Swiss forfait tax – What you need to know
1.What is the forfait about?
Switzerland has for decades had the so-called forfait taxation regime, essentially allowing foreign nationals relocating to Switzerland to pay tax on their worldwide expenditure.
The forfait regime is often mentioned alongside the UK and Irish non dom-regimes and, more recently, the Italian regime available to new residents. By comparison, the forfait regime, coupled with other advantages of the Swiss tax system, is more beneficial on many counts (e.g. legal certainty and/or inheritance tax). In particular as far as professional activity is concerned, however, the regimes on the islands may be perceived as carrying the day.
2. Can I apply?
The forfait regime is available to foreign nationals taking up tax residence in Switzerland for the first time or after an absence of at least 10 years.
Although the regime was originally aimed at wealthy foreigners coming to spend the autumn of their life in Switzerland there has never been a minimum age (nor maximum, for that matter).
3. Can I work?
To be eligible for the forfait regime you may not exercise any paid work in Switzerland, neither as employee nor in a self-employed capacity.
Gainful activity abroad is permissible, however.
4. I would be entitled, then. But my spouse is Swiss. Can I still get the forfait?
No, you can’t. Both spouses must fulfil all criteria.
5. I’m a dual national. Am I eligible?
No, dual citizens with Swiss nationality do not qualify either (and never did).
6. How do I calculate my tax?
Forfait taxation is essentially based on (i) the taxpayer’s worldwide living expenses that serve as tax base, (ii) the rent multiple (7 x annual rent for accommodation) or (iii) the so-called control calculation to which ordinary tax rates are then applied.
Living expenses include in particular worldwide costs for accommodation, general living, cars, aircrafts and yachts, housekeeping and personnel in respect of all individuals (family members etc.) financially supported by the taxpayer.
Put simply, the tax base corresponds to what it takes to keep the family going, whereby cantons have substantial leeway in determining the practical aspects. The minimum base for Federal tax purposes is CHF 400’000.
And there is another factor to take into account, the so-called control calculation. Tax payable under forfait must be at least equal to (income and wealth) tax payable at ordinary rates on (i) Swiss real estate and related income, (ii) movable assets located in Switzerland and related income, (iii) Swiss securities and related income, (iv) Swiss intellectual property and related income, (v) Swiss source pensions and (vi) income for which treaty benefits are claimed (for treaty benefits see question 8).
Swiss securities comprise Swiss shares and dividends or interest from Swiss sources. Whereas a portfolio of non-Swiss shares held and managed by a Swiss bank should not give rise to any issues, interest, if any, on a Swiss cash account may.
Treaty protected income will typically include non-Swiss dividends or royalties subject to a withholding tax in the source country. Such income must be included in the control calculation if a reduction of source tax is claimed under an applicable treaty (question 8).
In summary, the tax base is usually the higher of (a) CHF 400,000, (b) worldwide living expenses, (c) the rent multiple or (d) the sum of the control calculation.
7. As a forfait tax payer, do I get the benefit of double tax agreements (DTA)?
Any income for which treaty protection is claimed will need to be included in the so-called control calculation.
Some DTA will not accept a forfait tax payer as tax resident. Others contain express provisions in respect of forfait tax payers, namely those with Germany, Belgium, Norway, Italy, Austria, Canada the US and France. Typically, these DTA will require any treaty protected income to be included in the tax base. That said, in particular with France there is some uncertainty in practice as to the treatment of French source income.
8. Social security? – no one ever told me
Forfait tax payers under the age of 65 are subject to social security contributions. Depending in particular on an individual’s wealth the contribution may amount up to CHF 24’000 plus approx. 5% administrative costs per person.
9. Procedure – how do I obtain my forfait and what do I have to disclose?
Obtaining the forfait is usually less of an issue than immigration, especially for non-EU nationals.
Once the chosen place of residence has been identified one would typically approach the local cantonal tax authorities. They are competent to grant a forfait ruling. Immigration authorities will have to be consulted with, too, as they issue the residence permit.
Information to be provided includes an individual’s worldwide living expenses and an approximation of his or her wealth. The level of detail requested by the authorities varies greatly between cantons.