Negotiate Your Own Tax Treaty in Switzerland
Two days ago, I met with a Swiss tax attorney to discuss one of Switzerland’s little-known tax advantages: lump-sum taxation for wealthy foreigners. Among those approximately 6,000 foreigners who take advantage of this benevolent system of taxation are Phil Collins, Tina Turner and Michael Schumacher.
If you commit to pay one of Switzerland’s cantons (states) a guaranteed sum each year in tax payments, you’re under no obligation to pay any other Swiss income taxes. The sum you must pay annually varies from canton to canton, and not all cantons offer such lump-sum tax deals (forfait in French or Pauschale in German). For instance, voters in Zurich recently ended its lump sum tax regime.
To qualify for a lump-sum tax arrangement, you must first apply and receive a residence permit. You must also not work in Switzerland, or have worked there for the preceding 10 years.
Of the approximately 6,000 foreigners living in Switzerland under a lump-sum tax arrangement, most live in the cantons of Vaud, Valais, Geneva, Bern, and Engadin. The lowest-cost arrangements are in the more remote cantons, with lump-sum tax deals available for as little as a guaranteed payment of approximately $70,000 annually.
Even if you don’t qualify for a lump-sum tax deal, if you’re financially independent and don’t need to work in Switzerland, you may qualify for Swiss residence. You’ll need to pay tax on your worldwide income according to Swiss rules, but the total rate doesn’t usually exceed 40% and in most cases is much lower.
Unfortunately, U.S. citizens can’t benefit from the Swiss tax regime. That’s because unlike virtually every other country in the world, the United States taxes the worldwide income of its citizens, no matter where they reside. The only way an American can take advantage of lower income taxes elsewhere is to first obtain a passport from another country, and subsequently to give up U.S. citizenship.
This process of “expatriation” is a radical step. It’s only suitable for U.S. citizens who are willing to permanently disconnect from the United States and live somewhere else—although it’s now possible for a former U.S. citizen to visit the United States for an average of up to 120 days annually without becoming subject to U.S. taxes on their worldwide income.
The Nestmann Group can assist with every aspect of this process—from obtaining a second passport to the selection of an alternative residence through the act of expatriation. Please don’t hesitate to contact us at firstname.lastname@example.org if you think you might be a candidate for expatriation.
Copyright © 2009 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society.)
Update: Lump-sum taxation has become increasingly controversial in Switzerland. In 2011, several cantons voted on whether to abolish the arrangement. Voters turned down the initiative in all but one canton, Schaffhausen. In practice, it is becoming increasingly difficult to qualify for for lump-sum taxation, and cantons are both increasing the required contribution as well as insisting on proof of a very sizable net worth.
Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.
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