A lump-sum tax is a tax that is a fixed amount assessed equally on all taxpayers regardless of their income level. Swiss lump sum taxation (forfait fiscal, Pauschalsteur-Besteuerung nach dem Aufwand) is one of the most interesting solutions in tax recommended for individuals with high income. To benefit from this instrument a few conditions need to be fulfilled.
A Swiss taxpayer in general
The crucial condition in determining whether a foreigner may be subject to lump sum tax in Switzerland is to establish a connection between that person and Switzerland. This will enable you to obtain an unlimited tax liability within the territory of Switzerland.
• Firstly, the lump-sum taxation in Switzerland is available for persons taking up tax domicile or residence in Switzerland for the first time or return to Switzerland after an absence for at least 10 years. Tax domicile requires an intent to stay permanently on the territory of Switzerland or a special statutory domicile indicated by federal law. A stay only for scientific or medical reasons within the territory of Switzerland will not be sufficient,
• The next condition is that, these persons should not perform any gainful activity in Switzerland,
• The last requirement is that the taxpayers should have generally an age of at least 55 years.
Tax calculation for the federal taxes
As principle the tax is calculated on the basis of the total annual cost of living expenses expended by the taxpayer in Switzerland and abroad for himself and his dependents living in Switzerland. The following living expenses are treated as taxable income: housing costs, costs for clothing and food, schooling for children, expenses for hobbies, travel expenses in Switzerland or abroad, taxes, and interest paid (especially mortgage interest).
As a thumb rule, these expenses are assumed to amount to at least seven times the housing costs and the minimum assessment basis is CHF 400’000. This so calculated taxable income is taxed at the usual tax rate of 11.5%.
Tax calculation for cantonal taxes (Example: Canton of Lucerne for the year 2014 and assumed personal data’s).
The living cost serve as the assessment for the taxation for cantonal income taxes as well. For persons with their own household they amount at least to seven times the amount of their rent or the rental value of their living costs for themselves and their dependants, for other persons at least three times to the amount of their boarding house charge, but in all cases not less than CHF 600’000.
There are also quite complicated rules regarding the assessment of the wealth tax for cantonal tax purposes (there is no wealth tax on the federal level). Practically it can be said that the wealth tax for the Cantonal tax is assessed according to the usual tariff on the basis of taxable assets amounting at least to CHF 12 millions.
The above income and wealth would result actually in the City of Lucerne to the following minimum taxes:
| Federal income taxes | CHF 46’000 |
| Cantonal income taxes | CHF 110’752 |
| Cantonal wealth tax | CHF 31’950 |
| Totally | CHF 187’802
or
EUR 153’978 |
Procedure
Lump sum-taxation is granted to the taxpayer on application, whereby detailed information must be given on the family and financial situation of the applicant. A switch to the ordinary taxation in a later stage is possible. In addition the applicant has to fulfil the conditions for obtaining a residence permit under the actual internal Swiss legislation and the contracts concluded by Switzerland mainly with the member states of the EC.
Fiscal arrangement
A fiscal arrangement is an arrangement concluded between the taxpayer and the authorities of the canton the taxpayer is residing in. With these authorities the taxpayer indicates the costs of maintenance and then individually negotiates the amount of tax to be paid. Usually the tax would be five times the abovementioned maintenance costs, and the tax amount is estimated in the so-called fiscal arrangement made with the local authorities. What is interesting, paying lump sum tax releases the taxpayer from any other income taxes within the territory of Switzerland, and that is why it is so profitable.
Reaching such fiscal arrangements depends on cantonal politics and legislation. Valais, a French-speaking canton, allows to conclude fiscal arrangements on most profitable conditions among the French-speaking Swiss cantons as indicated in the number of concluded fiscal arrangements: in the year 2008 lump sum taxation was chosen by 1005 people, in the year 2010 the number increased to 1162 people. According to the data of the Federal Department of Finance by the end of year 2010 5445 people benefited from the lump sum taxation within the whole territory of Switzerland.
Non-EU citizens
In respect of non-EU citizens there are other rules in order to obtain a residence permit within the territory of Switzerland. Individuals who are over 55 years old and are able to indicate close connections with Switzerland and necessary financial resources may still apply for a residence permit for a retired person (despite the fact that they are not employed in Switzerland or even abroad) in order to fulfill the residence permit condition. It is also necessary to be domiciled in Switzerland (it will not be sufficient to spend only holidays within the territory of Switzerland).
Summing up
The abovementioned tax is independent of the tax-payer’s actually received income. The fact that it is the only one Swiss income tax makes it very attractive. What is more, there is no obligation to disclose the amount of your income or the value of your property to the Swiss fiscal authorities. Nevertheless, it is highly advisable to consult an experienced counsel because of possible variations under Swiss law in respect to the minimum tax amount (e.g. through the set of control calculations confirming the correctness of a fiscal arrangement, as well as through introducing minimum limits for the tax base – depending on the respective canton). The attractiveness of the lump sum taxation might be appreciated by tax-payers receiving high income (above 1 million Swiss francs).
The lump sum-taxation replaces the ordinary income and wealth tax on the cantonal level and the ordinary federal income tax. It has to be noted that the related tax rules have been basically changed in the past years and that this tax does not exist any more in some cantons as e.g. in Zurich. Further on in many cantons a public discussion is taking place still at this moment regarding the changes or eventual abolition of this tax.
For more information please contact our lawyers:
marcin.gorazda@gsw.com.pl
natalia.rutkowska@gsw.com.pl
iwona.tomaszewska@gsw.com.pl
