Residing or doing business between France and Switzerland raises complex tax issues. Differences in tax systems, residency rules, taxation of income and assets, double taxation mechanisms and declaratory procedures require a thorough understanding of the tax laws of both countries. If this is not done in advance, there is a high risk of declaratory errors or tax reassessments. BERGEOT PAOLI Associés assists its clients in analyzing these cross-border situations, with a strategy adapted to each profile.
Overview of the French and Swiss tax systems
The French tax system is based on a progressive income tax, applied to all the income of the tax household. Tax is levied on all the worldwide income of a tax resident, including salaries, dividends, capital gains, pensions and property income. Added to this is the real estate wealth tax (IFI) and various social security contributions.
Switzerland takes a very different approach: taxation is decentralized, with rates varying according to canton and commune of residence. Wealth tax is more widely applied than in France, but income tax can be more favorable, particularly for high-income taxpayers. This decentralization creates significant differences in tax pressure for the same income.
Tax residence as the pivot of taxation
The notion of tax residence is decisive. Under French law, residence is defined as the place of domicile, the center of economic interests and the place where the main activity is carried out. Switzerland, on the other hand, considers a person to be resident if he or she stays for more than 30 days with gainful employment, or 90 days without employment, or if he or she has a dwelling with the intention of settling there permanently.
In cases of mobility between the two countries, bilateral treaties lay down a hierarchy of criteria for resolving situations of dual residence: place of home, center of vital interests, habitual residence, then nationality. The aim of this mechanism is to designate a single competent state to tax all income, thus avoiding double taxation.
This problem affects expatriates, cross-border commuters, retirees, entrepreneurs and people with second homes in both countries. Incorrect assessment of tax residence can result in incorrect taxation, and trigger disputes with the tax authorities.
Taxation of income, assets and pensions
The location of the tax residence determines the taxation of different categories of income. Salaries are generally taxed in the country where they are earned, except in special cases (cross-border commuters, seconded workers, teleworkers). Self-employed workers are taxed in the country where their activity is carried out on a stable basis.
Capital income, such as dividends, capital gains or interest, may be taxed not only in the country of residence, but also in the country of source, with withholding taxes provided for in the tax treaty. To avoid double taxation, you need to be aware of the rules governing deductions and exemptions.
France applies the IFI to real estate located in France or abroad if the taxpayer is a French tax resident. Switzerland applies a global wealth tax, according to cantonal scales. If you own real estate in either country, coordination is essential.
Finally, public pensions are taxed in the country of payment, while private pensions are generally taxed in the country of residence. This distinction can have major implications, particularly in the case of lump-sum payments from a Swiss 2nd or 3rd pillar.
Tax treaties and adjustment mechanisms
The tax treaty between France and Switzerland divides taxation rights according to the nature of the income. When the same income is theoretically taxable in both countries, mechanisms for eliminating double taxation apply. The progressive exemption method is sometimes used, but the most common method is the tax credit, which deducts from the French tax the tax already paid in Switzerland.
Overlapping situations, whether poorly anticipated or incorrectly declared, can be the subject of amicable procedures between the two tax authorities. However, the taxpayer must have declared his income correctly in each country, and be able to produce the necessary supporting documents.
Declaration formalities and litigation risks
In addition to the rules governing taxation, reporting obligations differ depending on the country of residence. In France, taxpayers must declare all their worldwide income, as well as accounts opened abroad (form 3916), life insurance policies taken out outside France, and real estate assets located in other countries. Failure to do so can result in severe penalties.
In Switzerland, each canton has its own forms, and tax is often deducted at source for foreign workers. Regularization may be requested at the end of the year. Swiss taxpayers must also declare their worldwide assets, including those in France.
An ill-timed change of residence, a hasty departure or an incomplete tax return can trigger a tax audit. France and Switzerland cooperate in the automatic exchange of information. It is therefore advisable to document your situation precisely, to archive proof of residence, income and tax returns, and to secure your situation before any transfer of residence.
A customized, cross-border approach
Between the complexity of tax regimes, the risk of reassessment, the diversity of situations and treaty rules, managing Franco-Swiss tax affairs is more than a simple declaration. It involves an overall strategy, based on the taxpayer’s tax residence, type of income, asset location and wealth objectives.
BERGEOT PAOLI Associés offers tailor-made support, from analysis of the tax residence to optimization of asset flows and coordination with banking, notary and accounting partners. Each situation is studied individually, in compliance with French and Swiss tax law, with particular attention paid to the consistency of declarations and the traceability of choices made. This personalized support is based on in-depth expertise in personal taxation, for both residents and cross-border taxpayers.