Switzerland: Switzerland and Campione – The Ultimate Choice for Tax-Advantaged Residence

Switzerland is undoubtedly one of the most attractive countries in the world to live in. Politically stable, wealthy, very clean and safe, it offers excellent communications and transport, efficient public services, schools with an international reputation, low tax rates, and many more advantages that make it the ultimate choice for business and residence. Investors and entrepreneurs as well as persons of independent means who have connections with Switzerland and wish to retire, would normally have no problem obtaining a residence permit.

A residence permit may be obtained by establishing a company in Switzerland which then employs the individual seeking residence. Switzerland is keen to attract small and medium-sized enterprises as well as large corporations. Business-friendly by tradition, the 26 cantons offer a wide range of opportunities and a solution to suit all needs and expectations. The advantages associated with Switzerland are complemented by other benefits specific to each canton. Even tax breaks may be available if the business is going to be sizeable and create numerous jobs. In addition to these advantages, personal and corporate taxation in certain cantons of Switzerland is among the lowest in Europe.

Alternatively, you may establish your residence in Switzerland if you are over 55 years of age, financially independent and can show evidence of close ties to Switzerland. You may then avail yourself of a lump-sum taxation arrangement (forfait fiscal, Pauschalbesteuerung) instead of the usual taxation on worldwide income and assets. This special taxation regime - but not the granting of the permit, which has to be approved by the Federal authorities - is negotiated on an individual basis and is decided on by the cantonal authorities. The possibility of lump-sum taxation as well as the high degree of privacy and personal security enjoyed by its inhabitants make Switzerland the residence of choice for many celebrities and wealthy retirees.

Personal taxes in Switzerland vary depending on the canton and community in which an individual resides, works or has otherwise invested. While Swiss Federal tax applies throughout the country, each canton has its own tax system and sets its own tax rates. While normal taxation is already reasonable, foreigners who establish their residence in Switzerland for the first time (or after an absence from the country of at least 10 years) may pay a fixed amount of tax each year, provided they do not work in Switzerland. In practice, this amount is based either on their rental payments or on the rental value of their property in Switzerland, and has no relation to their actual worldwide income or assets. Indeed, there is no requirement to declare your worldwide income or assets. Your taxable income is calculated as five times this annual rent. You then pay the normal tax rate for the town and canton in which you live. For example, if the annual rental value of your apartment is CHF 40,000, your taxable income will be CHF 200,000, i.e. five times this annual rent. On this hypothetical income you may expect to pay approximately 30% in taxes, which amounts to a total annual tax bill of CHF 60,000. This amount is the lump-sum tax payable to the tax authorities and represents your total tax liability. There are considerable differences between cantons and even between individual communities. Furthermore, there are many issues to be considered when calculating the tax liability of a particular person, especially if he/she has further assets in Switzerland or has an interest in using the Swiss double tax treaties to obtain a refund of taxes paid abroad. This fiscal arrangement is based on Switzerland's Federal law and is therefore available throughout the country. It is a well-established part of the Swiss tax system and has been in use for a long time.

Switzerland is also an attractive place of residence with regard to inheritance taxes. The country has no Federal inheritance or gift taxes. Instead, the cantons levy inheritance and gift taxes in their own competence. The Canton of Schwyz dispenses entirely with inheritance or gift taxes, and many cantons do not levy inheritance taxes between spouses and between parents and children, or have set a very modest tax rate of below 10 % for descendants.

Switzerland has restricted the acquisition of real estate by foreigners for decades. In principle, all foreigners who wish to acquire property there must obtain approval prior to their purchase, which will otherwise be invalid. However, since 1997 foreigners holding a Swiss residence permit are allowed to purchase a reasonably sized house or apartment for their personal use with no further need to seek prior approval. Likewise, foreign-controlled Swiss companies which purchase real estate for use as their own offices or production facilities may do so without restrictions.

Residence in Campione, a small Italian enclave of 1.7 square kilometres located entirely within Switzerland and ideally situated on the eastern shore of Lake Lugano, represents an attractive alternative to Switzerland. It allows you to establish yourself practically in Switzerland while benefiting from an even more attractive tax environment. In practice, the total tax bill for foreign residents in Campione is based on the value of the property they own in the community and is in the order of CHF 10,000 to 20,000 per year regardless of their worldwide income and assets. Besides showing evidence of sufficient funds, the main condition for obtaining a residence permit is the acquisition or rental of an apartment or house. Resident foreigners enjoy most of the advantages of Switzerland while avoiding almost all taxation – even Italian value added tax does not apply there. The official currency is the Swiss franc and all banking is done through Swiss banks. Nevertheless, Campione is part of the province of Como and is subject to Italian law. Its famous Casino generates substantial revenue, which certainly helps Campione’s foreign residents to continue enjoying a very favourable tax environment into the future.