Lump-sum taxation in Switzerland
Opportunity of relocation to Switzerland for High-Net-Worth Individuals
Lump-Sum taxation is a longstanding regime
Switzerland stands out not only for its picturesque landscapes but also for its distinctive tax policies, particularly the lump-sum taxation regime — a regime with origins tracing back to the 19th century which is also known as “Pauschalbesteuerung”, “Forfait fiscal” or “Imposta globale”.
The regime allows wealthy families to relocate to Switzerland, establish tax residency, and obtain residence permits. It is not limited in time and may also be the first step for the acquisition of Swiss nationality for the family members.
Lump-sum taxation presents many opportunities
- The lump-sum tax regime serves as a basis for as a basis for acquiring “B” residence permits for the entire family, including spouses and minor children, based on economic grounds.
- This form of taxation offers predictability, as the tax amount remains consistent, regardless of actual wealth and income.
- Inheritance tax between spouses and children is low or non-existent, varying by canton of residency.
- The lump-sum tax regime establishes a tax residency in Switzerland and may provide access to the network of double tax treaties.
- Once established, the tax regime is not time-limited. It can lead to permanent resident “C” permits enabling the acquisition of Swiss nationality for family members.
Characteristics of lump-sum taxation
Eligibility criteria
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First time arrival
A Swiss residence permit should be requested for the first time or after an absence of 10 years.
The 10-year absence condition does not apply to individuals who were previously subject to lump-sum taxation in Switzerland. These individuals may return to Switzerland and opt for lump-sum taxation at any time.
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No Swiss citizenship
Applicants must not possess Swiss citizenship.
Individuals and their children arriving under the lump-sum taxation regime may later become Swiss citizens, provided they are well-integrated and meet the legal criteria. However, acquiring Swiss citizenship will result in a transition to ordinary taxation.
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No gainful activity
Engaging in gainful activity in Switzerland is prohibited under this regime.
Gainful activity includes any salaried work or self-employment.
Passive supervision of wealth is generally permitted.
Overview of tax principles
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Annual taxation
Instead of taxing based on income, the lump-sum taxation regime assesses taxes based on the taxpayer’s expenses (see art. 14 LIFD).
For EU nationals in 2024, the minimum expense at the federal level is set at CHF 430’000, though expenses at the cantonal level may vary.
The minimum expenses for non-EU nationals are higher, reflecting the need to demonstrate sufficient economic interest to be eligible for a residence permit (see art. 32 OASA).
The expense threshold may not be lower than seven times the rent or rental value of the property (if owned) in Switzerland.
The minimum annual tax for EU nationals starts at CHF 125’000 and at CHF 180’000 for non-EU nationals, varying by canton.
This tax applies to the whole family as spouses and minor children are taxed collectively.
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Control calculation
The lump-sum taxpayers must declare only their Swiss wealth and Swiss sourced income in their annual tax returns. This requirement has no practical impact if the negotiated lump-sum tax is higher than the tax that would be levied on Swiss assets and income alone.
Lump-sum taxpayers are considered Swiss residents and can access Switzerland’s extensive double tax treaty network and request withholding tax relief abroad. In such cases, they may need to declare income from the corresponding country in their tax returns in addition to Swiss wealth and assets.
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Inheritance tax
As inheritance tax in Switzerland is levied by the canton, the taxation rates depend on the canton where the family resides.
Most cantons do not impose inheritance tax on direct-line transfers, which include wealth transfers between spouses and children.
Some cantons levy inheritance taxes in direct line transfers, but these taxes are relatively low compared to other countries. For instance, the inheritance tax for lump-sum taxpayers is only 6% in Geneva.
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