Wealth management, tax planning and opportunities for company or trust formation in Switzerland

Switzerland has become an increasingly important centre for the fiduciary industry least of all for its geographical position in the centre of Europe as well as for its established private banking and fiduciary sector.  The legislative and regulatory aspects are recognised by the administration.  Switzerland is well served by all the major banks which makes it easy to operate from and service the needs of both companies and individuals.

In July 1997, there was a shift in the formalisation of the treatment of trusts in Switzerland. Switzerland now recognises a separation between the trustees own property and the trust assets.   A circular dealing with the taxation of trusts has been published and this has gone a long way in assisting the business case for the location of the trustee activities on Switzerland.

Equally important, Switzerland has an established continuity of law which in itself leads to a stable and transparent tax system.  Add to this the ability to approach the tax authorities to discuss and agree tax issues which places Switzerland in a competitive position for international tax planning.

There are several general aspects of the Swiss tax system that foreign investors should be aware of and which, if applied and utilised correctly make Switzerland an attractive alternative for the foreign investor or high net worth individual.

Firstly, the Swiss direct tax system is made up of a network of different taxing jurisdictions. Although federal tax is common to all taxpayers, each of the 26 cantons (states) has its own tax system based on the Federal Law.

Switzerland has been undergoing a reform of its direct tax system with a view to harmonising federal, cantonal and communal tax laws.  Cantons and communes however still retain a large degree of independence and this is particularly true with regard to the taxation rate, which is determined exclusively by the individual cantons.

Swiss withholding tax is a federal tax. It is levied on certain types of investment income from Swiss source as well as on lottery gains and insurance benefits.  The tax rate is a flat 35% on investment income.

Royalties, management fees and technical assistance fees are not subject to Swiss withholding tax.  This is also true of interest income accruing on inter-company loans for as long as they are not re-characterized as bonds or bank deposits.

For Swiss resident beneficiaries, withholding tax is reimbursed by way of cash refunds (corporate taxpayers) or as a credit against income tax (individual taxpayers).  For non-resident beneficiaries, Swiss withholding tax represent a final tax on investment income from Swiss sources.  If however the non- resident beneficiary is a resident of a State with which Switzerland has concluded a double treaty, he or she may be able to claim a partial or total reimbursement of the Swiss withholding tax.  It should be noted that Switzerland has concluded and signed more than 72 double tax treaties at an international level.

Individual income tax is levied on worldwide income earned by individuals who are Swiss residents with the exception of income from enterprises, permanent establishments or real estate situated outside the country.

Non Residents are subject to Swiss income tax on certain specific types of Swiss source income.

Federal income tax rates are progressive ranging from 0% to 11.5%.  Cantonal and communal tax rates however vary depending on the canton and commune involved.   As a rule however these taxes are generally twice as high as federal rates.

Individuals are not subject to capital gains tax realized by individuals on the sale of privately held assets other than on real estate.

There is no federal wealth tax.  All cantons however levy a wealth tax on individual tax payers.  Tax rates are progressive and range from 0.1% to 1.5% per annum.

Swiss tax legislation has the lump-sum taxation option for foreign individuals who have obtained a Swiss resident permit.  One of the conditions to obtain such a lump sum ruling is not to engage in any professional activity in Switzerland.  The lump sum taxation level is based on the rental value of the property owned or rented in Switzerland.

For corporations on the other hand, Swiss tax legislation has introduced special tax incentives for corporations in the form of relief from corporate income or capital tax.  These include:  Relief for qualifying dividend income and capital gains, holding companies (exemption), domiciliary companies (reduced rate), international sales companies (reduced rate), service companies (arm’s length), finance branches (reduced rate) and newly established enterprises (i.e. exemption for 10 years).

In general, tax relief is granted under certain conditions for each category.  In all circumstances the tax relief should be sought from and confirmed in a formal written ruling, by the tax authority on a case by case basis.

There can be no doubt that with correct assessment and consequential planning in relation to the tax affairs of a foreign investor or high net worth individual, there are benefits and advantages which can be derived through the correct use of Switzerland as a base for the investors, companies and if appropriate trusts.

Arkion SA is an independent provider of services for families, entities and individuals specialising in planning, optimising, structuring and managing wealth. Founded in Geneva in 2001, the firm has offices in Switzerland (Geneva, Fribourg and Zug) London and Hong Kong as well as a presence in New Zealand. The firm seeks to provide a comprehensive platform of services for the management of wealth and financial planning, optimising the capacity and success of businesses by ensuring that the necessary but time-consuming tasks such as administration, taxation and accountancy processes are taken care of. Full contact details can be found on our website (www.arkion.com) and interested parties are invited to contact us for further information. 

Geoff Melamet is the Director and Managing Partner of the London office of Arkion.  Mr Melamet can be contacted on +44 207 724 9434 or by email at gmelamet@arkion.com. 

Pierre Gritti is a Director and Tax expert at the Geneva office of Arkion.  Mr Gritti can be contacted on +41 22 736 7100 or by email at pgritti@arkion.com.