Relocating to Switzerland: tax and legal considerations

Structuring assets and income at an early stage

Before relocating to Switzerland, it is advisable to carry out a comprehensive review of your worldwide income and assets. Particular attention should be paid to how these assets and income will be treated for Swiss tax purposes once Swiss tax residence has been established.

It is equally important to assess whether existing or planned structures abroad will remain tax-efficient and sustainable from a Swiss perspective after the move. Depending on the individual circumstances, existing structures may prove tax-inefficient or even give rise to significant risks. For this reason, asset and income structures are frequently adjusted before relocating. For example, depending on an individual’s specific circumstances and objectives, it may be beneficial to contribute foreign shareholdings to a Swiss corporate entity before becoming resident in Switzerland.

However, the tax consequences in the country of departure and any relevant third countries must not be overlooked. In particular, potential exit taxation and other tax implications should be assessed at an early stage.

 

Choosing the right canton of residence

An important first step is choosing your canton of residence in Switzerland. From a tax perspective, this decision is of considerable importance, as cantonal income and wealth taxes vary significantly and can therefore have a substantial impact on an individual’s future tax burden.

 

Determining the most appropriate tax regime

The next step is to determine which tax regime should apply. In particular, consideration should be given to whether ordinary taxation or taxation based on expenditure (commonly referred to as the ‘lump-sum taxation’ regime) is the more appropriate option.

Lump-sum taxation may be attractive for high-net-worth individuals who are not gainfully employed. However, it is subject to clearly defined conditions. These include, among other things, not holding Swiss citizenship, not engaging in gainful employment in Switzerland, and either establishing Swiss tax residence for the first time or resuming unlimited Swiss tax liability after an interruption of at least ten years. The applicable rules differ from canton to canton, and the lump-sum taxation regime is not available in every canton.

The most suitable form of taxation always depends on the individual’s particular circumstances. In many cases, ordinary taxation may be the more favourable option. A thorough analysis is therefore essential.

Tax residence and an individual’s centre of vital interests are also becoming increasingly important. International tax competition for natural persons continues to intensify, making dual residence and double taxation issues more common. Such matters should be identified and assessed at an early stage. Switzerland’s extensive network of double taxation agreements with more than 100 countries provides an important legal framework in this context.

 

Other important considerations when relocating

Avoiding legal pitfalls

For individuals who are not Swiss nationals, the acquisition of residential property is generally subject to authorisation under the Lex Koller legislation. An important exception applies where the property serves as the individual’s principal residence at the place of their lawful and actual residence, and where their centre of vital interests is located in Switzerland. In practice, however, this often creates a ‘chicken-and-egg’ situation: purchasing a property requires proof of residence and a residence permit, while establishing residence frequently depends on having suitable accommodation available.

In addition, it is advisable to review existing legal documents prepared under foreign law – such as prenuptial or marital agreements, inheritance agreements, advance healthcare directives and lasting powers of attorney – to determine whether amendments or supplementary provisions under Swiss law are advisable or necessary.
 

Clarifying customs and VAT implications at an early stage

When relocating to Switzerland, imported goods such as household effects, vehicles, watches, jewellery or wine collections are generally subject to import VAT and, where applicable, customs duties.

An exception applies to removal goods. Subject to certain conditions, particularly prior use and importation within an appropriate timeframe in connection with the move, such goods may be imported free of tax and customs duties. However, various deadlines and formal requirements must be observed. Depending on the nature and value of the assets involved, careful planning is therefore strongly recommended.

Coordinating international social security obligations

Upon establishing residence in Switzerland, private individuals generally become subject to the Swiss social security system. However, the applicable social security position must always be assessed in light of all worldwide gainful activities and the relevant international social security agreements.

Individuals who are not, or are only partially, engaged in gainful activity in Switzerland, and who have not yet reached the statutory reference retirement age should also determine whether they are required to pay Swiss Old-Age and Survivors’ Insurance (AHV) contributions as non-employed persons.

Reviewing the recovery of foreign withholding taxes

Upon relocation to Switzerland, Switzerland’s double taxation agreements apply. As a result, taxing rights between the countries concerned may be reallocated.

In this context, particular consideration should be given to whether foreign withholding taxes levied on investment income can be reclaimed in full or in part. In practice, taxpayers often fail to claim the refunds to which they are entitled.

Conclusion: a comprehensive planning pays off

Relocating to Switzerland offers attractive opportunities but also gives rise to complex tax, legal and social security issues. To minimise risks and make the most of the available options, comprehensive planning should begin well before relocating.