Mr Kaufmann, every year you and your team advise many people who are planning to emigrate. Which important issues do your clients tend to overlook or underestimate?
We ensure that our clients carefully address all the important aspects of moving to another country. People tend most of all to underestimate the formalities involved in moving, pre-immigration tax planning, the need to review the arrangement of their assets plus – very often – succession planning.
Which destinations are most popular?
It depends whether you're moving for work or not. Professionals gravitate mainly to countries bordering Switzerland, the US, the UK, the Asian economic hubs and Australia. Privateers and pensioners prefer France and Germany, followed by Italy, Spain and Austria. Portugal is currently proving popular due to its attractive tax regime. The more distant favourite locations are the US, Canada, South Africa and Thailand.
Is Canton Schwyz always the best place from which to withdraw pension assets from a tax perspective? Or are there also other factors to consider?
Canton Schwyz has the lowest rate of source tax, except for the smallest amounts. So anyone moving to a country that doesn’t tax Swiss capital withdrawals can realise significant tax savings. However, capital withdrawals are taxed in many of the most popular migration destinations. If a country has a double taxation agreement (DTA) with Switzerland and if Switzerland repays the source tax, then the Canton Schwyz factor doesn’t make much difference. The lesson is therefore that anyone leaving the country should first find out about the tax situation in their destination.
In Germany, extra mandatory pension assets hardly incur any tax on withdrawal. What triggered this change?
The german Federal Fiscal Court ruled in 2015 that Swiss BVG extra mandatory pension benefits were to be treated in the same way as endowment life insurance for tax purposes. That’s why capital payments are tax-free (provided BVG cover was established prior to 2005 and has been in place for a minimum of 12 years) or only incur minor charges. Annuities financed by the extra mandatory pension component, on the other hand, are subject to a low, age-dependent rate of tax. That’s why Germany has become a tax haven for many people with a BVG pension.
There is a double taxation agreement (DTA) between Switzerland and Germany. So Swiss source tax can be reclaimed through the DTA meaning there is basically zero tax on extra mandatory pension assets. Is this idyll here to stay or is it just a matter of time until they change the DTA?
The German regime will stay as it is. It is possible, however, that Switzerland will do something about the source tax refunds. The double zero taxation on BVG lump sum withdrawals is a thorn in the side of the Federal Tax Administration.
How is the taxation of pension assets regulated when moving to Italy or France? Do they also allow repayment of source tax through a DTA?
For a long time Swiss capital withdrawals were treated differently among the different regions in Italy. A pragmatic solution to this adverse situation was recently identified. Swiss annuities and capital withdrawals are now taxed at 5%. France applies a net rate of 6.75% subject to specific circumstances (inc. no partial withdrawals), otherwise income tax of up to 45% may be applied. If there is corresponding taxation in both countries, the cantonal source tax can be reimbursed.