Switzerland: Private Client Comparative Guide

1 Legislative framework

1.1 Which legislative provisions govern private client matters in your jurisdiction?

The main provisions dealing with private client matters are set out in:

• the Civil Code (eg, regarding foundations, family law and inheritance law);
• the Code of Obligations (eg, the law on gifts, employment law and company law); and
• in cross-border cases, the Private International Law Act.

Cantonal/communal tax laws are also relevant in private client matters regarding gifts and inheritance, in addition to federal law on personal taxation.

1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?

The forfeit tax regime (taxation on expenses) is available for foreign nationals only in certain cantons.

1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?

• The Hague Convention on the Law Applicable to the Form of Testamentary Dispositions;
• The Hague Convention on the Law Applicable to Trusts and on their Recognition; and
• Bilateral treaties on succession concluded by Switzerland with countries such as the United States, Italy and Greece.

2 Taxation

2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?

An individual is deemed to be a tax resident in Switzerland if he or she:

• resides in Switzerland with the intention of staying permanently;
• 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 estate or claims secured by mortgages thereon;
• gainful employment physically performed in Switzerland;
• remuneration for services as a board/management member of a Swiss company; and
• pensions and similar income from Swiss sources.

2.2 When does the personal tax year start and end in your jurisdiction?

The personal tax year is the calendar year.

2.3 With regard to income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Individuals are subject to Swiss income tax. Income tax rates are progressive at the federal level and in most cantons. In 2020, federal income tax varied from 0.77% (for individuals) and 1% (for spouses) to a maximum rate of 11.5%.

At the cantonal level, the tax rates vary significantly. For example, the maximum marginal rates – including federal income tax – are approximately:

• 45% in the city of Geneva;
• 40% in the city of Zurich; and
• 22.49% in the city of Zug.

(b) How is the taxable base determined?

Generally, worldwide income is subject to Swiss income tax. The income of the spouse and dependent children is included in a single tax return/assessment. Taxable income in Switzerland comprises the following components, among others:

• employment and self-employment income;
• income from movable assets (eg, interest and dividend income);
• income from immovable property (eg, rental income);
• income from pension schemes and the like; and
• other income not especially excluded by cantonal or federal tax law.

Foreign exempt source income is in principle relevant for the determination of the applicable tax rate/tariff.

(c) What are the relevant tax return requirements?

Tax returns must generally be filed in the canton where the taxpayer is resident at the end of the respective tax period. The official filing dates vary from canton to canton.

Foreign employees without a residence permit are subject to wage source tax. Provided that certain conditions are fulfilled, they must additionally file a subsequent ordinary tax return and declare their worldwide income and wealth.

(d) What exemptions, deductions and other forms of relief are available?

The following items, among others, are deductible from taxable income to a certain extent:

• necessary expenses incurred in connection with employment income;
• maintenance and operating costs of real estate;
• any kind of debt interest;
• contributions to qualified pension plans; and
• Swiss or foreign compulsory social security premiums; and
• other specific items.

For some expenses (eg, insurance premiums, education costs), tax-deductible amounts are standardised. These rules apply for federal as well as cantonal and communal taxes.

No specific personal deductions and allowances are granted to individuals, except

some minor standardised deductions granted in most cantons (eg, deductions for children).

To a certain extent, gifts to Swiss tax exempted charitable foundations and associations are deductible for income tax purposes.

2.4 With regard to capital gains: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

Private capital gains derived from the sale of movable assets are not taxable. Capital gains derived from the sale of immovable assets located in Switzerland (Swiss real estate) are subject to a separate tax in all cantons. For federal tax purposes, a gain or loss from a sale or exchange of business assets is treated as ordinary income or an expense item. For cantonal tax purposes, the treatment is the same, except that some cantons levy a separate tax on gains from sales or exchanges of immovable assets.

2.5 With regard to inheritances: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

There is no federal inheritance tax. At the cantonal level, all cantons except Schwyz and Obwalden levy separate inheritance taxes. The applicable tax rate varies depending on:

• the deceased's canton of residence; and
• the relationship between the deceased and the recipient of the inheritance.

The maximum rates vary from canton to canton, from about 20% to about 50% for unrelated parties.

(b) How is the taxable base determined?

In most cantons, inheritance tax is levied on worldwide assets, except for real estate located abroad. Non-residents are subject to inheritance tax on real estate located in Switzerland only.

(c) What are the relevant tax return requirements?

The rules for filing tax returns and the procedure vary depending on the competent canton.

(d) What exemptions, deductions and other forms of relief are available?

Spouses are exempt from inheritance tax in all cantons and direct descendants are exempt in most cantons. Under certain conditions, civil partners are also exempt in some cantons. Most cantons have a tax allowance and levy tax only on the amount (inheritance) that exceeds the tax allowance.

To prevent double taxation, Switzerland has entered into inheritance tax treaties with Austria, Germany, the United Kingdom, Denmark, the Netherlands, the United States, Finland and Sweden.

2.6 With regard to investment income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

A withholding tax of 35% is levied on:

• dividends;
• interest from publicly offered bonds, debentures and other instruments of indebtedness issued by Swiss residents; and
• bank interest (in excess of CHF 200 per year).

Withholding tax is not levied on ordinary loans.

For Swiss residents, withholding tax is fully recoverable. For non-residents, withholding tax is in principle a final tax, unless an applicable double tax treaty specifies otherwise.

Dividends received are treated as ordinary income, whereby qualifying dividend income from qualifying participations is only partially taxed. The deduction granted is usually 30%, but could be higher.

(b) How is the taxable base determined?

Withholding tax is levied on the gross amount of the taxable supply.

(c) What are the relevant tax return requirements?

Generally, the debtor is liable for the tax and must withhold the amount due, irrespective of whether the recipient is entitled to a full or partial refund. The debtor must file the respective declaration forms with the Swiss Federal Tax Administration.

(d) What exemptions, deductions and other forms of relief are available?

Since the capital contribution principle came into effect on 1 January 2011, repayments of capital contributions made by shareholders after 31 December 1996 that have been declared and accounted for correctly are now treated the same as repayments of nominal capital. Such repayments are generally not subject to withholding tax. The repayment of capital contributions for individuals (if shares are held as private assets) no longer represents taxable income for Swiss tax purposes.

Since 1 January 2020, there have been restrictions on the amount that a company listed on the Swiss stock exchange may distribute as capital contribution reserves. There are no restrictions for any other companies.

2.7 With regard to real estate: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Swiss real estate held by Swiss or non-Swiss residents is subject to wealth tax at the cantonal and communal levels. Moreover, the (rental) income therefrom is subject to income tax at the federal, cantonal and communal levels. If the real estate is used by the owner, income tax is levied on the imputed rental value of real estate. Property maintenance and interest costs are deductible.

Some cantons and municipalities levy an annual property tax. The applicable tax rates and the calculation method vary depending on the canton/municipality in which the real estate is situated.

Real estate transfer tax is levied by most cantons/municipalities when the real estate changes hands at rates of between 0.1% and 3%, depending on the canton.

Moreover, the transfer of Swiss real estate might be subject to real estate gains tax or inheritance/gift tax, depending on how the transfer is made (sale, inheritance or gift). In terms of real estate gains tax, the tax rates are progressive and there are surcharges for short and discounts for long holding periods.

(b) How is the taxable base determined?

The applicable taxable bases vary depending on:

• the respective real estate tax; and
• the canton where the real estate is situated.

(c) What are the relevant tax return requirements?

The rules for filing tax returns and the procedure vary depending on the canton.

(d) What exemptions, deductions and other forms of relief are available?

In terms of real estate taxes, tax exemptions, deductions and other forms of relief are available, but those vary from canton to canton. For real estate gains tax, for example, it may be found that no tax is levied if the gain is reinvested, provided that the real estate is the taxpayer's main residence.

2.8 With regard to any other direct taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What are they and what are the applicable rates?

Wealth tax is levied only at the cantonal/communal level in accordance with the respective cantonal tax laws and rates. The maximum tax burden varies considerably and ranges from approximately 0.13% in the city of Nidwalden to 1.01% in the city of Geneva. At the federal level, no wealth tax is levied.

(b) How is the taxable base determined?

The tax is based on the balance of the gross assets, including:

• immovable property;
• movable assets such as securities and bank deposits;
• (cash) redemption value of life insurance;
• cars; and
• shares in non-distributed inheritances.

Shareholdings in foreign businesses and plants are not subject to wealth tax; nor are properties abroad. However, these assets are taken into account for the calculation of the applicable wealth tax rate, where this is a progressive rate (tax exemption with progression). Worldwide debts (eg, mortgages and other loans) are deductible. If assets are located abroad, the total debts are subject to an international tax allocation.

(c) What are the relevant tax return requirements?

Generally, the worldwide wealth is declared in the individual's Swiss income tax return.

(d) What exemptions, deductions and other forms of relief are available?

Individuals can deduct debts from the gross assets, as well as tax exemptions, which vary:

• from canton to canton; and
• according to the taxpayer's marital status and whether he or she has children.

2.9 With regard to any indirect taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What are they and what are the applicable rates?

Indirect taxes represent up to 30% of all tax revenue in Switzerland. The most important indirect tax is value-added tax (VAT), which is levied at the federal level. Furthermore, excise duties on mineral oil, tobacco, cars and so on are imposed. In terms of legal transactions taxes, issuance stamp duty and securities transfer tax apply to certain transactions.

VAT is levied only at the federal level, basically on all goods and services. However, there is a list of exemptions. The general VAT rate is 7.7%, with a reduced rate of 2.5% for basic needs goods and 3.7% on services related to lodging.

(b) How is the taxable base determined?

For VAT, the basis for the calculation of the taxable amount for the supply of goods and services is the agreed or collected gross remuneration (in cash or in kind).

(c) What are the relevant tax return requirements?

VAT is owed by the supplier of goods or services (ie, the tax liability is based on the payment made by the recipient of the goods or services).

(d) What exemptions, deductions and other forms of relief are available?

Certain services in the fields of health, education, culture and the leasing/sale of real estate in particular are completely exempt from VAT. However, parties that provide such services and receive pre-supplies for them are not entitled to deduct the input VAT charged on those, unless they agree to pay tax voluntarily on the services exempted from VAT (ie, opting for taxation of the services excluded from the tax). However, certain services are precluded from this regime (eg, certain financial services). Certain basic human needs services are taxed at a reduced rate and certain hotel services at a special rate. In both cases, the taxable person may deduct the VAT charged on pre-supplies as input VAT.

3 Succession

3.1 What laws govern succession in your jurisdiction? Can succession be governed by the laws of another jurisdiction?

In Switzerland, succession is governed by the Civil Code. In cross-border matters, foreign law may apply if a relevant treaty or, in the absence of treaties, the Private International Law Act so determines. Foreign nationals with their last domicile in Switzerland may choose their national law to govern their succession. An amendment of the law is underway to give Swiss dual nationals the possibility of choosing their foreign national law to govern their succession.

3.2 How is any conflict of laws resolved?

A conflict of laws is resolved by applying the Private International Law Act and international treaties, if applicable.

3.3 Do rules of forced heirship apply in your jurisdiction?

Swiss succession law determines the statutory heirs (ie, the persons entitled to inherit from a decedent). Descendants and ancestors are divided into parentelas, as follows:

• first parentela – descendants;
• second parentela – parents and their descendants; and
• third parentela – grandparents and their descendants.

Members of one parentela are statutory heirs only 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 entitled to:

• one-half of the estate where they share with the first parentela;
• three-quarters of the estate where they share with the second parentela; and
• the entire estate where only the third parentela survives the decedent.

Swiss forced heirship rules grant the following statutory heirs a protected share, which is a quota of their statutory inheritance entitlement:

• three-quarters for descendants;
• one-half for parents; and
• one-half for the surviving spouse/registered partner.

The remainder of the estate – the so-called 'freely disposable quota', which varies between three-eighths and one-half of the estate depending on the heirs – can be freely disposed of by the testator.

As from 1 January 2023, the protected share of descendants will be reduced to one-half and the protected share of parents will be abolished.

3.4 Do the rules of succession rules apply if the deceased is intestate?

If the decedent dies intestate, the Swiss succession rules determine the statutory heirs as described in question 3.3.

3.5 Can the rules of succession be challenged? If so, how?

The rules of succession cannot be challenged. However, the violation of forced heirship rules by a testator can be challenged through different actions (eg, action for reduction, hotchpotch).

4 Wills and probate

4.1 What laws govern wills in your jurisdiction? Can a will be governed by the laws of another jurisdiction?

Wills are governed by the Civil Code.

A will can be governed by the laws of another jurisdiction if a foreign national chooses to apply his or her national law to his or her estate.

4.2 How is any conflict of laws resolved?

A conflict of laws is resolved by applying the Private International Law Act.

4.3 Are foreign wills recognised in your jurisdiction? If so, what process is followed in this regard?

Foreign wills are recognised in Switzerland based on the Hague Convention on the Law Applicable to the Form of Testamentary Dispositions.

4.4 Beyond issues of succession discussed in question 3, are there any other limitations to testamentary freedom?

When drafting a will, the testator must observe all formal requirements.

If the content of the will or a condition contained in the will is immoral or unlawful, the will can be challenged.

4.5 What formal requirements must be observed when drafting a will?

There are three types of wills:

• holographic wills;
• wills by public deed; and
• oral wills (in case of extraordinary circumstances, such as mortal danger).

A holographic will must be handwritten by the testator from beginning to end, and dated and signed by the testator.

A will by public deed must be notarised by a notary public in the presence of two witnesses. The notary public draws up the deed and gives it to the testator to read. The deed must be signed by the testator, the notary public and the witnesses. In doing so, the witnesses confirm that:

• the testator has made this declaration in their presence; and
• in their judgement, the testator was in full possession of testamentary capacity.

4.6 What best practices should be observed when drafting a will to ensure its validity?

It is recommended to seek legal advice before drawing up a will, especially in complex cross-border cases. Also, formal errors can arise very easily.

A new will should always clearly state that it revokes all previous testamentary dispositions if this is the testator's intention.

An executor should be appointed in the case of complex estates or potential disputes among the heirs.

4.7 Can a will be amended after the death of the testator?

No.

4.8 How are wills challenged in your jurisdiction?

Any interested heir or legatee may challenge a will if:

• the deceased lacked testamentary capacity or free will at the time of setting up the will;
• the will does not fulfil the formal requirements; or
• the content or conditions of the will are unlawful or immoral.

A protected heir whose protected share is violated by the will may file an action for reduction to receive his or her protected share.

4.9 What intestacy rules apply in your jurisdiction? Can these rules be challenged?

See questions 3.3 and following.

5 Trusts

5.1 What laws govern trusts or equivalent instruments in your jurisdiction? Can trusts be governed by the laws of another jurisdiction?

There is no Swiss domestic trust law. However, through Motion 18.3383, Parliament instructed the Federal Council to prepare a Swiss trust law and a group of experts has been working on proposals in this regard since June 2018. In this context, a working group of the Federal Tax Administration comprised of representatives from the Swiss Confederation, the cantons and academia is considering the tax treatment of trusts.

As a member of the Hague Convention on the Law Applicable to Trusts and on their Recognition, Switzerland recognises and has a long tradition in dealing with foreign trusts.

5.2 How is any conflict of laws resolved?

In case of a conflict of laws, the Federal Act on Private International Law refers to the Hague Trust Convention.

5.3 What different types of structures are available and what are the advantages and disadvantages of each, from the private client perspective?

N/A.

5.4 Are foreign trusts recognised in your jurisdiction? If so, what process is followed in this regard?

Yes. Foreign trusts are automatically recognised if they are validly settled according to the proper law.

5.5 How are trusts created and administered in your jurisdiction?

The creation and administration of a trust are determined by the foreign proper law.

5.6 What are the legal duties of trustees in your jurisdiction?

Trustees acting on a professional basis (ie, gross earnings of more than CHF 50,000 per calendar year; or business relationships with more than 20 contractual partners per calendar year, which are not restricted to a one-off activity) require a licence from the Financial Market Supervisory Authority before commencing their activities.

5.7 What tax regime applies to trusts in your jurisdiction? What implications does this have for settlors, trustees and beneficiaries?

A trust has no legal personality and is thus regarded as tax transparent from a Swiss tax perspective. Capital gains and income derived from the trust assets are attributed directly to either the settlor or the beneficiaries. All income derived from a trust is subject to income tax at the level of the recipient, unless income distributions from the trust are considered as a gift, which is exempt from income tax.

If the settlor is not resident in Switzerland, he or she is not subject to income tax in Switzerland.

If the settlor is tax resident in Switzerland when he or she establishes the trust, the tax treatment of the settlor will depend on the type of trust:

• The settlor of an irrevocable fixed interest trust is not subject to tax, as a final disposition has taken place. If a Swiss tax resident settles an irrevocable trust, gift taxes may arise.
• The settlor of a revocable fixed interest trust or an irrevocable discretionary trust is subject to tax, because the assets and income from those assets are attributed to the settlor.

In case of an irrevocable fixed interest trust, transfers from the settlor to the trust will be treated as a gift/inheritance subject to gift/estate tax. The assets of the trust and the income from those assets are attributed to the beneficiaries. At that stage, it must be determined whether the distributions are to be considered as income or gifts.

In case of an irrevocable discretionary trust, the beneficiaries merely have a potential future entitlement. The exact amount and the time of the distribution are at the trustee's discretion. The distribution is subject to tax once it is effectively paid out. At that time, it is necessary to determine whether the distribution is to be considered as income or a gift.

It is highly recommended to obtain a tax ruling regarding the treatment of a trust to avoid any adverse tax consequences and have clarity from a tax point of view.

5.8 What reporting requirements apply to trusts in your jurisdiction?

The trustee has:

• reporting obligations under the Common Reporting Standard – for example, regarding reportable accounts in the trust or controlling persons; and
• certain duties under the Anti-Money Laundering Act – for example, the duty to verify the beneficial owner.

5.9 What best practices should be observed in relation to the creation and administration of trusts?

N/A.

6 Trends and predictions

6.1 How would you describe the current private client landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Various foreign clients are concerned about the possible introduction of new taxes – for example, on personal or business assets or income – in their jurisdictions, in order to cover the increased state aid expenditures and increased national debt resulting from the COVID-19 pandemic. This has increased interest in tax planning, including the establishment of trusts and foundations, and the relocation of residence (including to Switzerland).

Since 1 January 2021, it is possible in an international context to include an arbitration clause in unilateral legal transactions, such as wills, bylaws or trust deeds, based on a new provision in Chapter 12 of the Private International Law Act.

An amendment to Chapter 6 of the Swiss Private International Law Act is in progress to better coordinate Swiss international inheritance law with the EU Succession Regulation. In particular, Swiss dual nationals will be able to choose the law and jurisdiction of the state of their other nationality to govern their succession. It is not yet clear when this amendment will enter into force.

A revision of Swiss foundation law is also underway, to allow for a simplified procedure for organisational changes and for amendments to the deed of foundation.

7 Tips and traps

7.1 What are your top tips for effective private client wealth management in your jurisdiction and what potential sticking points would you highlight?

As a matter of course, the first tip is to seek the support of experts in this area – including private client and tax lawyers, accountants and similar – as they will help the client to define a proposed structure for wealth and estate planning, and ensure that the client's wishes can be implemented in a tax-efficient and (to the furthest extent possible) non-litigious way.

With regard to administrative assistance procedures, there is often confusion about the conditions under which Switzerland passes on information on the full discretionary beneficiaries of trusts and foundations to requesting foreign tax authorities. In this context, it is particularly important that the data provided to banks in connection with their money-laundering investigations when opening banking relationships is correct. Unfortunately, beneficiaries are often recorded incorrectly in banking forms, which can lead to the unforeseen disclosure of data. In addition, trust and foundation structures must operate as intended. Accordingly, it is crucial that only the persons authorised under the trust or foundation deed (ie, trustees or foundation board members) communicate with banks, and not beneficiaries, who are not entitled to do so.

Co-Authored by Julian Kläser and Alexandra Neuenschwander

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.