Switzerland To Reform Lump Sum Taxation

July 11, 2011, 14:42 / Advisory / Jurisdictions: Switzerland, Source: Tax-News.com

Switzerland’s Federal Council has announced plans to reform the lump sum taxation of wealthy foreigners in the Confederation, in a bid to strengthen fiscal equity as well as to improve acceptance of the system, while at the same time endeavouring to preserve the attractiveness of Switzerland as a location.

According to the Swiss Federal Department of Finance (FDF), foreigners who become domiciled in Switzerland, although not earning any income there, should in future retain the right to be taxed according to their living costs.

The Federal Council has therefore proposed a series of measures designed to tighten up the existing system, including plans that the tax base should in future correspond to at least seven times the sum of accommodation costs, compared to five times as is currently the case.

It is also proposed that beneficiaries of this system must show an annual income of at least CHF400,000 (EUR324,214). As regards cantonal tax, a minimum sum is also planned, to be freely determined by individual cantons in Switzerland.

The FDF notes that for individuals currently benefiting from the lump sum taxation, the existing tax law will continue to apply for a further five years.

Defending the Federal Council’s latest proposals, the FDF explains that over the course of the last few years, lump sum taxation has faced mounting criticism. The Council’s proposed initiatives seeking to improve the application of the levy are intended to strengthen acceptance of the tax, to guarantee advantages for Switzerland as an economic location, and to guarantee fiscal equity, the FDF stresses.

The Federal Council is working on the principle that the majority of individuals currently subject to the lump sum tax will remain in Switzerland while noting that the reform will also serve to increase federal revenues.

Concluding its statement, the FDF explains that the Swiss cantons may decide independently whether to continue to apply the tax, in accordance with their cantonal rights, citing the referendum held in the Swiss canton of Zurich in 2009 which led to the abolition of the lump sum tax at the beginning of 2010. Similar political interventions are still ongoing in several other cantons.

The Swiss Federal Council has submitted a corresponding message to parliament.

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