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Brexit: Is Switzerland an attractive alternative for resident non-doms?

26 June 016

On 23 June 2016, the UK voted to leave the EU. Prior to the referendum, questions asking how Brexit might affect the freedom of travel and other aspects of daily life were in the spotlight. As the implications of the UK’s vote are being felt across Europe and beyond, our focus shifts beyond issues of travel towards what Brexit means for resident non-doms and their existing or future Swiss connections.

UK non-doms

In a previous blog article, we set out the UK’s proposals concerning changes to the taxation of non-UK domiciled individuals, which are due to be introduced from 6 April 2017. Following the decision to leave the EU and the appointment of a new UK Prime Minister and key cabinet members, we are expecting further details regarding the non-dom changes from the UK parliament over the coming weeks. In particular, we await confirmation of whether the changes will be introduced as planned, or whether they may be deferred or eventually even cancelled. Nevertheless, right now, in the aftermath of the EU referendum result, there are some urgent considerations.

What is the impact on the freedom of movement for individuals?

For EU nationals who are non-doms living in the UK, besides the planned limitation of the non-dom status, we assume that not much is likely to change. Assuming that the UK immigration legislation will not become more restrictive for EU national non-doms, they will enjoy the same freedom to stay in the UK and have the benefit of travel or relocation abroad (i.e. Switzerland).

For UK nationals on the other hand, the situation might look different. As long as the UK has not formally left the EU, nothing changes with regards to a relocation to Switzerland, respectively regarding permits. Thereafter, from a Swiss perspective, UK nationals would be considered as so called “third-country nationals” if the UK does not join EFTA or bilaterally agree a different status with Switzerland. Though it’s still not clear what the change will bring, it can be assumed that the measures will not be too restrictive with regards to traveling. With regards to relocation and residence permits however, the situation will change in some way, as UK nationals will no longer benefit from the same freedom of movement privileges as EU nationals.

What does Brexit mean for the Swiss privileged taxation regime?

From a tax perspective, foreigners relocating for the first time to Switzerland are offered an attractive taxation regime called lump-sum taxation. To profit from this regime, lump-sum taxpayers may not conduct employment activities in Switzerland. In order to obtain a residence permit, the applicant must prove that he will not be at risk to require aid from the Swiss welfare system – something that can be assumed for lump-sum taxpayers with a requested minimum wealth basis.

Additionally, depending on the nationality, two different regimes for receiving a residence permit apply:

  • EU nationals will obtain a permit when meeting the above conditions.
  • Non EU-EFTA nationalities are also required to meet the above conditions, plus Swiss authorities require a predominant public tax interest to provide a permit. Such a predominant public tax interest is given if the individual contributes CHF 250,000 to CHF 1 million in taxes per year.

Once a permit is received, it is subject to renewal and an individual should make sure that they change their permit after the first five years from an annual permit to unlimited residence permit in Switzerland. In order to extend or change it, the individual should be in the position to prove their close ties to Switzerland. In this case, how long someone’s been here makes a difference – the longer they’ve lived in Switzerland – the stronger the connection is. In addition it is often advantageous if the individual can prove that they speak the local language (German / French / Italian) and if they have children, their children are sent to public or private schools in Switzerland rather than abroad. Finally, in many Swiss cantons no inheritance tax or gift tax is levied on estate handed over to spouses and children.

What does Brexit mean for UK nationals holding residential property in Switzerland?

In principle the acquisition of residential property in Switzerland by persons abroad is subject to a prior authorization requirement (the “Lex Koller” regime).

UK nationals with a holiday home in Switzerland may acquire real estate only within the annual cantonal quota for nationals, but may then sell the holiday home at any time. Legal heirs of an owner do not require authorization to acquire such a property. This will remain unchanged and those UK nationals who already have a holiday home in Switzerland are allowed to keep it.

In the future (after Brexit) UK nationals with residence in Switzerland are likely to enjoy protection with regards to existing property used for residence purposes (the exempted acquisition for legal heirs will be maintained and there will be no need to sell the property after a change of residence to a place abroad). However, in the future, new acquisitions of property for residence purpose by UK nationals may fall under the Lex Koller regime with restrictions in terms of size and use of the property.

What does Brexit mean for non-doms now?

All the above is based on the assumption that the current and proposed rules remain in place. That’s not guaranteed by any means, so anyone who thinks they will be affected should make sure they obtain advice on their specific situation.

A new government has now been formed with key ministers being appointed, including a designated “Minister for Brexit”, David Davis. A top imperative for Theresa May, the UK’s new Prime Minister, will be to work out the Government’s non-Brexit priorities and how to deliver the Conservative manifesto on which they were elected in a much more politically and economically constrained environment.

Further to announcements made by the new Chancellor of the Exchequer, Philip Hammond, on Thursday 14 July, the earliest date for any significant announcements on tax or fiscal policy is likely to be the annual Autumn Statement, usually held in late November or early December each year.

UK non-doms are well advised to generally consider their residence situation and its effect regarding taxation and freedom of movement and start evaluating their residence options, including their long-term residence status, accordingly.

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