their income and assets. In Switzerland, lump-sum taxation is based on a fixed amount set by each canton, offering tax predictability and enabling individuals to plan their finances efficiently.
- Confidentiality and financial security
Switzerland is renowned for its banking confidentiality and financial security. This discretion is particularly important for wealthy individuals who wish to preserve their privacy and protect their assets. The lump-sum tax system, by virtue of the way it is calculated, also safeguards private information.
- Possibility of obtaining a residence permit in Switzerland via the lump-sum taxation system
Beyond the tax aspects, opting for a lump-sum taxation package in Switzerland is also a way for non-Europeans to obtain Swiss residency. In this context, the cost of the lump-sum tax option must be weighed against the advantages of living in Switzerland and taking up residence here.
What are the drawbacks?
The main drawback of the Swiss lump-sum tax is that it has become quite high, particularly when compared with the lump-sum tax rates now offered by Italy and Greece (which are fixed). In Italy, for example, the lump sum is 200,000 per year (see our previous newsletter on this subject, available on our website www.polaris-avocats.fr).
The second disadvantage is the ban on gainful employment, which extends even to occasional paid engagements, including, but not limited to:
✔ Non-executive director functions
✔ Artistic performances
✔ Participation in professional sports
It is therefore imperative to ensure that none of these activities is carried out on Swiss territory or from a Swiss base. if the Swiss lump-sum tax regime is claimed.
