Switzerland: Tax-Advantaged Residence, Lump-Sum Taxation and the Use of Pre-Immigration Trusts in Switzerland

Last Updated: 23 September 2002
Article by Christian H. Kälin

Switzerland is certainly one of the most attractive countries in the world to live in. Its political and economic stability, combined with excellent communications and transport links, efficient public services, low tax rates and many more advantages make it the ultimate choice for business and residence. Interesting tax planning opportunities are offered by recent changes in Swiss immigration law in conjunction with the unique preferential lump-sum taxation regime available to foreigners who are not gainfully occupied in Switzerland. This makes Switzerland even more attractive as a place of residence particularly for wealthy EU citizens. Due to the absence of clear rules regarding the legal recognition and taxation of trusts, the use of trusts in the context of pre-immigration tax and estate planning offers interesting possibilities but depends considerably on whether a favourable tax ruling can be obtained from the cantonal tax authorities where the client wishes to reside. Nevertheless, also in this regard Switzerland offers interesting planning opportunities and considerable flexibility for wealthy individuals and families who wish to make Switzerland their home.

Lump-sum taxation and residence in Switzerland

Foreigners who fulfil certain requirements can avail themselves of a special tax arrangement, often referred to as lump-sum taxation (forfait fiscal in French, Pauschalbesteuerung in German), whereby Swiss taxes are levied on the basis of expenditures and standard of living in Switzerland rather than on the usual worldwide income and assets.

Swiss tax law requires that a foreigner wishing to benefit from this special tax regime must not have been resident in Switzerland during the last ten years. Moreover, he or she may not carry out a gainful occupation. Indeed, the lump-sum taxation provisions are specifically aimed at financially independent persons who are not seeking employment in Switzerland. The tax regulations specify no age requirements or similar restrictions.

However, all foreigners who wish to become resident in Switzerland must of course obtain a residence permit under one of the categories provided for by Swiss immigration law. Permits may be issued to foreigners who do not intend to carry on a gainful occupation in Switzerland. In general, retired persons may obtain a residence permit only if they are over 55 years of age, can demonstrate close ties to Switzerland and show that they have sufficient financial means. The key condition here is the minimum age of 55 years, which appears to exclude the possibility of a lump sum arrangement for younger persons, unless they qualified under special provisions, which are however applied very rarely, for instance in the case of celebrities or where it is in the national interest to grant a residence permit to a particular person.

Despite these restrictive regulations, foreigners who do not meet the age requirement under the retired persons category may still obtain a residence permit and benefit from the lump-sum taxation arrangements in some cantons. Provided they agree to pay a certain minimum in annual taxes, which is generally higher than for persons over 55 years of age and which again varies from canton to canton, they may obtain a permit by establishing a company in that canton and receiving a residence permit under the annual cantonal residence permit quota. The cantonal tax authorities will then still qualify them as not pursuing a gainful occupation and thus agree to apply the lump-sum tax regime. While this is possible in some cantons, others such do not allow financially independent persons under 55 years of age to obtain a residence permit while at the same time benefiting from a lump-sum tax arrangement.

The changes in Swiss immigration law and regulations resulting from the Agreement on the Free Movement of Persons between Switzerland and the European Union, which came into effect 1 June 2002, has removed the restrictions imposed by Swiss immigration law on residence permits for financially independent EU citizens. As the lump-sum taxation regime remains unaffected by these changes, it will henceforth be possible for all EU citizens who can show sufficient financial means to become resident and benefit from lump-sum taxation in all cantons throughout Switzerland.

EU citizens can now easily benefit from lump-sum taxation

The combination of the new immigration rules for financially independent EU citizens and the unchanged lump-sum taxation regime means unrestricted access to Switzerland for EU citizens while giving them the option of benefiting from lump-sum tax arrangements anywhere in the country, regardless of the canton in which they wish to settle.

Under the lump sum taxation regime, the Swiss tax authorities generally require the assessment of a minimum taxable income that amounts to at least five times the annual rental payments for the apartment or house in which the foreigner will reside in Switzerland. In case of owned real estate, the annual rental value is taken as the basis for this calculation. An important aspect of the lump-sum taxation regime is also that if taxed on this basis, you are not asked to declare your worldwide income or assets, which offers wealthy individuals considerable privacy with regards to their financial affairs. The amount of tax effectively payable, however, must exceed the income tax that would be due on certain expenses in Switzerland. It must also exceed the tax that would be due on Swiss source income as well as income for which a partial or total reduction of foreign taxes is requested by virtue of an international tax treaty.

The modified lump-sum tax

In several double taxation agreements concluded by Switzerland, including the treaties with Belgium, France and Germany, it has been agreed to limit treaty benefits to foreign source income which is taxed in Switzerland at the regular tax rates. Because these treaty clauses would normally exclude persons who are taxed under a lump-sum arrangement, modified lump-sum taxation has been introduced. Under the modified lump-sum taxation regime, the income derived from the respective treaty country will be included in the assessed tax base. In order for the tax authorities to determine the correct tax rates at which the foreign source income should be taxed, the total worldwide income would have to be taken into account. However, if the worldwide income is not declared, then the highest tax rates apply on the respective foreign-source income for which treaty relief is sought.

Limited or no gift and inheritance taxes

Besides offering a unique lump-sum taxation regime that effectively caps the income and net wealth tax for qualifying foreigners, Switzerland is also an attractive place of residence with regard to inheritance and gift taxes. The country has no Federal inheritance or gift taxes. Instead, the cantons levy inheritance and gift taxes in their own competence, which means that there are 26 different inheritance and gift tax regimes. The Canton of Schwyz dispenses entirely with inheritance or gift taxes, and many cantons do not levy inheritance taxes between spouses or between parents and children, or levy only a very modest tax of below 10% for descendants. According to the cantonal inheritance and gift tax laws, the relevant cantons are competent to levy these taxes on real estate situated in the canton and on the worldwide estate of deceased persons or donors who had their last domicile in that canton. Where inheritance and gift taxes apply, there is usually a progressive scale depending on the relationship and size of the donated property or estate. The highest tax rates apply to gifts and inheritances between persons who are not related to each other and in such cases tax rates may reach up to about 50% in certain cantons. So it is also important to pay attention to the applicable cantonal gift and estate taxes when choosing one’s place of residence in Switzerland. The absence of inheritance and gift taxes, or the very low tax rates, naturally provide interesting possibilities for succession planning. Besides this scope for tax planning, Swiss international private law also allows foreigners who live in Switzerland to choose whether to apply the inheritance law of Switzerland or of their country of origin, a situation that offers further flexibility for estate planning.

Trusts in Switzerland and the use of Pre-Immigration Trusts

Switzerland being a civil-law country, trusts are practically unknown in Swiss law, which provides for fiduciary agreements and foundations, but not for trust arrangements. As a result, considerable legal uncertainty surrounds foreign trusts with some connection to Switzerland, for instance in the form of a Swiss trustee, trust assets located in Switzerland, Swiss resident beneficiaries or settlors. This uncertainty exists both with respect to the legal recognition and the taxation of trusts. Nevertheless, because Switzerland is one of the most important private banking centres in the world, trusts are well known to Swiss bankers, fiduciaries and lawyers who service international private clients and they have been in use in Switzerland for quite a long time. Even the Swiss tax authorities have become familiar with trusts and several cantons have established principles for the tax rules to be applied to trusts linked to Switzerland. As an increasing number of wealthy foreigners are moving their residence to Switzerland, particular questions have arisen with regard to the treatment of trusts which they had established prior to settling in the country, or trusts established while they are resident in Switzerland.

Essentially, two issues need to be considered. The first relates to the legal recognition of trusts. It has been suggested that Switzerland should ratify the Hague Convention on the law applicable to trusts and their recognition, even though such a step would not fully address the many legal uncertainties existing for trusts with a Swiss connection. Although the Swiss government commissioned a report, which was published early in 2001, on whether or not Switzerland should join the Convention, the Swiss Government has shown little interest in proceeding further. In the meantime, lawyers and courts - as well as persons involved in trusts - have to live with the fact that trusts are, in principle, not recognised in Switzerland. The second issue relates to the tax treatment of trusts. The tax authorities in a number of cantons, for example Zurich and Vaud, have developed principles on how they tax trusts and the persons involved in trust arrangements, such as beneficiaries, settlors and trustees. However, these principles are not consistent and considerable differences exist throughout Switzerland with regard to the tax treatment of trusts. Great care must therefore be taken in drafting the trust deed before a trust with a Swiss connection is established, or before a foreign national moves to Switzerland if he or she is in some way connected to a trust, for example as a settlor or beneficiary. In most cases it is also essential to discuss and obtain a tax ruling from the competent tax authorities in the locality where the person concerned intends to reside.

Tax rulings are essential with regard to trusts

Not only does Swiss law give no legal recognition to trusts, it also fails to stipulate any clear taxation rules for them, so that their tax treatment is uncertain. Trusts are consequently liable to general taxation rules, which can lead to inappropriate results, and as these rules differ between cantons, a wide range of different scenarios exists with regard to the taxation of trusts. The creation of a trust may lead to gift and estate taxes, which may in certain situations be levied again later upon distribution. Wealth and income taxes could be levied from the beneficiaries, trustees or settlors, depending on the trust deed and the opinion of the responsible tax authorities. While these uncertainties with regard to the taxation of trusts make it difficult to gain an overview, Switzerland fortunately allows tax scenarios to be submitted to the tax authorities in order to obtain tax rulings. Individuals and families who live outside Switzerland but who intend to establish their residence in Switzerland have a further advantage: the cantonal authorities are usually quite flexible and willing to grant a favourable tax ruling because they are interested in attracting wealthy foreign residents.

These aspects, but also the possibility of lump-sum taxation arrangements and the high degree of privacy and personal security enjoyed by its inhabitants, already make Switzerland the residence of choice of many wealthy retirees and international celebrities. In the future, the liberalisation of the Swiss immigration regulations for EU citizens will make Switzerland an even more attractive place of residence for financially independent persons from all over the European Union who wish to relocate to a milder tax climate.

Residence in Switzerland - Key Advantages:

  • Political, social and economic stability
  • First class infrastructure, excellent banking facilities
  • Very attractive lifestyle and healthy environment
  • Efficient and reliable public services
  • Flat tax arrangements possible for qualifying foreigners
  • Pre-immigration trusts may be used for tax planning
  • Tax rulings may be obtained easily

How the lump-sum tax is calculated

The hypothetical taxable income is based, as mentioned above, on the rental payments (or the rental value of the apartment or house) in Switzerland, and it therefore bears no relation to actual worldwide income or assets. Suppose the annual rental value of your apartment in Switzerland is CHF 50,000. The taxable income is then calculated as five times the annual rent, which amounts to CHF 250,000. This amount serves as the hypothetical annual income on which the normal tax rates apply, which of course vary depending on the canton as well as the commune in which you live. On an income of CHF 250,000, you may expect to pay approximately 40% in taxes, which amounts to a total annual income tax bill of about CHF 100,000, on top of social security contributions. In addition to this calculation for income tax, five times the annual rental value will be capitalised to calculate the taxable hypothetical net wealth on which the cantonal net wealth tax is applied, which would amount to a total wealth tax bill of about CHF 20,000. These two calculated amounts added together will then yield the lump-sum tax payable to the tax authorities and represent your total tax liability, regardless of your worldwide income and assets. If you rent or own a large property in Switzerland, its rental value will be higher and your total annual tax bill will consequently be higher as well.

Just as under ordinary taxation, with a lump-sum taxation arrangement the overall tax rate also depends on the actual place of residence, and there are considerable differences between cantons and even between individual communes. Moreover, other income elements must also be considered when calculating the total tax liability, namely whether assets or sources of income are located in Switzerland or if it is of interest to the taxpayer to claim tax treaty relief under one of the double tax treaties concluded by Switzerland. If the tax on such income exceeds the tax on the lump-sum amount agreed with the tax authorities, then the income tax for the respective year will be levied on the higher amount. Income from all other sources is not relevant and does therefore not have to be disclosed to the Swiss tax authorities.

Acquisition of Swiss Real Estate

Swiss real estate has been in high demand by foreigners for a long time. As a result, Switzerland has restricted the right of such acquisition for decades. It is even widely believed that foreigners are not permitted to purchase Swiss real estate. In principle, however, all foreigners who wish to acquire Swiss residential real estate must obtain approval prior to their purchase, which will otherwise be invalid. Such approval is difficult to obtain. A foreigner may be authorised to purchase a holiday home in a place designated by the respective cantonal authorities as a holiday resort. But every authorisation must be deducted from the annual quota assigned to the cantons by the Federal government for holiday homes and hotel condominium units. The cantons and communes may also apply their own restrictions, which may be even more stringent. Holiday homes and hotel condominium units may only be acquired by physical persons under their own name, and under no circumstances by a company. These restrictions also mean that tax and estate planning options with regard to Swiss holiday homes owned by foreigners are very limited.

However, foreigners who hold a Swiss residence permit can now acquire real estate easily and without restrictions. Since 1997, foreigners holding a Swiss residence permit may purchase a reasonably sized house or apartment for their personal use with no further need to seek prior approval. Even if a foreigner subsequently leaves the country, he or she is not forced to sell again and can therefore keep their property. As financially independent EU citizens are easily able to obtain a Swiss residence permit, they also gain the right to acquire Swiss residential real estate for their own personal use.

While these provisions concern only residential real estate, the acquisition and holding of purely commercial real estate by foreigners or foreign entities is no longer restricted in Switzerland. As a result, there is again ample scope for tax planning by foreigners and foreign entities wishing to invest in Swiss commercial real estate.

Henley & Partners

Henley & Partners are recognised as the world’s leading specialists in exclusive relocation and residence solutions. In addition, Henley & Partners provide international tax planning and trust services for private clients.

About the Author

Christian H. Kälin

Christian H. Kälin is an international tax and estate-planning specialist and a partner at Henley & Partners, Zurich. He is also a member of the board of the International Financial and Legal Network (IFLN), Zurich. After completing Zurich Business School and his training at a Swiss private bank, he lived and studied for many years in France, the USA, New Zealand and Switzerland. A holder of a cum laude law degree from the University of Zurich, he is a frequent writer and speaker on international tax-planning issues, in particular on cross-border business relocation and private residence planning. He also specialises in the structure of international real estate.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions