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Lump-sum taxation, or “taxation according to expenditure”, is a Swiss tax regime that continues to draw international attention. It targets wealthy foreign individuals who take residence in Switzerland for the first time or after a long absence, do not engage in gainful activity, and are taxed based on their living expenses.
Legal framework and application
The regime is based on Art. 14 of the Federal Income Tax Act (DBG) and corresponding cantonal provisions. Taxation is determined by annual living expenses rather than worldwide income. For federal tax purposes, the taxable amount must be at least the higher of:
- 7 times the annual rental value or imputed rental value; or
- CHF 434,700.
The effective tax burden varies by canton, as some no longer offer the regime. Currently, about 17 cantons still apply lump-sum taxation.
International significance
Lump-sum taxation enhances Switzerland's appeal to high-net-worth individuals (HNWIs) compared with other preferential regimes, such as Italy's flat tax, or the (now abolished) UK non-dom status. In an era of tax harmonisation and minimum taxation rules, lump-sum taxation strengthens Switzerland's competitiveness as a relocation destination.
Advantages and criticism
For individuals, lump-sum taxation offers a predictable, often lower, tax burden and simplified compliance. Combined with Switzerland's political stability, quality of life, and international connectivity, it provides a compelling residence option.
For the public sector, it generates additional revenue, encourages investment, and supports local economic activity. Critics argue it challenges equality, as ordinary residents declare full income while lump-sum taxpayers benefit from preferential treatment. Cantonal differences are significant – some have abolished the regime, while others maintain it to preserve competitiveness.
Outlook and fiscal clause
Despite political debate and international pressure, lump-sum taxation remains part of Swiss law. The 2014 federal vote narrowly rejected its abolition, reflecting national support. Compared internationally, Switzerland offers stability and long-term planning advantages.
An additional point of interest is the fiscal clause under the Federal Act on Foreign Nationals and Integration (FNIA). This allows third-country nationals, by exception, to obtain tax-advantaged residence in Switzerland. The combination of lump-sum taxation and FNIA exceptions makes Switzerland especially attractive, even for non-EU/EFTA individuals, and underlines its unique position as a relocation and tax planning destination.
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.
