This country-specific Q&A provides an overview to Private Client laws and regulations that may occur in Switzerland.
Which factors bring an individual within the scope of tax on income and capital gains?
Switzerland has a territorial tax system. Swiss tax residents are subject to income tax on their worldwide income, except on income from foreign real property and foreign permanent establishments (self-employed activity or partnership). Foreign source income is only relevant for the determination of the tax rate.
An individual is considered to be a tax resident in Switzerland if such individual:
resides in Switzerland with the intention to stay permanently; or
stays in Switzerland for at least 30 days while exercising a gainful activity; or
stays in Switzerland for at least 90 days without exercising a gainful activity.
Non-residents become subject to income tax for certain Swiss-source income, such as from
permanent establishments in Switzerland
Swiss real property or claims secured by mortgages on it
gainful employment physically performed in Switzerland
remuneration for services as member of the board/management of a Swiss company
pensions and similar income from Swiss sources.
In Switzerland, there is no capital gains tax on privately held movable property (e.g. securities), except if the taxpayer is considered to be a professional trader. Capital gains from the sale of privately held Swiss real property are subject to capital gains taxation at cantonal level.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Income tax is levied at federal, cantonal and communal levels. The tax rates are progressive at federal level and in most cantons. Cantonal rates vary considerably and range from as low as 25% to as high as 47% depending on the location. Dividends from qualifying participations are taxed at reduced rates.
The Swiss tax year corresponds to the calendar year. Tax returns are submitted to the tax authorities of the canton of residence by March/April of the following year. Deadline extensions are generally granted upon request.
Cantonal and communal income taxes are paid on a provisional basis during the respective tax year. Payments on account of federal income tax are generally due in March of the year following the tax year. Final payments become due upon final assessment, usually 1-2 years after the tax year.
Capital gains on the sale of Swiss private real property are subject to separate taxation at cantonal/communal levels. The applicable tax rate depends on the canton where the property is situated and decreases with the number of years the taxpayer has held the property.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Certain interest, dividend income and lottery prizes are subject to Swiss withholding tax at a rate of 35%, pensions and life annuities at a rate of 15% and certain other insurance payments at a rate of 8%.
Swiss tax residents obtain withholding tax refunds by declaring the respective income in the annual tax return. Non-residents may claim a refund based on applicable double-taxation treaties with their country of tax residency.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
Wealth tax is levied exclusively at cantonal/communal levels on the taxpayer’s worldwide net assets, including bank accounts, securities, surrender value of life insurance, real property, art collections, etc. Household goods are exempt from wealth tax. Real property situated abroad is exempt with progression. In general, the assets are assessed at market value.
Worldwide debts are deducted when determining the wealth tax basis but are proportionately allocated to domestic (taxable) and foreign (exempt) assets.
The wealth tax rates vary between 0.1 and 1.0% depending on the canton/commune of residence.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Inheritance and gift taxes are levied exclusively at cantonal and communal level in all cantons, except Schwyz and Obwalden, if the deceased/donor was/is resident in the canton or if real property situated in the canton is transferred.
The applicable tax rate varies depending on the canton of residence and on the relationship between the deceased/donor and the recipient of the inheritance/gift and can be as high as 50% for gifts.
The rules for filing tax returns and the procedure in general also vary depending on the canton.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (eg business or agricultural assets), and how do any such reliefs apply?
Spouses are exempt from inheritance and gift tax in all cantons and direct descendants are exempt in most cantons. Under certain conditions, civil partners are also exempt in some cantons.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Within certain limits, donations to tax-exempt charities domiciled in Switzerland can be deducted for income tax purposes and are generally exempt from gift and inheritance tax.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Swiss real property held by Swiss or non-Swiss residents is subject to wealth tax at cantonal and communal levels. Moreover, the (rental) income therefrom is subject to income tax at federal, cantonal, and communal levels. If used by the owner, income tax is levied on the imputed rental value of real property. Property maintenance and interest costs are deductible.
Some cantons and communes levy an annual property tax. The applicable tax rates and the calculation method vary depending on the canton/commune where the real property is situated.
Real property transfer duty is levied by most cantons/communes when the real property changes hands at rates between 0.5-3.0% depending on the canton.
Moreover, the transfer of Swiss real property might be subject to capital gains tax or inheritance/gift tax, depending on how the transfer is made (sale, inheritance or gift).
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Consumption taxes such as Value-Added Tax (VAT) on goods and services and excise duties on mineral oil, tobacco, cars etc. are imposed. Securities transfer tax applies to certain transactions with investment securities.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
Non-Swiss nationals who take up residency in Switzerland for the first time or after an absence of at least 10 years and do not engage in any gainful activity in Switzerland can apply for lump-sum taxation.
Under lump-sum taxation individuals pay taxes based on their living expenses instead of their worldwide income and assets. The specific details are negotiated in advance with the tax authority of the canton where the individual intends to take up residency.
The total amount of taxes due based on the lump-sum taxation agreement must be at least equal to the income and wealth taxes due on Swiss income, treaty-benefitted foreign income and Swiss-based assets of the taxpayer under the ordinary tax rates. Federal and cantonal laws require for granting lump-sum taxation a minimum income and wealth tax basis. The minimum income tax basis varies depending on the canton but may not be lower than CHF 400,000. The minimum wealth tax basis is determined by the cantons and often corresponds to twenty times the applicable income tax basis.
Lump-sum taxation is available in all Swiss cantons except in the cantons of Zurich, Schaffhausen, Appenzell-Ausserrhoden, Basel-Stadt and Basel-Landschaft.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
Individuals should consider different cantons and compare their tax rates and regimes as well as the living standards.
Individuals planning to relocate to Switzerland should also consider the possibility of applying for lump-sum taxation if their worldwide income and assets exceed a certain threshold.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
Under Swiss law, heirs acquire the entire estate, i.e. assets and liabilities, by operation of law simultaneously with the decedent’s death.
Swiss succession law determines the statutory heirs, i.e. the persons entitled to inherit from a decedent. Descendants and ancestors are divided in parentelas as follows:
(a) descendants constitute the first parentela;
(b) parents and their descendants the second parentela; and
(c) grandparents and their descendants the third parentela.
Members of one parentela are only statutory heirs if members of the previous parentela predecease the decedent. Within one parentela, all heirs are treated equally.
Surviving spouses and registered partners are also statutory heirs. Their entitlement amounts to (a) 1/2 of the estate where they share with descendants (first parentela), (b) 3/4 of the estate where they share with parents and their descendants (second parentela) and (c) the entire estate where only grandparents and their descendants (third parentela) survive the decedent.
Swiss forced heirship rules grant the following statutory heirs a protected share, which is a quota of their statutory inheritance entitlement: (a) 3/4 for descendants, (b) 1/2 for parents and (c) 1/2 for the surviving spouse/registered partner. The remainder of the estate, the so-called freely distributable quota, which varies between 3/8 and 1/2 of the estate depending on the heirs, can be freely disposed of by a testator.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
If a decedent leaves a surviving spouse, there is first a settlement of matrimonial property between the surviving spouse and the estate/heirs. The surviving spouse takes his/her share of matrimonial property and the share of the decedent forms part of the estate.
Swiss law provides for three matrimonial property regimes: (a) participation in the acquisitions, (b) community of property and (c) separation of assets. Spouses can agree on a matrimonial property regime or a variation thereof in a pre-/postnuptial agreement. Such agreements can have a material impact on the assets of an estate but must generally respect the protected shares of heirs. Swiss law recognizes matrimonial agreements entered into under the laws of the state of the spouses’ foreign nationality or previous foreign domicile.
In the absence of a pre-/postnuptial agreement, the ordinary regime of participation in the acquisitions applies to spouses domiciled in Switzerland. Basically, the income generated from gainful activity and own assets during the marriage forms the basis for the so-called surplus, which is divided equally between the spouses. The settlement of matrimonial property is not necessary if the spouses have chosen the regime of separation of assets.
For civil partnerships, the ordinary property regime corresponds to the matrimonial property regime of separation of assets and no settlement of property claims between the civil partners is necessary. However, civil partners may agree in an asset agreement to divide their assets according to the provisions of the matrimonial property regime of participation in the acquisitions. In such case, a settlement of property must intervene before determining the estate of the deceased partner.
What factors cause succession laws to apply on the death of an individual?
According to the Swiss Private International Law Act, Swiss substantive law governs the estate of a person who dies with his/her last domicile in Switzerland. Exceptions may apply for real property located abroad.
Under Swiss law, an individual is domiciled in the state where he/she resides with the intention of remaining permanently.
Foreign nationals domiciled in Switzerland who are not also Swiss nationals may choose, in a will or inheritance contact, their national law to govern their estate (professio iuris).
Swiss nationals residing abroad may subject their estate to Swiss law if the laws of the state of their foreign last domicile allow such choice.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
A deceased’s last place of domicile triggers the law applicable to the estate. In case of a foreign last domicile, Swiss law only applies if the conflict of law rules of the foreign state of last domicile refer to the laws of Switzerland. This might be the case if the deceased was a Swiss national or if estate assets are located in Switzerland.
Switzerland has entered into few bilateral inheritance treaties (USA, Greece, Italy and Iran) that contain special rules. The EU Succession Regulation may have an impact on Swiss estates of persons with connections to the EU.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
If an individual does not make a will, intestacy rules apply and the statutory heirs become entitled to the estate.
An individual should make a will if he/she, inter alia, wishes to:
(a) dispose of the freely distributable quota of the estate;
(b) dispose of the estate in the event no statutory or protected heirs survive;
(c) nominate executor(s) to administer and prepare the partition of the estate;
(d) protect assets of children;
(e) determine partition and distribution rules;
(f) choose the governing law of the estate (unless he/she is a Swiss national resident in Switzerland).
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
Unless the testator has appointed an executor or the authorities have nominated an estate administrator, the community of heirs jointly administers and partitions the estate.
Testators will usually appoint an executor if they seek professional administration of the estate. Under Swiss law, executors are independent, act in their own name pursuant to the will of the testator and are neither representatives nor fiduciaries of the testator, the heirs or the estate.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
For estate planning purposes, Swiss law allows the establishment of all types of vehicles under Swiss and foreign law including foreign trusts. The use of these vehicles is common depending on the value and location of the assets. However, Swiss families traditionally also transfer assets outright and bind the heirs through family governance instruments and/or shareholders’ agreements.
How is any such structure constituted, what are the main rules that govern it, is there any requirement for registration with or disclosure to any authority or regulator, and what information about the structure is available to the public?
Swiss vehicles, including corporations and foundations, need to be established through a formal procedure and registered with the commercial register. The name, address, purpose and board members of the entity, and the capital structure for corporations, are recorded.
The registration and documents submitted to the commercial register are publicly accessible.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Swiss family foundations are legal entities and subject to profit and capital taxes in Switzerland usually at reduced rates. The transfer of assets to family foundations is usually subject to Swiss inheritance or gift taxes if the testator/donor is resident in Switzerland or if Swiss real property is transferred. Distributions to beneficiaries may be subject to income or gift tax. In some cantons distributions are tax-exempt under certain conditions.
For the tax treatment of trusts, see question 22.
Are foreign trusts, private foundations, etc recognised?
Switzerland does not have a Swiss domestic trust. However, it is a member of the Hague Convention on the Law Applicable to Trusts and on their Recognition and has a long tradition in dealing with foreign trusts.
Foreign foundations and other entities are recognized in Switzerland if they are duly organized according to the governing foreign law.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
From a Swiss tax perspective, trusts are not legal entities and are therefore tax transparent. A case-by-case analysis is required based on the following principles:
Trusts are qualified as revocable or irrevocable. Irrevocable trusts are subdivided into discretionary and fixed interest trusts.
Regardless of what is stated in the trust deed, a trust is treated as revocable if the settlor keeps control over the assets of the trust (e.g. benefits from capital and income distributions, appoints and removes trustees, nominates and excludes beneficiaries). The assets and income of a revocable trust are taxed in the hands of any Swiss resident settlor. Asset transfers from the settlor to the trust are not subject to gift tax. Distributions from the trust might be subject to gift tax if the settlor is resident in Switzerland and depending on who the beneficiary is.
In the case of irrevocable fixed interest trusts, trust assets and income are generally allocated to and taxed in the hands of any Swiss resident beneficiaries. Income tax is generally due when the beneficiary becomes entitled to the income. Asset transfers from Swiss-resident settlors to a trust might be subject to gift tax, depending on the settlor’s canton of residence and relationship with the beneficiaries.
Beneficiaries of an irrevocable discretionary trust have a mere expectancy in the trust assets as distributions are in the full discretion of the trustees. Thus, such beneficiaries are not subject to wealth tax on the trust assets but only to income tax on actual distributions. If the settlor is a Swiss resident when establishing the trust, the trust assets and income are taxed in his/her hands.
In Switzerland, there are no clear rules with regard to the taxation of foreign private foundations. However, a similar reasoning as described above usually applies.
To what extent can trusts, private foundations, etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
In case of a validly created trust or foundation, the assets are generally sheltered from the creditors of a settlor and/or beneficiary. However, there are claw back provisions that can apply following insolvency of a settlor if he/she transferred assets to a trust or foundation to defeat creditor’s interests. In addition, transfers to a trust or foundation by the settlor during his/her lifetime may be subject to claw back claims of heirs if Swiss forced heirship rules are violated.
What provision can be made to hold and manage assets for minor children and grandchildren?
Under Swiss law, minors can hold assets in their own name. However, before reaching the age of majority the parents have parental responsibility and the right and duty to administer the children’s assets.
A testator may appoint by testamentary disposition an executor or representative to administer a child’s share of an estate until a predefined age, excluding the (surviving) parent(s). Upon reaching the age of majority a child can, however, claim its share under Swiss forced heirship rules.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Individuals are advised to set up an advance care directive (Vorsorgeauftrag) to appoint a representative for their personal care and/or management of their assets in the event of mental incapacity. Otherwise, the Swiss authorities may appoint a representative or guardian in the event of incapacity of an individual.
Also, individuals may wish to issue a patient decree (Patientenverfügung) specifying for the event of their incapacity which medical procedures they agree with or which person shall discuss and decide on medical procedures with the doctors.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
In Switzerland, charitable foundations and associations are vehicles used for philanthropic endeavours.
Over 13,000 charitable foundations exist in Switzerland. Foundations are legal entities registered with the commercial register and supervised by a supervisory authority. They are established by endowment of assets for a particular charitable purpose, either by way of a public deed or by testamentary disposition. Once established, the assets become independent of their founder. The foundation has no shareholders or specific beneficiaries.
Swiss charitable foundations and associations can apply for tax exemption.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
An ongoing revision of the Swiss Civil Code including forced heirship rules will reduce the protected share of descendants from 3/4 to 1/2 of the statutory inheritance entitlement and abolish the protected share of parents.
The Swiss Private International Law Act shall be revised to better coordinate Swiss international inheritance law and the EU Succession Regulation. By allowing individuals to choose additional places of jurisdiction or other foreign laws, contradicting decisions in Switzerland and EU Succession Regulation member states shall be prevented or minimized and planning security shall be enhanced.
The new laws are not expected to enter into force before 2021.