Q&A: MOVING TO SWITZERLAND Michael Fischer | Tenzin Dahortsang | Marija Ilic Switzerland ranks among the world's top locations in terms of life satisfaction. It offers a hard to beat standard in safety, jobs, income, wealth, health care, education and infrastructure. To help plan your relocation to one of the happiest countries, this Q&A will provide you with an overview in relation to residence, family reunification and citizenship (questions 1 to 2) tax (question 3) social security in Switzerland (question 4) relocation – practicalities (question 5) wealth and estate planning (question 6) education system (question 7) that matter to international private clients and their advisors. 1. Residence 1.1. What do I have to consider when taking up residence in Switzerland? Residence of non-Swiss nationals in Switzerland is subject to a permit requirement. A distinction is made between EU/EFTA and third state nationals. EU/EFTA nationals can take up residence more easily thanks due to the bilateral agreement on the Free Movement of Persons ("FMP"). Any foreign national who works during his/her stay in Switzerland or who remains in Switzerland for longer than three months requires a permit, be this an L permit (less than 1 year), an annual residence B permit (limited) of permanent residence or a C permit (unlimited). Further, a visa may also be required depending on the applicant's nationality. Third state nationals requiring a visa have to submit their visa application to the relevant Swiss foreign mission at their place of residence before entering Switzerland. Exceptions are available for third state nationals who already hold a permit for a EU/EFTA member state. 1.2. Is there a special residence program for high net worth individuals? Although there is no "pure" investor visa program there are indeed certain advantages high net worth individuals may enjoy. June 2016 June 2016 EU/EFTA nationals with sufficient financial means may take up residence in Switzerland without pursuing gainful activity. They must be able to demonstrate their financial capacity to allow living without becoming reliant on Swiss social security benefits. Residence permits in such cases are usually granted for a duration of 5 years. For third state nationals to which the FMP does not apply, it may be somewhat more onerous. In general, high net worth individuals from these states have the possibility to obtain a residence permit if they either retire to Switzerland, invest in a Swiss company in the canton of future Swiss residence or if relocating a business to Switzerland and creating employment. In addition, residence permits without pursuing gainful activity may be obtained if an “important public interest” can be demonstrated, which may include cultural, political or fiscal interests. 1.3. Can I bring my family? For EU/EFTA nationals so-called family reunification is available and applies to spouses, children or grandchildren under 21 or financially dependent on the applicant and parent(s) and grandparent(s) again if financially dependent. Reunification is subject to adequate accommodation and sufficient financial means being available. For third state nationals conditions are slightly more restrictive, namely with regard to eligible family members and requests being granted at discretionary basis. The request for family reunification usually needs to be filed as soon as possible after the applicant's arrival, in the event of applications relating to children the time limit may be extended up to 5 years. 2. How do I become a Swiss national? An applicant for Swiss nationality needs to be resident in Switzerland for at least 12 years, be socially and culturally integrated in Switzerland, have complied with Swiss laws and not pose a threat to Switzerland's internal or external security. This applies to all foreign nationals, whether from EU/EFTA or a third state. Spouses of Swiss nationals and children may benefit from more relaxed conditions. The application for Swiss citizenship is treated by authorities at all three levels, communes, cantons and federal government. The procedure starts at the local levels and then moves to the federal level. Communes and cantons have a fair degree of discretion. The full procedure can last up to 18 months. 3. What about tax? Swiss taxes are levied at federal, cantonal and municipal level. The federal government levies indirect taxes, mainly including value-added tax, withholding tax and stamp duty. Cantons and municipalities levy income tax, wealth tax and inheritance and gift taxes, church tax also applies. Legal entities pay corporate tax on their profits and capital. 3.1. Income Tax The tax rates vary widely at cantonal/communal levels. The tax rates for a taxable income of 250,000 Swiss francs for a non-married person varies from approx. 16.5 per cent (Wollerau/Schwyz) to approx. 36.9 per cent (Les Planchettes/Neuchâtel). Swiss tax rates generally progress gradually, and the top rates kicking in June 2016 for high incomes (above CHF 895'900 for federal income tax) are modest or at least competitive by international standards. Capital gains realised on the disposal of private assets, including financial assets and art, do not give rise to tax. Also, straightforward management of own assets is generally not considered as business activity. However, the use of debt finance, short holding periods or specific use of derivatives are among the criteria that may alter the qualification. In the event of requalification gains will be subject to tax and social security contributions. Property owners who sell land or buildings are liable to capital gains tax on transfers of real estate. 3.2. Wealth tax All cantons levy a tax on net wealth, there is no such tax at the federal level. Net wealth is defined as worldwide assets less debts (including mortgages, loans, advances and private borrowings). Non-Swiss real estate is not included. Household goods are not subject to wealth tax either. Especially in the case of (art) collections a distinction needs to be drawn between household goods and taxable wealth. The criteria applied include the purpose of the object (decoration versus investment) and the conditions of use (storage versus hanging at one's home, terms of insurance policy). Tax rates are progressive and vary depending on the individual canton and commune; they range from 0.1 per cent to a maximum of 1.03 per cent per annum. 3.3. Inheritance and gift tax An individual becomes in principle liable to Swiss inheritance or gift tax upon: • inheriting property or receiving a gift from a person whose last residence was in Switzerland; or • receiving real property located in Switzerland as an inheritance or gift. To date, inheritance and gift taxes are only levied by the cantons. In a few cases, inheritance and gift taxes are also levied by the communes. Only the canton of Schwyz does neither levy inheritance tax nor gift tax. In almost all cantons, inheritances and gifts to descendants, spouses and civil partners are exempt from tax. The tax rate is progressive and reflects the degree of kinship involved as well as the size of the inheritance/gift. The rates vary from zero per cent to over 50 per cent. 3.4. Forfait tax Foreign individuals taking up residence in Switzerland for the first time, or after an absence of more than 10 years, and who do not carry out any (dependent or independent) gainful activity in Switzerland may choose to be taxed under a special regime called ‘lump sum taxation’. Forfait taxation is based on the taxpayer's worldwide living expenses. This includes in particular 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. The amount so determined must be equivalent to at least CHF 400'000 or a minimum of seven times actual rent paid or of a deemed rental value of owned property. In addition, a forfait tax payer with Swiss source income (such as dividends, interest, royalties, rental income) or income for which treaty benefits are claimed (e.g. non-Swiss dividends) will be subject to a so- June 2016 called "shadow calculation". Under the shadow calculation all Swiss source and treaty protected income is added. The sum of that addition, if exceeding the minimum amount of CHF 400'000 or the rent multiple, will then be the tax base. In other words, the tax base is the higher of (a) CHF 400'000, (b) the rent multiple or (c) the sum of the shadow calculation. For more details please see our separate Q&A on the forfait regime. 4. How does social security work in Switzerland? The Swiss social security system essentially covers (i) old-age, survivors' and invalidity insurance (threepillar system), (ii) protection against the consequences of illness and accidents, (iii) income compensation allowances in case of maternity, (iv) unemployment insurance, and (v) child allowances. The old-age, survivors' and invalidity insurance protect against the consequences of losing income due to age or death. This insurance is based on a three pillar system of public, occupational and private insurance. The first pillar is the state pensions. It guarantees a minimum level of income in old age or in the case of disability or death. The second pillar is the occupational pension provision. The third pillar is intended to close any pensions gaps not covered by the 1st and 2nd pillar. Contributions are usually tax deductible. First and second pillar are mandatory for employees, self-employed professionals are only subject to a first pillar obligation. Third pillar is optional in both cases. Swiss resident individuals under 65 are liable to social security contributions which are not capped. Employees' contributions will depend on the pension plan put in place by the employer. For self-employed individuals the contributions are approx. 10%. Individuals without professional income pay depending on their wealth, the maximum contribution is CHF 24'000 per year. 5. Relocation – practicalities 5.1. How do I acquire and own my house in Switzerland? Switzerland has, for a number of years now, had a statute restricting the acquisition of real property by nonSwiss nationals, the so-called "Lex Koller". Swiss resident EU/EFTA nationals are not subject to any restrictions. A so-called Lex Koller-permit will be required, however, for the acquisition of a holiday home by non-residents. Non-EU/EFTA nationals with a permanent residence permit (“C permit”) are not subject to Lex Kollerrestrictions either. Non-EU/EFTA nationals with an ordinary residence permit (“B permit”) are entitled to purchase their primary home without a Lex Koller-permit. The purchase of a second (e.g. holiday) home, on the other hand, will be subject to obtaining a Lex Koller-permit. A holiday apartment passed on by inheritance inside the family will not be subject to the Lex Koller-permit requirement. In addition, there is so-called second home legislation applying regardless of nationality (i.e. to Swiss and all foreign nationals). The legislation essentially restricts the quota of holiday homes in to 20% per commune. June 2016 Typically, property is held in the owner's name. Property ownership via a structure is possible but instances warranting the effort are limited. 5.2. How do I transfer my household goods to Switzerland? You must complete the form 18.44 of the Swiss Customs Administrations and declare your goods which will be imported to Switzerland. Any household goods, including art, moved to Switzerland within a period of 2 years are duty-free. Imported goods must have been in personal use for at least 6 months and their use must continue also after residence is taken up in Switzerland. The extent to which high value goods still constitute household goods (as distinguished from a taxable collection) will depend on an individual's circumstances. 6. What about matrimonial and inheritance regimes? 6.1. Matrimonial regime During their lifetime, spouses enjoy a far reaching degree of liberty to arrange their affairs by means of binding matrimonial agreements. Such agreements may be entered into both in the context of marriage and anytime thereafter. The devolution and distribution of an estate, in a case of a married deceased person, first requires the liquidation of the matrimonial regime and determination of the ownership of the matrimonial property of each spouse before the calculation of the shares in the estate. According to Swiss international private law the matrimonial property is governed by the law of the spouses' place of residence or they may choose the law of their nationality. A married couple relocating to Switzerland may become subject to the standard Swiss regime of participation in accrued gains. Under that regime the accrued gains are divided in two equal shares between the surviving spouse and the deceased's estate, whereby the individual property of the deceased falls into his/her estate. By default each spouse is entitled to one half of the accrued gains of the other. 6.2. Swiss succession rules The estate of a foreign national who had his/her last residence in Switzerland is generally governed by Swiss law. Foreign law however, may still be applicable in cases with international connecting factors (e.g. claim of exclusive jurisdiction over real property at the place of property or claim of jurisdiction connected to the national law of the deceased, for instance the EU Succession regulation in case of EU nationals having deceased after 17 August 2015). For calculating the share in the estate, Swiss inheritance law provides by default for forced heirship shares for the descendants, i.e. surviving spouse, children and even parents (but only if there are no other descendants). The forced heirship share represents a portion of the statutory entitlement of these persons. The statutory entitlements are as follows: Children inherit in equal shares. Predeceased children are replaced by their own descendants in all degrees per stirpes. June 2016 The surviving spouse or registered partner is entitled to one-half of the estate when in competition with the children. The forced heirship share for children is in this case 3/4 of their statutory share, i.e., 3/8 (3/4 x 1/2). The spouse's forced heirship portion is 1/2 of the statutory share, i.e., 1/4 (1/2 x 1/2), leaving 3/8 as the freely disposable share of the estate, which can be left either to any third party, wife or children. 7. I have children. How about the Swiss education system? Switzerland enjoys the reputation of having an excellent state education system. Therefore most children attend a state school. Needless to say, there are also many private institutions, most offering bi- or multilingual schooling and the option of obtaining an international certificate, such as the International Baccalaureate diploma, French baccalauréat, the UK-based qualification IGCSE, GCSE and A-level and the American High School Diploma. The path to a Swiss university degree leads from primary via middle school (Gymnasium) to university. Next to that, apprenticeship is available which starts at the age of 16 and lasts two to four years. Afterwards the students still have the possibility to get a graduation diploma to study at university or at the technical college (Fachhochschule). The system is highly permeable opening access to the various types of education and allowing to choose the best option suited for each child. WHO IS FRORIEP? Founded in Zurich in 1966, Froriep is one of the leading law firms in Switzerland, with around 90 la wyers and offices in Zurich, Geneva and Zug, as well as foreign offices in both London and Madrid, ser ving clients seeking Swiss law advice. We have grown a domestic and international client base ranging from large international corporations to private clients. Our unique, truly integrated, international structure mirrors our strong cross-border focus. We value and promote continuity and strong client relationships. Our teams are tailor-made, assembled from every practice area and across our network of offices. Many of our lawyers are recognised as leaders in their practice areas, and our clients benefit from our in-depth knowledge and the rich diversity of talents, languages and cultures that makes our lawyers particularly versatile and adaptive. 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