Switz–“Quasi Tax Resident” Could Give Tax Savings | KPMG | GLOBAL

Switzerland – New “Quasi Tax Resident” Status Could Result in Tax Savings

Switz–“Quasi Tax Resident” Could Give Tax Savings

This report covers draft rules for nonresident taxpayers subject to Swiss source tax withholdings on their Swiss employment income to be able to file an ordinary tax return in Switzerland.

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On 21 September 2017, the head of Switzerland’s Federal Department of Finance (FDF) submitted the draft version of the revised Federal Withholding Tax Ordinance1 for consultation.  Among other items, this Ordinance defines the requirements for nonresident taxpayers subject to Swiss source tax withholdings on their Swiss employment income to be able to file an ordinary tax return in Switzerland, if they so choose.

WHY THIS MATTERS

  • Under the new legislation, the tax status “quasi-tax resident” will be introduced.  This status will allow non-tax residents subject to Swiss source tax withholdings to file a subsequent ordinary Swiss tax return if they meet the necessary requirements.  The inclusion of this new tax status provides more flexibility for taxpayers who would have the option to file a tax return if that would be more advantageous to them.
  • Quasi-resident employees are defined as persons who have their main residency outside of Switzerland, but who earn the majority of their worldwide household income (more than 90 percent) in Switzerland.  Global mobility program managers and their expatriate tax service providers may wish to assess whom among the company’s expatriate workforce population this applies to and prepare appropriate communications informing them of this development and what it means for them.
  • Under the current legislation there is no provision that allows nonresidents to file a tax return. 

Background

On 16 December 2016, the Federal Parliament agreed to a complete revision of the Federal Withholding Tax Ordinance.  For more details on the rules adopted, please refer to the GMS Flash Alert 2017-032 (21 February 2017).

The inclusion of the status as “quasi-tax resident” in Swiss law goes back to a Federal Court judgement of 26 January 2010 (BGE 136 II 241).  At that time, the Federal Supreme Court stipulated that under certain conditions the Swiss withholding tax regime was not in line with the Agreement on the Free Movement of People with the EU and, under certain circumstances, was deemed discriminatory.

Key Aspects of the New Rules

This Ordinance defines the requirements for nonresident taxpayers subject to Swiss source tax withholdings on their Swiss employment income to avail of filing an ordinary tax return in Switzerland (if appropriate): 

  • Quasi-resident employees are defined as persons who have their main residency outside of Switzerland, but who earn at least 90 percent of their worldwide household income in Switzerland.  
  • Quasi-tax residents subject to Swiss source tax withholdings will have the ability to file a subsequent ordinary Swiss tax return upon request. 
  • The intention of the reform is to reduce possible inequalities between foreigners subject to Swiss tax withholdings and Swiss citizens or C-Permit holders who are not subject to the same tax regime. 
  • For Swiss tax residents, the threshold for filing a Swiss tax return remains unchanged at an annual gross income of CHF 120,000 from dependent employment for persons subject to Swiss source tax withholdings. 

[ CHF 1 = EUR 0.866  |  CHF 1 = USD 1.025  |  CHF 1 = GBP 0.77  |  CHF 1 = JPY 115.370 ]

  • Additionally, the authorities can request an ordinary Swiss tax return, if they determine that additional Swiss or worldwide income not covered by the tax withholding needs to be considered for taxation or tax rate determination purposes. 

Next Steps

Until 21 December 2017, interested parties such as cantonal and communal authorities, political parties, and interest groups may voice their opinions. 

Given the pervasive nature of the withholding tax regime in Switzerland, this statutory revision will result in a series of formal adjustments in other rules and regulations. 

It is envisaged that the Federal Law and the Ordinance pertaining to this law will enter into force in 2020. 

The information contained in this newsletter was submitted by the KPMG International member firm in the Switzerland.

© 2017 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. 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.

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