Effective 1 January 2025, various tax provisions came into force. These range from the introduction of the International Income Inclusion Rule (IIR) to the partial re.vision of VAT legislation concerning platform taxation, and the reduction of the import exemption threshold for travelers to CHF 150. In the following, the most important points of the new regulations coming into force are briefly summarized
On 4 September 2024, the Federal Council decided to implement the International Income Inclusion Rule (IIR), effective 1 January 2025. The IIR ensures that profits of foreign subsidiaries of Swiss corporate groups and intermediary holding companies of foreign corporate groups are taxed at a minimum rate of 15%. This applies to corporate groups with a global turnover of at least EUR 750 million.
Without the IIR, other countries would, under the OECD/G20 minimum taxation rules, have the right to tax these foreign profits through the so-called Undertaxed Profits Rule (UTPR). Switzerland has decided not to implement the UTPR for the time being.
Further information can be found under this LINK
Also, the partially revised VAT Act and the partially revised VAT Ordinance will come into force on 1 January 2025. In particular, the changes in connection with platform taxation should be emphasized. Operators of electronic platforms that facilitate a delivery as an intermediary between buyer and seller and the conclusion of a corresponding contract on their platform are now expressly deemed to be service providers vis-à-vis the buyer. Specifically, the supply is divided into two fictitious deliveries, whereby the first delivery between the seller and the platform operator is exempt from tax and the second delivery between the platform operator and the buyer is taxed.
Further details, including other VAT-related changes, are available under this LINK
The introduction of the Federal Act on Combating Abusive Bankruptcy is accompanied, among other things, by the implementation of Art. 112 para. 4 of the Federal Act on Direct Federal Taxation. According to this provision, the tax authorities are required to report to the commercial register office if no signed annual financial statements were filed by the company within three months of the expiry of the relevant deadlines. In addition, creditors under public law, such as the tax authorities, must file for bankruptcy if the debtor is entered in the commercial register.
Further information can be found under this LINK
From 2025, in fulfilment of the motion ‘Stop the tax penalty in Pillar 3b’, the taxation of life annuities in Pillar 3b will be flexibly adapted to the respective investment conditions. This will eliminate the previous systematic over-taxation of pension benefits and significantly mitigate the tax on redemption and buyback of life annuity insurance policies. Until now, a flat-rate income component of 40 per cent of pension benefits was taxed and the remaining 60 per cent was treated as a tax-free capital repayment. From 1 January 2025, the taxable income portion of the guaranteed pension benefit for life annuity insurance policies within the meaning of the Insurance Contract Act will be based on FINMA's maximum interest rate. Surplus benefits that exceed the guaranteed annuities will be taxed at 70 per cent. The taxable income portion of current life annuities is subject to withholding tax and must be reported annually by the insurance companies to the FTA. These reports are forwarded to the cantonal tax authorities for control purposes.
Further information can be found under this LINK
From 1 January 2025, it will also be possible to pay missed contributions into Pillar 3a retrospectively on a tax-privileged basis. From 1 January 2025, anyone who has made no or only partial contributions to a tied pension plan (‘Pillar 3a’) will be able to retroactively make up for these contributions for up to ten years and deduct them in full from their taxable income. Specifically, in addition to the regular contributions per year, it will be possible to make a purchase up to a maximum of the so-called ‘small contribution’. The following conditions apply to a retroactive purchase:
It should be noted that the aforementioned changes only apply to contribution gaps from 2025 onwards, which means that purchases can be made retroactively for 2025 for the first time in the 2026 tax year. Payments for missed purchases before 2025 are therefore not possible.
Further information can be found under this LINK
In principle, the right to tax income from employment according to double taxation agreements is determined by the place where the work is physically carried out. In the case of teleworking, the right of taxation would therefore change from the employer's country of domicile to the employee's country of residence.
The amendment to the law now creates an internal legal basis for the taxation at source of employees who are not resident in Switzerland for tax purposes and who work for a Swiss employer from a neighboring country in a home office.
This regulation is closely linked to the international agreements on the allocation of taxation rights between Switzerland and its neighboring countries. The supplementary agreements with France and Italy create the possibility for teleworking for a Swiss employer to continue to be taxed in Switzerland up to a certain level, even if the work is not carried out locally. Specifically, the supplementary agreement with France allows taxation by Switzerland if up to 40 per cent of working hours are performed outside Switzerland. Under the protocol with Italy, an upper limit of 25 per cent of working time applies.
The new taxation basis is aimed at implementing the above-mentioned international treaty provisions and ensures that Switzerland can exercise its right of taxation accordingly.
Further information can be found under this LINK
With the amendment to the Federal Department of Finance ordinance on the tax-exempt importation of goods in small quantities, of insignificant value or of a negligible tax amount, goods for the private use of travelers may only be imported tax-free up to a total value of CHF 150 (previously: CHF 300) per person and day. If the total value exceeds this limit, Swiss VAT must be paid on the imported goods.
Further information can be found under this LINK
The UK non-dom regime will be definitively abolished and will no longer be available from 6 April 2025, which will bring alternative locations into focus for affected individuals. With its lump-sum taxation, Switzerland offers an attractive alternative that can provide significant tax advantages with careful planning. In addition, Switzerland currently has an attractive inheritance tax system with partial or full tax exemption for spouses and direct descendants.
As announced, the UK will definitively abolish the so-called "non-dom regime" with the 2025 Budget. This regime will no longer be available from 6 April 2025 and will be replaced by a residence-based regime, whereby UK residents will be taxed on their worldwide income. In addition, in future assets held outside the UK will also be subject to UK inheritance tax.
A short transitional period is planned for persons who have previously made use of the non-dom regime, which will gradually increase the tax burden when repatriating foreign sourced income to the UK. In addition, new residents in the UK can elect not to pay UK tax on foreign income and gains in their first four years of UK tax residence. This provision, however, will only be available for a limited number of persons previously taxed under the non-dom regime since this option is only applicable for first time UK residents or new residents who return to the UK after a ten-year absence of residency in the UK.
The abolition of the non-dom regime will make it necessary for affected persons to examine alternatives and adapt their current tax strategy. In this respect, Switzerland can offer an attractive alternative with its lump-sum taxation and advantageous inheritance tax system, which is characterized by a low tax burden and a high degree of stability.
The lump-sum taxation or taxation based on living expenditure in Switzerland or the cantons which apply this tax regime is aimed at foreign nationals who wish to relocate to Switzerland for the first time or after an absence of ten years and who do not pursue any gainful activity in Switzerland. In case of a married couple, these conditions currently have to be met by both spouses.
A major advantage of lump-sum taxation in Switzerland is of course that considerable tax advantages can be achieved through a well-coordinated structuring of income-generating assets, while at the same time achieving a high degree of stability in the annual tax burden. In addition, under lump-sum taxation or taxation according to living expenditure, income from foreign sources and foreign assets generally do not have to be declared.
Specifically, lump-sum taxation replaces ordinary income tax by determining the taxable income of the person concerned on the basis of their annual worldwide living expenses. In addition, the wealth tax payable at cantonal level is also replaced by the lump sum taxation. Taxable assets are generally calculated using a mid-single-digit multiplier of the income tax base. This means that the basis for the lump-sum settlement of wealth tax is often considerably lower than the assets actually held.
As lump-sum taxation is in tension with ordinary taxation, guidelines have been defined to ensure a minimum level of taxation and a certain degree of control over the basis of taxation. For example, the lump-sum income tax must in any case at least correspond to the gross income from Swiss sources (so-called control calculation). In addition, the following minimum figures must be observed for the taxable income to be determined as a lump sum at federal level:
In principle, the same thresholds apply at cantonal level, although the level of these thresholds varies from canton to canton. For example, the canton of Valais has a minimum income of CHF 250,000, while the canton of Schwyz has a minimum income of CHF 600,000. In addition to the different minimum income thresholds, it is also important to consider the cantonal tax rates, which can vary considerably. Taking into account the flat-rate taxable assets, the tax burden calculated on the statutory minimum income, for example, in Verbier in the canton of Valais and that, for example, in Freienbach in the canton of Schwyz are roughly the same at just over CHF 100,000 (including federal tax in each case). In addition, social security contributions for non-employed persons who have not yet reached retirement age is levied in all Swiss cantons, which amount to a maximum of CHF 25,700 per person with assets of CHF 8.74 million or more.
Assumptions: A married couple with UK citizenship move to Verbier, Canton Valais, with their own household. The annual worldwide living expenses amount to CHF 300,000, with gross income from foreign sources totaling CHF 750,000 and gross income from domestic sources totaling CHF 100,000. The couple's assets amount to CHF 30,000,000.
As the living costs of CHF 300,000 are higher than the minimum income applicable in the canton of Valais (CHF 250,000) and the extrapolated rental costs do not exceed the actual living costs, the living costs of CHF 300’000 represent the taxable income. At federal level, the minimum income of CHF 429,100 is to be considered, since the living costs are lower than this threshold. In the canton of Valais, wealth tax is set at four times the assessment basis for income tax, in this case CHF 1,200,000. This results in an effective tax burden of around CHF 108,000. In comparison, applying ordinary income and wealth tax would result in a tax burden of around CHF 215,000.
In addition to lump-sum taxation, Switzerland is also characterized by an attractive inheritance tax system, which – depending on the canton – provides for full tax exemption for spouses and direct descendants. Some cantons have abolished inheritance tax altogether. It should be noted that an initiative to introduce a new inheritance tax is currently pending a vote by the Swiss population. However, it is generally agreed that this initiative will almost certainly not be accepted.
With lump-sum taxation, Switzerland offers an attractive and stable taxation system for people who are gainfully employed outside Switzerland or who do not pursue any gainful employment. In combination with the favorable structure of the inheritance tax system, Switzerland is not only suitable for short- to medium-term tax planning, but also for long-term, intergenerational wealth planning.
T +41 58 252 22 00
info@primetax.ch
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8055 Zürich
www.primetax.ch
T +41 58 252 22 00
info@primetax.ch
Friesenbergstrasse 75
8055 Zürich
www.primetax.ch