Two days ago, I met with a Swiss tax attorney in Zurich to discuss one of Switzerland’s little-known tax advantages: lump-sum taxation for wealthy foreigners.
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 that canton's 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, and cannot have worked in the country for the preceding 10 years.
Of the approximately 4,000 foreigners living in Switzerland under a lump-sum tax arrangement, most live in the cantons of Vaud, Valais, Geneva, Bern, and Graudunden. The lowest-cost arrangements are in more remote, less urbanized cantons, with lump-sum tax deals available for as little as a guaranteed payment of approximately US$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 info@nestmann.com if you think you might be a candidate for expatriation.
Copyright © 2009 by Mark Nestmann
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