Switzerland

Find legal, tax and practice information for Switzerland, and search for branches, firms and members in the jurisdiction. If you have any comments on the report please contact editor@step.org

*Updated September 2019*

Editorial Board

Stephanie Jarrett TEP, Baker & McKenzie Geneva, Switzerland

Important new developments

Switzerland started to engage in automatic exchange of information (AEOI) in 2018 under the Common Reporting Standard (CRS) on a bilateral basis with the EU and many other jurisdictions.

Legal system

In the 13th century, the cantons of Uri, Schwyz and Unterwalden concluded the Federal Charter of 1291 and founded the Old Swiss Confederacy. It achieved full self-governance in 1499. More cantons joined this confederation over time. In 1848, this confederation of autonomous cantons was replaced by a proper constitutional democracy with a federal structure and an independent judiciary. The Federal Constitution (the Constitution) was amended in 1874 and 2000. It guarantees the basic rights of the people and participation of the public and allocates functions between the federation and the cantons, defining responsibilities of the various levels of authorities. Switzerland is not a Member State of the EU. Nonetheless, in 1999, a number of bilateral agreements between Switzerland and the EU were signed. They came into force in 2002.

More up-to-date information on the AEOI agreements can be found here

Switzerland has a civil-law system. Statutes are the most important sources of law, the Constitution being the cornerstone. The Constitution leaves all law-making power to the cantons, unless expressed otherwise.

All legislative acts are subject to judicial review. The civil, criminal and administrative courts at the trial level and the intermediate appellate level fall into the cantonal jurisdiction. The highest court is the Federal Supreme Court, the court of last resort on federal constitutional matters.

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Inheritance and succession

Succession

Swiss succession law determines that, upon death, all the assets and liabilities of a deceased pass to legal or instituted heir(s). If there is more than one heir, they initially acquire all assets jointly and become jointly and severally liable for all debts. They have the right to repudiate the inheritance. Complex rules apply to devolution.

Testators have limited freedom in connection with the disposal of their assets. Forced-heirship rules are part of Swiss law to ensure that testators do not deprive their forced heirs of their compulsory portion, subject to any contrary prior agreement between the heirs and the testator (notarised inheritance agreement). Forced heirs are the surviving spouse, the descendants and, in the absence of descendants, the parents of the deceased.

Under Swiss private international law, non-Swiss citizens resident in Switzerland may elect their national law to govern the devolution of their estate, and this may allow them greater freedom of testamentary disposition.

Family law and defined inheritance rules

In the case of no marriage contract, the gains of the marriage (excepting gifts, inheritances and assets brought into the marriage) are shared equally at the end of the marriage (by death or divorce).

Probate process

The heirs inherit at death. A notary (usually) will ensure the last will is the one applied. An inventory of assets, based on the deceased’s last tax return and further enquiries, will be drawn up.

Mental capacity

In the case of incapacity, someone will be appointed by the respective cantonal authorities responsible for such matters. It is possible to designate such persons in advance. The procedures in the cantons are not identical.

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Estate planning

Use of trusts in estate planning

Switzerland has ratified the Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition, which came into force in Switzerland on 1 July 2007. In broad terms, under legislation promulgated at the same time, trusts will be interpreted according to their governing law, thus codifying previous practice.

The tax treatment of trusts is not, however, regulated by statute. On 22 August 2007, the Swiss Conference on Taxation published Circular letter nr. 30, which sets out guidelines on the taxation of trusts and trustees with connections to Switzerland. On 27 March 2008, the Swiss Federal Tax Administration published Circular letter nr. 20, confirming the content of Circular letter nr. 30. The circulars do not deal with, nor do they affect, the tax treatment of underlying corporate and other entities. The indirect taxation (value-added tax) of services provide by trustees in Switzerland is dealt with in a separate federal circular. Gift and estate taxes are a cantonal issue and are not dealt with in the circulars.

Use of foundations in estate planning

Swiss foundations are used primarily for philanthropic purposes and are subject to supervision (federal or cantonal depending on the objectives of the foundation) and annual audit.

Types of entities

The following business entities may be established:

Corporations.
Limited liability companies.
Partnerships (general, limited and simple).
Cooperatives.
Branches of foreign corporations.
Sole proprietorships.
Associations.
Foundations.

Techniques for estate planning include the use of usufructs, which are a form of life interest evidenced in a notarised document.

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Taxation

Income tax system

An individual is resident for tax purposes if the centre of the individual’s vital interests is deemed to be in Switzerland. Key factors include the location of the person’s permanent home, their family and their most important personal and economic contacts. Corporate taxpayers are resident under Swiss domestic tax laws if either their seat or effective management is located in Switzerland. Resident companies are subject to worldwide taxation, excluding permanent establishments and real estate abroad.

Personal income tax rates

There is taxation at the federal and cantonal levels. Rates vary between the cantons. Income tax is progressive. Under certain conditions and in most cantons (exceptions include the cantons of Zurich, Basel-Stadt, Basel-Landschaft, Appenzell Ausserrhoden and Schaffhausen), foreign individuals taking up first residence in Switzerland may opt for lump-sum income and wealth taxation instead of the ordinary income and wealth taxation. This tax is not based on the effective income derived by the taxpayer, but on certain deemed annual living expenses. Many cantons have minima for the taxable income. It usually applies at the federal as well as cantonal/municipal levels. Such a taxpayer may not perform any gainful activity or employment in Switzerland. Gift and inheritance taxes are not covered by such lump-sum agreements.

A one-off tax amnesty is still available for many individual and corporate cases in Switzerland.

Corporate income tax rates

There is taxation at the federal and cantonal levels.

Capital gains tax

No capital gains tax for private gains on movables. Residential real estate may be subject to taxation on gains at a cantonal level. Roll-over relief may be available.

Non-residents taxable on

Income from/deemed rental value of real estate.
Wealth tax (depending on value) on residential real estate.
Transfer (estate/gift) taxes (if any) and local municipal taxes/duties on real estate.
Transfer tax on sale of real estate.
Taxable on employment income in Switzerland.
Business income in Switzerland.

Withholding tax rate (non-treaty)

35 per cent on dividends.

Withholding tax rate (treaty)

0-15 per cent on dividends.

Taxation at death

Inheritance or estate taxes are cantonal taxes and vary between the cantons and on the relationship between the deceased and heir. There is no such taxation in the canton of Schwyz.

Other taxes

Gift taxes: see above under 'Taxation at death'. Gift taxes are sometimes identical to inheritance taxes but in other cases quite different.
Wealth taxes apply at the cantonal and sometimes municipal levels.
Stamp duty on share issues and securities transactions.
Value-added tax.
Real estate: taxes on transactions and holdings.

Tax treaties

The number is continually evolving:https://www.lowtax.net/information/switzerland/switzerland-tax-treaty-introduction.html

Tax information exchange agreements (TIEAs)

A number of TIEAs have been signed: https://www.sif.admin.ch/sif/en/home/themen/internationale-steuerpolitik/automatischer-informationsaustausch.html

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Residence and domicile

Special rules on becoming resident

With the exception of Swiss citizens, a permit is required to reside in Switzerland. The requirements differ between the majority of the EU Member States and other countries.

Special rules on ceasing residence

There are no special rules on ceasing residence apart from giving up the residence permit and paying taxes due at the date of departure.

Domicile concept for gifts and inheritance

The recipient of a gift or inheritance from a permanent resident of Switzerland is subject to Swiss gift and inheritance taxes (if any, depending on the canton of domicile of the donor or deceased).

Taxation of holdings by non-residents on death and of gifts

Gifts: real estate.
Death: real estate.
Wealth/income: real estate.

Reporting/auditing requirements

Yes. Inventory must be drawn up on death. Income and wealth tax returns are filed on an annual basis to the cantonal tax authorities who are responsible for the collection of taxes.

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Other relevant information

Asset protection laws

None.

Foreign currency restrictions

None.

Foreign ownership restrictions

Yes. Real estate. Only Swiss citizens and residents may purchase residential real estate (with some additional restrictions on non-citizens). Holiday homes may be purchased by non-residents in designated areas against a special permit. There are new restrictions on the construction of second homes that also affect foreigners. There are no restrictions on the ownership of purely commercial real estate by non-residents.

AML/due diligence and other requirements and regulatory procedures for advisors

To establish a trust: see above. Trusts administered in Switzerland are governed by the relevant foreign law.
For incorporation: a Swiss corporation must be registered in the commercial register of the canton where it is established.
To open a bank account: according to the Swiss Bankers Association, money laundering is the term applied to the act of concealing the origins of money earned through criminal activities and of releasing it unnoticed into legitimate business activities. Money laundering is most commonly associated with drug trafficking; however, other criminal activities, such as embezzlement, corruption, blackmail, trafficking in people and certain tax fraud, may also give rise to money laundering.

The Swiss Financial Market Supervisory Authority (FINMA) licenses banks, securities dealers and insurance providers. Trustees and financial intermediaries do not currently need a licence to carry on business as such in Switzerland, although this will change by 2020.

Other points of interest

Although the federal law refers to ‘banking secrecy’, it is intended to protect the client of the bank and not the bank. Therefore, the term ‘bank client confidentiality’ is often used in this context. According to the Swiss Bankers Association, bank client confidentiality protects privacy according to the Constitution and laws of Switzerland. This protection of personal privacy is a basic right established under the Constitution. Article 13 of the Constitution confers on every person ‘the right to receive respect for their private and family life’, including privacy for financial income and assets.

Key resources for further information

PUBLICATIONS

RJ Danon, Switzerland’s Direct and International Taxation of Private Express Trusts. Doctoral Thesis (Geneva: Schulthess, Linde Verlag, Westlaw, Bruyland, 2004).
Pestalozzi Gmuer & Patry, Business Law Guide to Switzerland, 2nd ed. (CCH Europe).
Swiss-American Chamber of Commerce, Swiss Code of Obligations www.amcham.ch/publications/

WEBSITES

General

Circular letter nr. 30: www.steuerkonferenz.ch/downloads/kreisschreiben/ks030_f.pdf
Federation Authorities: www.admin.ch
Federal Department of Finance (FDF): www.efd.admin.ch
Federal Department of Justice and Police: www.ejpd.admin.ch/ejpd/en/home.html
Federal government: www.estv.admin.ch
FINMA: www.finma.ch
General information: www.bfs.admin.ch
Judicial Authority: www.bger.ch
Law portal: www.weblaw.ch
Organisation for Economic Cooperation and Development: www.oecd.org
Parliament/Legislative Authority: www.parlament.ch
Swiss Association of Trust Companies: www.satc.ch
Swiss-American Chamber of Commerce: www.amcham.ch
Swiss Bankers Association: www.swissbanking.org
Swiss British Chamber of Commerce: www.bscc.co.uk

Cantons

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