Under the lump-sum taxation regime, non-Swiss nationals who do not pursue a gainful activity may elect to pay income and net wealth taxes by reference to a lump-sum amount (and not on the basis of their effective income and wealth). The regime applies to the federal income tax, but is currently also offered by most Swiss cantons.
The tax payable based on the lump-sum tax regime depends on various factors such as the cost of living, the rent paid for the Swiss primary residence (the rental value of such real estate) etc. The main benefit of the lump-sum taxation regime is to provide foreign nationals of a significant reduction of Swiss income and net wealth taxes on their foreign assets and income while, at the same time, keeping the disposal of these items. EU/EFTA nationals without a gainful activity may become Swiss residents if they have adequate financial resources to cover their cost of living in Switzerland. In addition, they must also obtain a Swiss health insurance policy.
Implications of Brexit for UK citizens, entrepreneurs
Following Brexit, a 1999 agreement on the free movement of people between Switzerland and the United Kingdom will no longer apply. This agreement, however, remains applicable for the transition period during which the UK still has the status of an EU Member State. The UK and the EU agreed that this transition period must in principle end on 31 December 2020.
Subject to a possible extension or to a bilateral agreement, UK citizens seeking to retire in Switzerland as from 1 January 2021 will therefore need to comply with the Swiss standard immigration rules that are applicable to non-EU/EFTA citizens.
The availability of the lump-sum taxation regime is, however, subject to certain conditions, such as a prohibition from carrying on any gainful activity on Swiss soil. Thus, the lump-sum taxation regime may not apply to entrepreneurs who wish to keep an executive function within their business. There are a number of alternative tax planning options under the ordinary tax regime. These may include step-up restructurings, placing assets in trust or other measures to segregate the ownership of assets in a tax efficient manner. The anticipated tax consequences of these measures and how they would be implemented will be carefully examined from a Swiss and UK standpoint.
From an immigration perspective and until 31 December 2020, UK entrepreneurs seeking to take up residence and work in Switzerland may rely on the provisions of existing agreement from 1999.
Read an April 2020 report prepared by the KPMG member firm in Switzerland
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