Switzerland Plans for Lump-Sum Tax Regime

Switzerland Plans for Lump Sum Tax Regime

Switzerland’s Federal Council has announced a proposal to amend the lump-sum taxation rules.

Background

The lump-sum taxation regime is currently granted at the federal level and in all cantons (the exception is the canton of Zurich). The beneficiaries of the regime are resident individuals of foreign nationality who do not derive income from employment in Switzerland. The tax base is the individual’s worldwide annual living expenses. Moreover, the below-noted amounts are taken into consideration cumulatively:

• One of the following:

  • five to seven times the rental value of the individual’s own property,
  • five to seven times the rent paid to the landlord in Switzerland, or
  • two times the costs for board and lodging;

• All income derived from Swiss real estate;

• All income derived from movable assets, if the debtor is a Swiss resident individual or legal entity; and

• Income derived from other states, if a tax treaty with that state is invoked.

It is estimated that currently, approximately 5,200 resident individuals benefit from the lump-sum taxation regime.

Proposals

The thrust of the new proposal is to increase the assessment basis in relative and absolute terms by increasing the reference expenditure and introducing an absolute minimum threshold.

The lump-sum tax base will therefore still be based on the worldwide annual living expenses, but with a minimum pre-determined threshold.

• For federal and cantonal tax purposes, the lump-sum tax base will be at least:

  • seven times the rental value of the individual’s own property, or
  • seven times the rent paid to the landlord in Switzerland, or
  • three times the costs for board and lodging.

• For federal tax purposes, the minimum tax base will be CHF 400,000.

• For cantonal tax purposes, the minimum tax base will be freely determined by the canton concerned.

• The cantons are required to determine how the lump-sum taxation accounts for the wealth tax.

Next Steps

The Federal Council has published draft legislation and a white paper and invited comments to be filed by December 17, 2010.

Subsequently, the government will have to have the amended legislation decided on by the Federal Parliament. This will only be able to take place in the course of 2011, so that an enactment will be possible at the earliest with effect January 1, 2012.

The new legislation further provides for a generous transitional/grandfathering period of five years. This means that taxpayers with a valid ruling in place when the new legislation comes into force, can continue to be taxed according to the old rules for five years.

Affected or interested taxpayers should monitor developments in order to take appropriate decisions.

Source: KPMG

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