Swiss lump-sum taxation is an attractive tax regime for wealthy individuals who settle in Switzerland without engaging in any gainful activity. Based on expenses rather than income, it enables tax optimization while benefiting from Swiss legal stability. However, this system is strictly regulated, both legally and in terms of assets and liabilities. Here’s what you need to know to take advantage of it with peace of mind.
A plan based on expenses, not revenues
The lump-sum taxation system allows non-working Swiss residents to pay tax on the basis of their annual expenses. In practice, this method of taxation is based on a lump-sum calculation indexed to living expenses, generally determined on the basis of seven times the annual rent (or rental value) of the main dwelling. In some cases, notably for lodgers, this calculation is based on three times the boarding costs.
This flat-rate basis applies to direct federal tax, as well as to cantonal and municipal taxes. It offers medium-term visibility, with a tax amount known in advance, often much lower than that resulting from taxation based on actual income or wealth.
Conditions of access to the tax package
This regime is open to individuals who are moving to Switzerland for the first time, or returning after an absence of at least ten years. It is reserved for taxpayers who do not carry out any professional activity in Switzerland, either directly, or through an executive function or a locally domiciled company.
Taxable income must come exclusively from abroad. Any source of income in Switzerland – whether rent, dividends from a local company or even a partial activity – would call into question the benefit of the lump-sum arrangement.
Acceptance of the regime varies from canton to canton. Some cantons, such as Zurich and Basel, have abolished the scheme, while others – Geneva, Vaud, Valais, Fribourg and Bern – continue to apply it, albeit with varying requirements. Negotiations are generally held with the cantonal tax authorities to validate the flat-rate tax base, subject to a federal minimum currently set at 400,000 Swiss francs.
A lever for optimizing international assets
The lump-sum tax system is particularly advantageous for people with substantial assets and little distributed income. It offers predictable, capped taxation, with no obligation to declare income or assets. Capital gains, dividends or rental income from foreign sources are not subject to direct taxation, provided you meet the eligibility criteria.
This regime is therefore a powerful tool for annuitants, heirs, former executives and international profiles who wish to preserve their tax privacy while reducing their overall tax burden. However, it is essential to ensure that the lump-sum payment is in line with the situation in the country of departure, particularly when assets are held in France or another country.
Plan limits and the need for vigilance
Flat-rate taxation is not an automatic system. Its implementation needs to be supervised and regularly monitored. The tax authorities may require proof that the level of expenses declared is consistent with the actual lifestyle. If there is too great a discrepancy, or a lack of transparency, the tax base may be increased, or the system called into question.
The position of third countries must also be taken into account. France, for example, grants certain treaty benefits only on condition that the Swiss resident is taxed on a basis comparable to that of an ordinary law system. As a result, certain French-source income may continue to be taxed in France, and a tax dispute may arise if the French administration considers that the tax residence has not been effectively transferred.
Swiss lump-sum taxation: our expertise
BERGEOT PAOLI Associés assists high-net-worth individuals in all stages of setting up a lump-sum tax arrangement in Switzerland. We are involved upstream in verifying eligibility for the regime, structuring assets in a way that is consistent with the requirements of Swiss tax law, compiling the application file, and negotiating with the relevant tax authorities.
We also coordinate with your Swiss contacts (trustees, lawyers, banks), monitor tax obligations in the country of departure, and prevent the risk of requalification. Our approach is pragmatic, personalized and legally secure.
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