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Switzerland: Lump-sum taxation, Brexit implications

Switzerland: Lump-sum taxation, Brexit implications

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.

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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

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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