What do you think of when you think of Switzerland? Perhaps its majestic mountains, chocolate, cheese, or watches? It’s highly unlikely that the first thing that comes to mind is its rather complicated tax and pension system. But depending where you choose to live, this can have significant consequences for your life and finances as soon as you take up residence here.
Every canton cooks up its (tax) soup according to its own “spirit”
Switzerland is a country imbued with something called Kantönligeist. The word can roughly be translated as “cantonal esprit” and alludes to the fact that Switzerland is made up of 26 separate cantons, which all have a great deal of autonomy, and thus different “spirits”. For example, they can each set their own tax rate. This leads to a patchwork of tax regimes, all existing in a country of only around 8.5 million inhabitants, smaller in size than the neighboring German state of Bavaria.
Sounds complicated? That’s because it is. Swiss federalism – another way of expressing this idea of Kantönligeist – often makes it difficult for the Swiss themselves to have a clear overview of the country’s thicket of tax regulations and issues.
Why is WHERE you live so important
Do you already know exactly where you want to live in Switzerland? Depending on which region you are eyeing as your future residence, living just two kilometers further up the road may make a huge difference when it comes to your personal finances.
Example: the so-called "lump-sum tax"
A majority of Switzerland’s cantons offer the option of privileged expenditure-based taxation, also known as a lump-sum tax. Offering potential advantages to wealthy foreigners who are domiciled but not gainfully employed in Switzerland, as a rule, a lump-sum tax can be levied if your tax burden is around CHF 120,000 or higher. Whether it is actually worth it, though, depends on many individual factors.
Other key considerations
The differences in taxation in Switzerland are also considerable in other respects. Although the basis on which you are taxed is uniform throughout the country, tax rates vary from canton to canton – and even from municipality to municipality. In the case of income tax, for example, maximum marginal tax rates vary between 20% and 45%. Wealth taxes also differ, ranging from 0.15% to 1%. Moreover, it is the cantons that levy inheritance and gift taxes, and some cantons have abolished these taxes entirely. You should definitely take this into account when choosing your place of residence.
Switzerland has its own pension system based on three so-called “pillars”. In particular, occupational pension plans (the 2nd pillar) and private, restricted pension plans (pillar 3a) offer many options for providing for your retirement while saving taxes at the same time.
Advance care directive & will
Provide security for yourself and your loved ones. With an advance care directive, you can determine who will legally represent you locally if you should one day suffer loss of capacity. Moving to Switzerland also has a direct impact on the applicable matrimonial law and laws governing matrimonial property and inheritance. Here once again, it is worthwhile to deal with all these formalities in a timely way.
In Switzerland, health insurance and accident insurance are separate. If you are employed, you will be covered by your employer’s accident insurance, but when it comes to health insurance, you are free to choose a company and policy details yourself. Be aware that if you move to Switzerland after a certain age, it can be costly to take out additional benefits such as private insurance.
Do you have questions on the topic of tax optimisation?
You can always try and navigate the Swiss tax system on your own. But it will likely cost you a lot more in the long run. One wrongly checked box and you’ll end up paying significantly more than you should in taxes, bank commissions, or property taxes. That's where Vontobel wealth management professionals come in. On the issue of tax, Vontobel tax experts can advise as well as negotiate on an equal footing with the authorities on your behalf (and even obtain binding tax rulings).
Vontobel is a leading wealth management solutions provider, who makes sure their clients’ pensions, assets, investments, and overall wealth always achieve above-average returns. Click below to find out more about Vontobel and schedule a free analysis of your financial situation.