1. Life in Switzerland
What, besides chocolate, watches and mountains makes Switzerland such an attractive country for thousands of people from all over the world to yearly take up residence in one of the smallest countries in Europe?
1.1. Switzerland in a nutshell
Switzerland is located in the heart of Europe and has approximately 8.7 million inhabitants with a rising tendency . The country is a federal republic composed of 26 cantons and four main linguistic and cultural regions: French, in the western part, Italian in the south, and German, or rather Swiss German in the rest of Switzerland with the exception of the Romansch region with its particular language Romansch, still spoken by a small minority in the southeast of the country. The country's politics, based on direct democracy, take place in the capital city of Berne. The most well-known Swiss cities are Zurich, Geneva, Lausanne and Zug. Compared to the big cities of the world, Swiss cities do not seem very exciting at first glance because of their small size.
However, in reality, Swiss cities have quite a lot to offer. Zurich, for example, is one of the world's most important financial hubs and offers top level restaurants, shops and entertainment, as well as cultural events and offerings. Basel is world-famous for art exhibitions (e.g. Art Basel), while Geneva is home to a large number of international organizations such as the United Nations and the World Trade Organization. For those who prefer life outside of the city, there are plenty of options to settle in smaller villages which are easily accessible and well connected due to excellent Swiss road and train networks. Not only in the Alps and valleys but also in the cities the air is fresh and far less polluted than in the larger metropoles.
Furthermore, Switzerland ranks amongst the safest countries with the highest quality of life in the world.
1.2. Further advantages of living in Switzerland
1.2.1. Central location and infrastructure
As already pointed out, Switzerland is located in the centre of Europe. With three international airports and international train services, Switzerland is well connected internationally. Furthermore, the road infrastructure within Switzerland is also very well developed. It is also worth noting that Switzerland offers an excellent healthcare infrastructure with excellent public and private hospitals that are easily accessible.
1.2.2. Education system
The Swiss education system is well-known for its high quality. The costs for the compulsory education (11 years) are fully funded by the public sector. In addition to the public schools there are also numerous international private schools in Switzerland.
Furthermore, Switzerland is home to many highly regarded universities which are also largely funded by the government. ETH Zurich or EPFL Lausanne rank among the top universities in the global rankings every year.
1.2.3. Social system
Switzerland has a well-developed and functioning social security system that covers risks in the areas of work, health, family and old age.
1.2.4. Family Offices
Given its financial infrastructure, attractive tax environment and security, among other things, Switzerland is a popular location for single and multi-family offices.
1.2.5. Philanthropy
Switzerland offers a favourable legal and tax landscape for the establishment of charitable foundations. Today there are approximately 13'524 registered foundations , which, depending on their size/assets/area of activity, are supervised either by a cantonal- or the federal supervisory authority.
Swiss charitable institutions are generally exempt from income and capital taxes to the extent the income and capital are exclusively and irrevocably dedicated to charitable purposes. Moreover, donations from persons resident in Switzerland to Swiss charitable institutions are exempt from gift taxes and are deductible for income tax purposes up to certain limit (usually a percentage of the taxable income).
1.3. Statistics on relocation
Statistics show that foreigners relocate to Switzerland for various reasons. In 2022, 84,927 people immigrated to Switzerland to pursue gainful employment, 94% came from the EU/EFTA countries. 16,827 persons relocated to Switzerland for education and further training reasons and 4,627 persons who were not gainfully employed, including retired- and other persons with sufficient financial resources, were granted a Swiss residence permit .
2. Relocation to Switzerland and obtaining a residence permit
When planning to take up residence in Switzerland, there are different requirements to be met based on whether one is an EU/EFTA citizen or a third country national. The Agreement on the Free Movement of Persons massively eases the entry and the residence in Switzerland for citizens of EU and EFTA countries. Whereas the provisions for third country nationals are more restrictive.
Furthermore, there are different requirements to be considered depending on the following situations: residence to pursue gainful employment, self-employed gainful activity, and residence without gainful activity. Depending on the origin, reason of the stay and its duration, different requirements apply.
In the following, we provide an overview of the various procedures and aspects that need to be considered for a successful and smooth relocation to Switzerland.
2.1. Requirements for EU/EFTA citizens
Based on the Agreement on the Free Movement of Persons, EU/EFTA citizens are allowed to relocate to Switzerland at any time. A valid passport or ID is required for the entry. Within 14 days after entering Switzerland, the applicant must register with the relevant residents' registration office. Thereafter, depending on the canton, the application for a residence permit is either forwarded by the resident's registration office to the competent migration office or he or she must submit the application directly with the migration office.
2.1.1. Residence with gainful activity
If an EU/EFTA citizen wishes to take up gainful employment in Switzerland, he or she must apply for a residence permit with the municipality in which he or she will reside in Switzerland before taking up gainful employment in Switzerland lasting longer than three months. Furthermore, a confirmation of employment (e.g., employment contract) must be provided. No residence permit is required if he or she works for an employer in Switzerland for no longer than three months or for no more than 90 days per calendar year.
Depending on the duration of the employment contract and the average working time, either a short stay permit (so called L permit) or a B permit will be issued.
If an EU/EFTA citizen wishes to take up gainful activity based on self-employment, he or she must also register with the municipality of residence within 14 days after arrival and apply for a residence permit with the competent authority. In addition, the applicant must demonstrate that he or she has sufficient financial resources.
2.1.2. Residence without gainful activity
If an EU/EFTA national wishes to reside in Switzerland for longer than three months without gainful activity, he or she requires a residence permit. The applicant must provide documents to the competent authority which prove that he or she has sufficient financial resources. This aims to ensure the authorities that the applicant does not become dependent upon public assistance. Furthermore, the applicant must demonstrate insurance coverage that covers all risks arising from illness and accident.
The financial resources are considered sufficient if they exceed the base level that according to Swiss law gives entitlement to social benefits. The calculation of the financial resources also considers pensions and social security benefits. Retirees must additionally prove that their financial resources exceed those which entitle a Swiss national to supplementary benefits from old-age, survivors', and disability insurance. In practice, the competent authorities will accept reference letters from banks confirming that there is more than a certain amount of funds in the EU/EFTA applicant's bank account.
2.2. Requirements for third country nationals
2.2.1. Residence with gainful activity
Nationals of countries outside the EU/EFTA can only work in Switzerland if they are particularly qualified and their approval is in the overall economic interest of Switzerland. This includes, for example, executives, specialists, persons with a teaching diploma for higher education with several years of professional experience. A work permit is also required for employment of short duration, and the number of permits is limited. The future employer must outline that it is in the economic interest of Switzerland to hire the applicant and that he could not find suitable personnel on the Swiss and EU/EFTA labour market. The future employer must take the necessary steps to obtain a work permit from the cantonal migration and labour market authorities. Depending on his or her nationality, he or she may also need a visa.
A permit can also be issued for self-employed gainful activity. However, if a third-country national wishes to take up residence based on self-employment, he or she must take care of the application by himself/herself. The issuance of a residence permit depends on whether the self-employed activity is in the overall economic interest of Switzerland. This is the case, for example, if a service is to be offered for which there is a strong demand and no oversupply, and if jobs are to be created. Consequently, a business plan and financial statements must be submitted with the application. The applicant must also prove that the self-employed activity will generate enough income to cover the costs incurred in the business as well as the cost of living. In addition, the applicant must be able to procure the necessary equipment or business premises.
After entering the county, the third country applicant must register with the resident's registration office at his or her place of domicile in Switzerland within 14 days. The commencement of gainful employment is only permitted after registration has been completed.
The spouses of persons with Swiss citizenship, a permanent residence permit, or a long-stay B permit do not need to apply for a work permit, as their right to work will be automatically issued as part of their family-reunification-based residence permit.
2.2.2. Residence without gainful activity
Third-country nationals who are no longer gainfully employed, are at least 55 years old, have special personal ties to Switzerland and can provide the necessary financial means can apply for a residence permit with the competent migration office. Special ties to Switzerland include, for example, longer periods of previous residence in Switzerland, intensive business or private relationships or close relationships with close relatives. Even if all requirements are met, pensioners are not entitled to a permit. The decision is left to the discretion of the authorities.
The cantons may also grant residence permits to third-country nationals if the applicants can prove that significant fiscal interests exist. The applicants must prove that they will move their centre of life to Switzerland and that they will reside in Switzerland for most of the time. In the case of admission due to significant cantonal fiscal interests, any gainful activity can only be carried out abroad. This does not apply to the management of one's own assets.
2.3. Requirements for UK nationals (Brexit)
As a result of the United Kingdom's exit from the European Union, UK nationals are, in Switzerland, no longer considered EU citizens but third-country nationals as of 1 January 2021. UK citizens who have been granted a residence permit before this date could retain it.
In order to pursue gainful employment in Switzerland, newly arrived UK nationals are subject to the same entry requirements as third-country nationals as of 1 January 2021. The same rules apply to UK nationals who wish to relocate to Switzerland without gainful activity.
Switzerland and UK entered into a Service Mobility Agreement which applies as of 1 January 2021 and allows service providers from the UK to work in Switzerland up to 90 days a year without a work permit. Only a notification obligation is required. Switzerland and the United Kingdom have prolonged the respective agreement until 31 December 2025.
3. Taxation
3.1. Individual taxation
3.1.1. Income and wealth taxes
In general, persons resident in Switzerland are subject to income tax on their worldwide income and to wealth tax on their worldwide assets. Household goods and personal effects are, in principle, exempt from wealth tax. Real estate properties located abroad and the income therefrom are also exempt from wealth and income taxes. Such properties must, however, be declared to the Swiss tax authority, as they are relevant for the determination of the applicable tax rates (progression). If assets are held in trusts or similar structures, such vehicles need to be disclosed to the tax authorities and preferably ruled in advance to avoid any adverse tax consequences, especially at the death of the settlor or founder. In many cases, such structures are treated in Switzerland as tax transparent at the level of the settlor or of the beneficiary(ies), depending on who has control over the assets.
Income tax is levied at federal, cantonal and communal levels, whereas wealth tax is levied at cantonal and communal levels, but not at federal level. The applicable tax rates vary considerably depending on the canton and commune of residence of the taxpayer and are generally progressive.
Qualifying dividends from participations of at least 10% in the capital of a corporation are partially exempt from personal income tax. The exemption at federal level amounts to 30%, meaning that only 70% of the dividends are taxed at the ordinary rate. The extent of the exemption at cantonal level vary again among cantons.
3.2. Taxation of capital gains
In principle, there is no capital gains tax on privately held movable property (i.e. shares and other securities) in Switzerland. For instance, gains from the sale of shares held in a company are, as a rule, not subject to taxation in Switzerland. However, in some cases capital gains on privately held movable property are requalified as taxable income (e.g., if the taxpayer is deemed to be a professional trader or in case of a sale to a corporation followed by a distribution of substance dividends within 5 years).
Capital gains from the sale of real estate located abroad are not subject to taxation in Switzerland either, but capital gains from the sale of real estate located in Switzerland are subject to real estate capital gains tax at cantonal level.
3.3. Lump-sum taxation
Expenditure-based taxation, also referred to as lump-sum taxation ("forfait fiscal" in French), is a simplified assessment procedure (i) for foreign nationals who are domiciled in Switzerland, (ii) who have not been subject to ordinary resident taxation in Switzerland or at least not within the last 10 years and (iii) who do not engage in any gainful activity (employed or self-employed) on Swiss territory. The lump-sum tax is levied at federal and cantonal levels in lieu of the ordinary income and wealth taxes. Most Swiss cantons offer this special regime.
Income is calculated based on the total annual global cost of living expended by the taxpayers for themselves and their dependents, with a minimum tax basis of CHF 400'000 for federal income tax and CHF 250'000 – 600'000 for cantonal income tax (varying among cantons). The tax rates applied to this alternative basis are those of the ordinary income tax. Depending on the canton, wealth tax is levied on the basis of e.g. 20 times the taxable income and applying the ordinary wealth tax rate, or as a surcharge on income tax.
Certain Swiss double tax treaties exclude taxpayers under lump-sum taxation from treaty benefits. However, taxpayers can generally opt for "modified lump-sum taxation" whereby they pay ordinary income and wealth taxes on the income and assets sourced in a treaty jurisdiction, while the other income and assets are subject to lump-sum taxation.
The specific rules of the lump-sum taxation regime are usually pre-discussed with the tax authorities of the canton where the individual or family wishes to take up residency by way of an advance ruling. Asset protection and estate planning structures must be disclosed to the Swiss tax authorities and included in the tax ruling. The authorities are quite used to dealing with trusts and foundations.
3.4. Inheritance and gift tax
Inheritance and gift tax is exclusively levied at cantonal and communal level. Except for the cantons of Schwyz and Obwalden, all cantons levy inheritance and gift tax. However, in most of the cantons spouses and descendants are exempted from inheritance and gift tax.
4. Swiss international private law
Swiss international private law is flexible and enables people who have relocated to Switzerland to stay connected to their home country. It is codified in the Federal Act on Private International Law (PILA).
4.1. Marital Law
When it comes to marital law, the PILA sets forth that a marriage validly celebrated abroad is recognised in Switzerland. Also, foreign decisions or measures relating to the effects of marriage are recognised in Switzerland if they were rendered in the state of domicile or habitual residence of either spouse or in the state in which the marriage was celebrated and the action cannot reasonably be expected to be brought in the state of domicile or habitual residence of either spouse.
Furthermore, marital property relations are governed by the law chosen by the spouses. The spouses may choose the law of the state in which they are both domiciled, the law of the place of celebration of the marriage or the law of the state of which either of them is a citizen. The choice of law must be made in writing or must result from the marriage contract. Unless the spouses agree otherwise, a choice of law made after the celebration of marriage has retroactive effect as of the celebration date.
4.2. Inheritance Law
Also, within the framework of inheritance law, foreign citizens residing in Switzerland may submit their estate by last will or contract of inheritance to the law of one of their states of citizenship. Such submission lapses if, at the time of death, the deceased no longer had such citizenship or had acquired Swiss citizenship. If a foreign person domiciled in Switzerland does not make a choice of law with respect to his or her estate, his or her estate is governed by Swiss law. Swiss inheritance law has been recently revised and the testator has now more freedom of disposal with regard to his estate and forced heirship. Since 1 January 2023 only the descendants, the spouse and the registered partner have a right to a compulsory portion, but no longer the parents. Now the forced heirship rights of descendants have been reduced and amount to 1/2 instead of 3/4 of their statutory succession rights. The spouse's or registered partner's right to a compulsory portion continues to be 1/2 of their statutory succession rights. If the deceased for example leaves descendants and a spouse or a registered partner, he or she may freely dispose of 50% of his or her estate and bequeath through a testamentary disposition the portion at free disposal, i.e. the other 50%, to any person of his/her choice, for example to a charitable foundation. Lastly it should be noted that Switzerland is a Contracting State to the Hague Convention of 5 October 1961 on the Conflict of Laws relating to the Form of Testamentary Dispositions which, in international inheritance matters, facilitates that a testamentary disposition made in accordance with foreign law be recognized in Switzerland as valid with regard to its form.
Even though Switzerland has not its own trust law, Switzerland has ratified the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. Trusts established under foreign law will therefore be recognized in Switzerland. Swiss authorities, especially tax authorities are used to dealing with trust structures.
5. Conclusion
In addition to the advantages that Switzerland has to offer in terms of political stability, security, high living standard and geographical location, it also offers an attractive, flexible and advantageous legal and tax environment for foreign nationals. For these reasons, it is well understandable that many foreigners wish to take up residence in Switzerland.
Authors
Patricia Guerra
Partner
Head Private Clients Zurich
Thaís Obrist-Bdine
Senior Associate Private Clients
Tax Expert
Fabienne Häusermann
Associate Private Clients