Switzerland’s Forfait Tax Program
Switzerland's Forfait Tax Program
Many European countries have special tax regimes that new residents (often non citizens) can take advantage of. Although it is not part of the European Union, Switzerland, a EEA member, has its own low tax program. Non-Swiss citizens who are residents can make use of Switzerland’s Forfait Tax Program to legally reduce their tax liability.
The program is primarily designed for foreign nationals who do not have a professional or business activity in Switzerland and who are moving to Switzerland for personal reasons, such as retirement or lifestyle.
What is Switzerland’s Forfait Residence Tax Program?
Switzerland is a federal country consisting of 26 cantons that are financially autonomous, responsible for their own budgets, and able to set their own tax rates. In order to determine the taxable income under the Swiss Forfait Residence Tax Program, the authorities typically negotiate the amount on a case-by-case basis with the applicant.
The calculation is based on the individual’s total annual living expenditure, or a multiple of seven times the annual rental costs of the taxpayer and their dependents. The minimum taxable income based on annual living expenses for federal tax purposes is CHF 400,000 to 600,000 CHF. Additionally, you need to prove a net worth of at least 10 million CHF.
Alongside income taxes, wealth tax is payable in every canton, with the tax basis also determined on a lump sum basis. The cantons use varying methods to calculate the wealth tax base in the case of lump sum taxation, with a common approach being to multiply the taxable income by a factor of twenty.
Who can apply to the Swiss Forfait Residence Tax Program?
To be eligible for the program, individuals must meet certain criteria, including having no Swiss business activities and not being employed in Switzerland. They must also have a Swiss residence permit and live in Switzerland for at least 183 days per year. The individual’s wealth and income outside of Switzerland is not taken into account for the purposes of the program.
Individuals can avail themselves of forfait taxation for an unlimited period, provided the relevant conditions are met. As soon as a taxpayer acquires Swiss citizenship or becomes gainfully employed in Switzerland, the right to forfait taxation expires.
Can Investment Permit Holders apply to Switzerland’s Forfait Residence Tax Program?
Yes, the Investor Permit, which is available to individuals who invest at least CHF 1 million in a Swiss company or an existing business. These permit holders can use the Swiss Forfait Tax Program.
What are the benefits of the Swiss Forfait Residence Tax Program?
The major benefits of the Forfait Residence Tax Program include its simplicity and easy to submit tax return. The lump-sum tax payment covers all tax obligations in Switzerland, so individuals using the program do not need to file a tax return or provide detailed information on their worldwide income and assets.
Individuals who qualify for the program are subject to a lump-sum tax based on their annual living expenses in Switzerland, rather than on their worldwide income and assets. This can result in a significant reduction in tax liability, especially for individuals with a high net worth.
There is no expiry on how long individuals can make use of the Swiss Forfait taxation program. Unless they either become a Swiss citizen or they become employed within Switzerland.
What is the process for applying to Switzerland’s Forfait Residence Tax Program?
The application process for the Swiss Forfait Residence Tax Program varies depending on the canton in which an individual is seeking to apply. Firstly however, an applicant needs to obtain a Swiss residence permit. The individual will need to provide documentation to support their application, including proof of income, proof of wealth, and a detailed statement of their annual living expenses in Switzerland. The documentation requirements may vary depending on the canton, but the tax value largely depends on annual living expenses and a multiplier value.
After submitting the application to the appropriate authorities in the canton where the individual plans to reside, they need to wait for approval. If approved they then need to pay the lump-sum tax based on the individual’s annual living expenses in Switzerland if the application is approved.
Can a person apply to Switzerland’s Forfait Residence Tax Program before gaining a residence permit?
No, an applicant needs to first obtain a Swiss residence permit before applying for the Forfait Residence Tax Program. Although coming under scrutiny by some opponents, the program benefits the Swiss economy by attracting high-net-worth individuals and promoting investment in the country.
How can I learn more about Switzerland’s Forfait Residence Tax Program?
If you’re looking for more information about the various residency and tax programs available to individuals in multiple European countries, a great way to get started is by contacting the team at MOVEANYWHERE. With extensive experience in assisting clients with their tax status in multiple European countries, the team can provide a comprehensive consultation that covers all the basics.
MOVEANYWHERE takes a personalized approach to assess your individual circumstances, including your current tax burden, income streams, asset portfolio, current tax position, family composition, and possible tax benefits. With this information, they can provide guidance on the best solution for your unique situation. To get started, simply reach out to the team today.