Lump-sum taxation – An interesting alternative | KPMG | GLOBAL

Lump-sum taxation – An interesting alternative

Lump-sum taxation – An interesting alternative

Foreign nationals who move for the first time to Switzerland or have not called the country home within the last 10 years, may see tax advantages in having a residence in Switzerland.

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Switzerland special tax system can open up attractive planning perspectives when re-considering the place of domicile of a private individual.

For foreign nationals who take up residence in Switzerland for the first time or after ten years of absence, and who are not employed in Switzerland, taxation according to expenditure can be recommended. The basis for the calculation of taxes is not the worldwide income and wealth, it is the annual expenditures incurred by the taxpayer.

Concept of lump sum taxation

The special tax regime of lump sum taxation is available to resident non-Swiss nationals who are not gainfully employed in Switzerland. Instead of global income and wealth, it uses the taxpayer’s lifestyle expenses as a surrogate tax base. Therefore, it is not necessary to report effective global earnings and assets. Once the tax base has been determined as explained below, it is then subject to ordinary tax rates. The resulting tax planning opportunities can open up very attractive perspectives.

Determination of the income tax base

As of 1 January 2016, the minimum requirement for calculating income tax based on expenses is:

  • For taxpayers with their own household: the equivalent of seven times the annual rental expense or rental value of their principal residence in Switzerland.
  • For all other taxpayers: the equivalent of three times the amount for lodging and food.
  • A minimum expenses threshold of CHF 400,000 is assumed at federal level. Cantons must also define minimum expenses thresholds but the amount is at their own discretion. Certain cantons have already stipulated minimum threshold amounts.

This individual tax assessment base is subject to standard tax rates applicable at the place of residence. The determination of the tax assessment base and the corresponding tax burden is generally subject to an individual ruling by the competent tax authorities.

The International Private Client Services Team in Switzerland is glad to provide you further information and advise on your individual tax and legal matters.

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