Switzerland has an unusual tax arrangement which foreigners can take advantage of. The lump-sum taxation system is available in certain Cantons and allows private individuals to pay a fixed amount of tax every year based on certain criteria that are supposed to reflect how much the taxpayer is expected to spend rather than how much they earn.

It is important to understand that in order to benefit from this system of taxation a key constraint is that the taxpayer is not allowed to undertake any gainful activity within Switzerland, and neither of the spouses may be a Swiss national. Lump-sum taxation replaces income tax which is levied at the Federal, Cantonal and Communal level as well as the wealth tax which is only levied by the Cantons and Communes. Lump-sum taxation does not replace other taxes, such as those on inheritance, gifts or gains on the sale of property.

The whole system was reviewed in 2012 and new rules were applied from 1 January 2016 which will be applicable to those taxpayers who are already benefiting from the system from 1 January 2021. In essence the system is becoming much less attractive as not only are the authorities increasing the tax base, but with the cost of living being very high in Switzerland and other countries now offering interesting alternatives, many wealthy foreigners have decided to pack their bags and leave Switzerland.

In 2012 Geneva counted 710 people who benefited from lump-sum taxation. By the end of 2019 this had dropped to 601, representing lost tax revenue as well as a loss of spending locally by wealthy foreigners. For non-Europeans the minimum tax base (assumed revenue on which the tax is calculated) is around CHF 825,000 per year, and so a married couple would then pay about CHF 321,750 in annual tax. Italy offers a similar arrangement with a lump-sum of €100,000, and Portugal, Malta and the UK also operate schemes. The advantage with the Swiss scheme is that there is no time limit for its use and it absolves the taxpayer from declaring his income and fortune (save for some other basic elements to determine the tax base).

With the new changes, the minimum tax base is now around CHF 400,000 (previously it could be around CHF 300,000), but other criteria are also reviewed, for example depending on the assumed rental value of their property. It is important to note that these are only guidelines and different Cantons will treat this tax in different ways, although there is a clear trend towards more alignment and an increase in the tax that is expected to be paid. There is also more tax transparency between different countries and Swiss authorities will tend to share much more information now than previously with other states.

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