Relocating to Switzerland: key points
Growing uncertainties, whether legal and fiscal (e.g. changes to the UK's RND regime), geopolitical (e.g. the Middle East) or political (e.g. France), are reinforcing many people's decision to relocate themselves and their businesses to jurisdictions offering greater stability and protection.
In this context, Switzerland has always been and remains more than ever a destination of choice. Located in the centre of Europe, Switzerland has lifestyle advantages for people of all ages including a top-rated health and education system, security, comfort of living and a dynamic business environment. Switzerland is one of Europe’s most popular countries for expatriates. Indeed, many of those looking to relocate are considering Switzerland, amongst other places, as a possible destination.
The aim of this article is to provide an overview of the key points to be considered when relocating to Switzerland. A series of articles on this subject will follow, describing each point and others in more detail.
Visa and permit application
Several permits are available for people wishing to settle in Switzerland. The most usual forms of permits are the L permit (residency of up to 364 days a year), the B permit (residency of more than a year) and the C permit (usually granted after ten years of residency depending on the citizenship and the level of integration of the permit holder).
If you intend to settle permanently in Switzerland, you will first obtain a B permit and then a C permit.
While EU and EFTA citizens can enter Switzerland without a visa and apply for their permits from Switzerland, third-country nationals must apply for authorisation to enter Switzerland at the Swiss representation in their place of residence. Once the process is successful, a visa is granted to enter Switzerland to finalise the permit application procedure.
Taking residency in Switzerland
Switzerland is divided into several cantons. Each of them has its own speciality, not only in terms of language, but also taxation.
Swiss tax residency is determined by several factors and requires in particular spending a certain number of days per year in Switzerland. This is an important criterion, particularly for people travelling and doing business in other countries.
Real estate
Real estate may be rented out or purchased under certain restrictions. Non-Swiss nationals who have authority to reside in Switzerland (even if they do not hold a permanent residence permit referred to as a “C permit”) are authorised to purchase a dwelling (single-family house or apartment) or land to build on, provided construction work on the land commences within one year from the purchase.
Importantly, the purchaser must occupy the dwelling and cannot rent it out/sub-let the property. In addition, the purchase of a main residence may require a special authorisation if the purchaser makes the purchase via a company or other structure, rather than in own name.
Taxes
Switzerland offers two types of tax regimes, namely the ordinary tax regime and the lump-sum tax regime.
Ordinary tax regime
Individuals are taxed on their worldwide income and wealth, excluding real estate located abroad and its rental value (whose values are nevertheless taken into consideration to set the Swiss income and wealth tax rates). Tax rates are progressive and vary significantly depending on the canton and municipality of residence. Private capital gains on movable assets are tax-exempt in Switzerland.
Lump-sum tax regime
Most cantons in Switzerland offer the option for non-Swiss nationals who come to live in Switzerland for the first time or after an absence of ten years and who will not be gainfully active in Switzerland to pay taxes under the lump-sum taxation regime, offering interesting planning possibilities for wealth owners. Working outside Switzerland is possible in some of the cantons, but under restrictive conditions. Activities resulting from the management of personal wealth are not considered as gainful activity.
Instead of paying taxes on actual income and assets, the basis of taxation is calculated according to living expenses. The concrete terms of any lump-sum arrangement are subject to negotiations with the relevant cantonal tax authority. The application for a tax ruling must be filed before submitting the first tax return as the possibility for a lump-sum agreement may be forfeited after an ordinary tax return has been filed. Pre-immigration tax planning is thus essential.
In addition to income and wealth tax, Switzerland also levies inheritance and gift tax at rather favourable rates within families. Effectively, in most cantons no inheritance tax will be levied on the surviving spouse’s and the children’s shares.
Moving belongings to Switzerland
The following household’s effects may be admitted duty-free in Switzerland:
- goods that have been used for personal, professional or business purposes for at least six months and will continue to be used in Switzerland; and
- alcoholic beverages and tobacco: up to 200 litres of wine and 12 litres of spirits.
Household effects must be declared and exemption from duty payment must be applied for at the time of importation. In principle, a list of the goods that are imported, a Swiss permit and proof that a property has been purchased or rented in Switzerland will at least be required.
Mandatory health insurance
Anyone settling in Switzerland must take out health insurance within three months after taking up residence. Each member of a family, including children, must be individually insured. Coverage will take effect from the beginning of residence in Switzerland. There are various insurers and forms of insurance, insurance premiums can therefore vary widely.
It is also possible to take out supplementary insurance for private care, which is not compulsory.
Social security
Swiss residents are subject to compulsory social security (known as the three-pillar system). The first pillar includes the old-age and disability insurance, the second pilar corresponds to the occupational benefits and the third pillar is private pension provision. The contributions of the first and second pilar depend on the individual’s salary or, in the absence of a salary, on the individual’s assets. The social security contributions are fully tax deductible.
Premarital arrangements and matrimonial regimes
Premarital arrangements concluded abroad may be recognised in Switzerland if they do not lead to results incompatible with Swiss public policy.
There are three matrimonial regimes in Switzerland. The most common matrimonial regime in Switzerland is the one known as participation in acquired property. It applies to married couples who have not expressly arranged another type of regime. Spouses may opt for the community of property or the separation of property by marital agreement. These alternatives to the acquired property regime may be chosen by marriage contract concluded before a public notary.
The rules governing matrimonial property regimes are extremely important in the event of liquidation of the regime in question (i.e. in the event of divorce or death). It is therefore vital to understand the subtleties and issues involved.
Succession
Unlike most of common law jurisdictions but like several civil law jurisdictions, Swiss inheritance law includes statutory entitlement provisions (also known as forced heirship). This means that a person cannot freely dispose of her/his entire estate given that there are forced heirship shares beneficiaries. He/she may freely dispose of the portion of his/her property that exceeds the statutory entitlement of the heirs by drafting testamentary dispositions as wills or inheritance contracts.
Trusts
There is no Swiss domestic trust law. However, foreign trusts are recognised in Switzerland through the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition.
A trust itself is not taxable in Switzerland. The taxation of the beneficiaries and settlors of trusts depends on how a trust is organised. Swiss tax law distinguishes between revocable and irrevocable trusts, and discretionary and fixed interest trusts. The qualification of trusts for Swiss tax purposes may not necessarily correspond with the qualification of the trust in the jurisdiction where it has been established. Therefore, and before taking up residency in Switzerland, it is advisable to discuss the tax treatment of the trust and future distributions with the tax authorities and to confirm the outcome in a binding tax ruling.
The above-mentioned key points must be considered when relocating to Switzerland.
Swiss law firm with an international reach (throughout offices in the majority of the financial centres), Charles Russell Speechlys SA is specialised in advising families and entrepreneurs on all their wealth, estate and tax planning issues, with a strong expertise on cross-border matters.
Please contact Grégoire Uldry and Alexia Egger Castillo, lawyers specialising in private client matters, should you require assistance and/or have any query.
