Relocating to Switzerland
Switzerland has long been a destination for wealthy individuals and families. This article examines features of Switzerland that are relevant for individuals and families including the recognition of trusts in Switzerland, the taxation of trusts, immigration to and residence in Switzerland and issues arising on immigration.
This article is part of the global guide to private client law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateclient-guide
Switzerland has long been a destination for wealthy individuals and families. It is a key player in the custody and management of private wealth and the country's strong and stable economy. Attractions such as its forfeit or lump sum taxation system for foreign persons mean that Switzerland remains a leading destination for individuals and families. This is largely unaffected by Switzerland's decision to adopt the OECD model in relation to the exchange of information under tax treaties, whereas in the past it applied a more restrictive approach.
This article briefly reviews some features of Switzerland which are relevant for individuals or families that want to move to or otherwise situate a part of their wealth in Switzerland. The article considers:
The recognition of trusts in Switzerland, including the implementation of the HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985 (Convention).
The taxation of trusts in Switzerland.
The regulation of trustees.
Immigration to and residence in Switzerland.
Taxation of individuals in Switzerland.
Particular issues arising on immigration.
The recognition of trusts in Switzerland
Switzerland does not have its own trust legislation. Therefore, it is not possible to establish a trust governed by Swiss law. However, a trust may have various connections with Switzerland, for example:
The trustee of a trust may reside or have its registered office in Switzerland.
The assets of a trust may be held by a Swiss bank.
The settlor of a trust may reside in Switzerland.
In addition, foreign persons residing in Switzerland have the option of providing in their will that their national law will govern the succession of their estate (Article 91(2), Swiss Private International Law Act). It is not unusual for citizens from common law countries who reside in Switzerland at the time of their death, to provide in their will that their succession will be governed by the laws of their nationality and to create a testamentary trust. Therefore, the Swiss courts are regularly confronted with estate succession as well as trusts governed by foreign law.
Prior to the ratification of the Convention, there were a number of uncertainties when establishing a trust with a Swiss connection. The main issue concerned the qualification of a trust by the Swiss courts, that is, whether the courts would acknowledge a trust or re-qualify it to a legal concept which is known in Swiss law. By ratifying the Convention, Switzerland has created greater legal certainty.
The Convention and its ratification in Switzerland
The Convention entered into force on 1 January 1992 and has, to date, been ratified by 11 countries. It intends to put the following at the disposal of civil law jurisdictions (which are usually unfamiliar with trusts) (page 373, Explanatory Report by Alfred E. von Overbeck, January 1985):
Conflicts of law rules on the law applicable to trusts.
What recognition of a trust should involve.
The limits to recognition of trusts.
On 1 July 2007, Switzerland ratified the Convention. At the same time, the Swiss legislator introduced new provisions of the Swiss Private International Law Act of 18 December 1987 and the Federal Debt Enforcement and Bankruptcy Act (Bankruptcy Act) relating to trusts.
The new provisions enable Swiss and foreign settlors to establish trusts under any foreign law of their choice, that provide for trusts. In addition, the Swiss Federal Tax Administration has clarified, through the issuance of circulars and brochures (such as Circular No. 20 on the taxation of trusts), issues relating to the taxation of trusts, trustees, beneficiaries and settlors (see below, Taxation of trusts).
Implementation of the Convention
Definition. Following the ratification of the Convention, the Swiss legislator adopted the definition of trust under the Convention. It defines a trust as a legal relationship created during or on death, by a person (the settlor) when assets have been placed under the control of the trustee for the benefit of the beneficiary or for a specified purpose. The scope of the Convention was extended to trusts set up orally but not to trusts created by judicial decisions (Article 149(a), Swiss Private International Law Act).
Segregation of assets and bankruptcy. The assets in a trust constitute a separate fund and are not part of the trustee's own estate (Article 2, Convention). The recognition of a trust must imply (as a minimum) that the trust property constitutes a separate fund (Article 11, Convention). The segregation of assets often causes difficulties to courts and practitioners in civil law jurisdictions. This is because although it is possible to separate legal ownership and economic ownership of assets in civil law jurisdictions, in the event of the legal owners bankruptcy, the assets will generally be included in the bankrupt estate. In contrast, at common law, a trust fund remains separated from the trustee's other assets and falls outside the bankrupt estate of the trustee (Article 2, Convention).
To provide for the segregation of assets, the Swiss legislator introduced at the time of its ratification, new provisions in the Bankruptcy Act. The provisions provide that proceedings to seize trust property for debts of a trust must be directed against the trustee. Whether the trustee or the trust is liable for a debt is determined by the law governing the trust. If, under applicable law, the trust is liable for a debt, enforcement against trust assets located in Switzerland is possible on the condition that the seat of the trust is located or the actual management of the trust takes place in Switzerland (Article 284(a)(2), Bankruptcy Act). Enforcement will proceed by way of bankruptcy and will be restricted to the trust property.
A creditor of a trust with assets in Switzerland can only attach these assets if, among other conditions, either:
The creditor's claim has a sufficient link to Switzerland. This is not clearly defined. However, it is generally accepted that the mere existence of assets in Switzerland, or the fact that the claim is denominated in Swiss Francs, does not constitute a sufficient connection to Switzerland.
The claim is based on an enforceable court decision recognised by the Swiss courts.
An important provision introduced in relation to Switzerland's ratification of the Convention is Article 284(b) of the Bankruptcy Act. It stipulates that in the case of bankruptcy proceedings against the trustee, the trust property will be separated from the trustee's personal bankruptcy assets. If creditors of the trustees request an attachment of the trust fund, the beneficiaries of the trust may contest such an attachment order before the court that issued the order.
Limits of recognition. The Convention resolves many issues but not all. The Convention provides that the law designated in accordance with its provisions, governs the trust validity and its construction, effects and administration (Article 8, Convention).
However, any preliminary matters relating to the validity of wills or other acts by virtue of which assets are transferred into the trust do not fall within the scope of the Convention. Therefore, they may be governed by the laws of a different jurisdiction (Article 4, Convention).
The Convention in practice. The Convention neither prevents the application of provisions of the law insofar as those provisions cannot be derogated from, by voluntary act relating to the personal and proprietary effects of marriage and forced heirship rights. If the settlor or beneficiary of a trust moves to Switzerland, it would be advisable to verify if Swiss mandatory rules could apply (see below, Particular issues on immigration).
Swiss courts have been faced with important decisions involving trusts, such as, for example, cases relating to the disclosure by Swiss banks of information to the US Internal Revenue Service (IRS) concerning beneficiaries of irrevocable discretionary trusts (see box, Swiss Federal Administrative Court, A-6871/2010 of 5 May 2011).
Taxation of trusts
Swiss tax laws do not specifically address the taxation of trusts. However, on 22 August 2007 the Swiss Tax Conference, which is an association of cantonal tax officers who seek to harmonise inconsistent tax practices among the cantons, issued a tax circular no. 30 on the taxation of trusts. Several months later, the circular was adopted by the Federal Tax Administration as tax Circular no. 20 (Circular). The Circular does not have the force of law but is recognised in practice throughout Switzerland.
In the Circular, the tax authorities have identified three types of trusts for taxation purposes:
Irrevocable fixed interest trusts.
Irrevocable discretionary trusts.
The Circular sets out a number of criteria to distinguish revocable and irrevocable trusts. A trust is considered revocable if the settlor is a beneficiary or reserves certain powers such as the power to (pages 5 and 6, Circular):
Remove and appoint trustees, protectors or beneficiaries.
Amend the terms of the trust regardless of any provision of the trust deed making the trust formally irrevocable.
The Circular sets out general principles applying to the taxation of trusts and then clarifies, for each of the above types of trusts, issues relating to the taxation of the trustees, settlor and beneficiaries.
Taxation at trust level
Swiss tax law does not consider a trust to be a Swiss or foreign legal entity and therefore a trust does not constitute a fiscal subject. As trusts are not taxable in Switzerland, it is irrelevant from a Swiss tax point of view whether any of the trustees reside in Switzerland or where their effective place of management is located (an issue which may arise in relation to trustees acting as directors of an offshore company).
The Federal Tax Administration has also dealt with issues that may arise in relation to the value added tax (VAT) treatment of services provided to the trust in Switzerland. The following rules apply (Federal Tax Administration brochure no 14 with effect from 1 October 2009):
Revocable trusts. If the settlor is a Swiss resident, the trust is considered to be transparent. Services rendered to the trust are considered to be rendered in Switzerland and will therefore be subject to Swiss VAT, either through the:
invoicing by the supplier, if the supplier is a registered Swiss VAT payer; or
the reverse charge mechanism.
Irrevocable trusts. In the event of irrevocable fixed interest trusts and irrevocable discretionary trusts, the VAT treatment depends on the location of the majority of the beneficiaries. If at least one half of them are Swiss residents, the services rendered to the trust are considered to be rendered in Switzerland and Swiss VAT will apply to them. Conversely, if a majority of the beneficiaries are residing abroad, the services rendered to the trust are considered to be rendered abroad and will therefore not be subject to Swiss VAT.
Taxation at trustee level
Individuals acting as trustees who are resident in Switzerland and trust companies having their seat in Switzerland are not subject to tax on trust property and the income generated by this property. As a trustee is not economically entitled to the trust property and the income resulting from the property, the capital and income will be allocated either to the settlor or to the beneficiaries (page 9, Circular).
Fees that a trustee receives for carrying on professional activities from Switzerland are taxable in Switzerland. Similar rules apply to Swiss corporate trustees.
Taxation at settlor level
Generally, if the settlor of a trust resides in Switzerland, then the assets of the trust and any income deriving from these assets continue to be attributed to the settlor. In the case of revocable trusts, a Swiss-resident settlor is treated as not having disposed of the assets and remains subject to wealth tax on the trust capital and income tax on trust income.
A trust is considered revocable if the settlor is a beneficiary, or reserves certain powers (see above). Therefore, a careful review of the powers granted to the settlor under the trust deed is advisable before a settlor takes up residence in Switzerland. However, the general principle that the capital and income remains attributable to the settlor is subject to important exceptions under the Circular.
In the case of an irrevocable fixed interest trust, the beneficiaries have an existing and determinable entitlement. The Swiss resident beneficiaries (and therefore not the settlor), will be liable for tax (both wealth tax and income tax) in proportion to their interest in the trust assets. Beneficiaries residing abroad are usually not subject to Swiss taxes unless the trust assets comprise real property located in Switzerland.
With regard to irrevocable discretionary trusts, a distinction has to be made between (Circular):
A Swiss settlor (that is, a settlor residing in Switzerland at the time of the funding of the trust).
A Foreign settlor (that is, a settlor residing abroad at the time of the funding of the trust).
In the case of a Swiss settlor of an irrevocable discretionary trust, the same applies as for a revocable trust (see above, Taxation at trust level: Revocable trusts). Generally, a foreign settlor of an irrevocable discretionary trust is not liable for any taxes on the assets of the trust or the income deriving from the assets. This also applies if the settlor, after having constituted and funded the trust while resident abroad, moves to Switzerland and becomes a Swiss resident.
Taxation at beneficiary level
In case of a revocable trust or an irrevocable discretionary trust with a Swiss-resident settlor, a distribution to a beneficiary is treated as a gift from the settlor to the beneficiary. Therefore, it is subject to gift and estate tax, unless the beneficiary's relationship to the settlor is one which provides for an exemption.
Distributions by an irrevocable discretionary trust with a foreign settlor to a Swiss-resident beneficiary are not subject to gift tax but are taxed as income of the beneficiary when the beneficiary receives or becomes entitled to such distribution, unless it can be shown that the distribution is made from the trust capital settled on trust by the settlor. Accumulated income does not qualify as capital for this purpose. Capital can only be distributed after the distribution of all (accumulated) income and capital gains (known as the last-in-first-out principle). Capital distributions are tax free. However, as the trust fund and the trust income is not attributed to the settlor or the beneficiary, the exemption for capital gains, which is available to individuals (see below, Taxation of individuals in Switzerland) cannot be claimed. If, for example, a trustee sells listed shares held in the trust fund with a capital gain, such capital gain is treated as income when distributed to the Swiss resident beneficiaries. However, in the event a Swiss resident private individual would sell listed shares with a capital gain, such gain is generally free of taxation due to the exemption of private capital gains.
The beneficiary of an irrevocable fixed interest trust is entitled to receive the income. Under the Circular, the beneficiary is taxed for the income as soon as he becomes entitled to the income, which may be prior to the effective distribution of the income. Therefore, the distribution of the income itself does not trigger taxes. If a beneficiary is able to demonstrate that the distribution is made from capital gains or capital, the distribution is not subject to income tax. However, the last-in-first-out principle also applies to irrevocable fixed interest trusts (see above).
Regulation of trustees
The Swiss Anti-Money Laundering Act of 10 October 1997 (AMLA) applies to all financial intermediaries who, on a professional basis, accept assets belonging to third parties. Trustees who conduct their business in Switzerland are considered to be financial intermediaries. The activities of trustees conducting businesses in Switzerland are regulated by AMLA, regardless of the law governing the trust or the location of trust assets. The AMLA also applies to directors of a trust underlying companies. Whether the protector of a trust falls within the definition of financial intermediary depends on his powers.
Apart from the anti-money laundering regime, there is currently no specific state regulation in Switzerland of trust companies. Soon after the ratification of the Convention, the Swiss Association of Trust Companies (SATC) was established. SATC's purpose is to engage in the development of trustee activities in Switzerland, to ensure a high level of quality, integrity and adherence to professional and ethical standards in trust businesses in Switzerland. SATC imposes certain requirements on its members. Its members must have adequate professional indemnity coverage and minimum educational and professional experience thresholds for senior managers acting within Switzerland. A further requirement is that all members of SATC have adopted adequate internal processes and controls such as the four eyes principle, meaning that at all trustee decisions require the approval of at least two qualified trust officers. On 31 May 2012, SATC issued a white paper in which it promotes the introduction of a regime of regulation of the trust industry in Switzerland and the introduction of a system of compulsory licensing of trust companies.
On 4 November 2015 the Swiss legislator released a draft for a new Financial Institutions Law (Fidleg) which contained rules for the licensing and prudential supervision of trustees. Pursuant to Fidleg, trustees would in the future need to obtain an authorisation from a competent public or semi-public supervisory organisation, who would also exercise the supervision of trustees. Fidleg further imposes obligations in relation to the competence of the management of a trust company and its officers, the keeping of sufficient insurance coverage and the use of the name "trustee". It is currently foreseen that, within two years of the entry into force of Fidleg, any trustee should have obtained the necessary licence under Fidleg. However, at this stage it is still uncertain if and when Fidleg will enter into force and it is likely further amendments will be made to the current draft.
Immigration to and residence in Switzerland
Immigration to Switzerland for a period exceeding three months requires a residence permit and a work permit where the immigrant is to work in Switzerland.
Subject to certain exceptions, residence and work permits are only granted to:
Individuals with professions for which there is an urgent need.
In addition, investors and reputable persons active in the areas of science, culture or sports may also be granted a residence and work permit.
The permits granted under the general rules are subject to annual quotas and preference is given to applications for which it can be demonstrated that the approval of the application is beneficial to local commercial development which leads to the creation of employment opportunities or otherwise contributes to the local economy, for example, through tax revenues from the individuals and the business concerned. The spouse and minor children of a holder of a residence and work permit are granted a residence permit if they live in the same household and do not rely on Swiss social aid and adequate housing is available in Switzerland.
EU and EFTA
Citizens from EU or European Free Trade Association (EFTA) member countries (except nationals of Croatia) may take advantage of the bilateral agreements with Switzerland regarding free movement of persons. A residence permit without a work permit may be obtained if the applicant demonstrates that he and his family are financially self-sufficient and have sufficient health insurance coverage. A citizen from an EU or EFTA member state is entitled to a residence and a work permit if he has entered into an employment contract with a Swiss employer or intends to become self-employed and is able to show a business plan. Permits under the bilateral agreements on the free movement of persons are granted virtually automatically. The family of an EU or EFTA citizen is entitled to a residence permit if they live in the same household.
A non-EU or non-EFTA citizen who wishes to immigrate to Switzerland and has no intention to work in or from Switzerland may obtain a residence permit if he fulfils the following criteria:
The person is 55 years of age or older.
The person has close ties to Switzerland, such as previous extended stays in Switzerland or close relatives.
The person is fully retired, that is, does not conduct any gainful activity in Switzerland or abroad.
The centre of interests is transferred to Switzerland.
Sufficient financial resources (including adequate health insurance) are available to support himself and the accompanying family members.
The grant of a residence permit to pensioners is at the discretion of the relevant authorities which will take into account the economic, financial and fiscal implications for purposes of their decision. The pensioner will be required to resign from all his offices in foreign and Swiss companies, except from the board of any passive investment company which has the sole purpose of administering the wealth of the pensioner's family.
A non-EU or non-EFTA citizen who does not fulfil the above criteria, for example, because of his age or because he does not want to give up his offices in foreign companies, may still be able to obtain a residence permit if a canton has a predominant cantonal fiscal interest such as the expectation that the taking up of residence by the individual will generate significant tax income for the canton and the municipality concerned. In principle, the federal authorities will grant the applicant a residence permit if the canton where the applicant wishes to take up residency supports the application.
Initiative against mass immigration
On 9 February 2014, the popular initiative against mass immigration was approved in a public vote. The approval of the initiative lead to the inclusion of a provision into the Swiss constitution requiring the Swiss government to change the rules on immigration and to change to a system based on annual quotas for residence and work permits in order to reduce immigration to Switzerland. The annual quotas will also apply to residence permits for pensioners as well as citizens from EU or EFTA member countries and will, as a result, restrict the free movement of persons pursuant to the bilateral agreements between Switzerland and the EU and EFTA member countries (Bilateral Agreements).
As the new system to control immigration is in contravention of the agreement on free movement of persons, the Swiss government will be forced to terminate this agreement unilaterally if it cannot successfully renegotiate its terms. The termination of the agreement on free movement of persons will lead to an automatic termination of a number of other Bilateral Agreements due to a "guillotine clause". The Swiss government is granted a period until 9 February 2017 for negotiations with the EU and the implementation of a revised immigration control system. No agreement has yet been reached with the EU. A draft law regarding the unilateral implementation of the new constitutional provision is currently being discussed. In addition, another popular initiative regarding the deletion of the constitutional clause introduced by the initiative against mass immigration has been successfully launched and is likely to be put to a public vote in spring 2017. The Swiss government has decided to make use of its right to propose a counterproposal to the new popular initiative providing for an implementation of immigration control without amendments to the bilateral agreement of free movement of persons. This counterproposal will also be put to vote in the spring of 2017.
Taxation of individuals in Switzerland
Taxes are assessed at the federal, cantonal and communal level. An individual becomes subject to Swiss income and wealth taxes as a result of either:
A personal connection to Switzerland and the relevant canton and municipality. This exists if the individual takes up residence in Switzerland or stays in Switzerland for a period of 30 days (engaging in a gainful activity) or 90 days.
An economic connection. A relevant economic connection may be established by economic factors such as:
employment in Switzerland;
the holding of real property in Switzerland;
the establishment of a one-man business in Switzerland or a participation in a Swiss partnership.
Generally, immigration to Switzerland will lead to taxation on the basis of a personal connection. An individual is, in this case, subject to income and wealth tax on his worldwide income and wealth, subject to any applicable double taxation agreements. Capital gains on privately held assets are tax-free. Taxation on the basis of an economic connection is restricted to the value of the relevant connecting factor and the income derived from that factor.
At federal level, income tax is levied at a progressive rate to a maximum tax rate of currently 11.5%. No wealth tax is levied at federal level. At cantonal and communal level, an individual is subject to income tax and wealth tax. The cantons, and to a certain extent the municipalities, determine their own tax rates for income tax and wealth tax and the choice of the canton and the municipality by an individual taking up residency in Switzerland has a significant impact on the overall tax burden. The overall tax burden on income (including federal taxes) in Switzerland can vary between 21.6% at the lower end of the scale and 41.5% at the upper end in the year 2015 depending on the place of residence (Pascal Hinny, Steuerrecht 2016, Schulthess Juristische Medien AG, Zürich/Basel/Genf 2016, p. 2102) (Rates applicable to singles without minor children, status as per January 2016).
A special regime applies to the taxation of dividends. Dividends derived from a privately held participation of at least 10% in the distributing company are taxable at 60% of the ordinary tax rate at federal level. Dividends on participations that are held as business assets and therefore subject to taxation under the rules applicable to owners of a one-man business or a partner in a partnership are taxed at 50% of the ordinary tax rate. Similar reliefs for dividend income on participations of 10% or a higher threshold apply in all cantons. The taxation of dividend income on cantonal and communal level ranges from 20% to 80% of the ordinary tax rate (Pascal Hinny, Steuerrecht 2016, p. 2112).
Lump sum taxation
Foreign citizens taking up residency in Switzerland for the first time (or after an absence of ten years) and not engaging in any gainful activity in Switzerland may request to be taxed on a lump sum basis for cantonal and communal income and wealth tax purposes as well as for federal income tax purposes. Professional activities may be carried on outside Switzerland. Instead of levying taxes on the worldwide income and wealth of a person, taxation under the lump sum tax system is based on annual living expenses which have to be multiplied with the applicable tax rate. The relevant expenses include, among others:
Costs for food and clothing.
Expenses for education.
Maintenance costs for cars, boats and airplanes.
The total living expenses need to both:
Reach a multiple (in most cases seven times) of the annual rental payments for, or of the deemed rental value of (if owned), the residence in Switzerland.
Be at least equivalent to the taxes on the income derived from Swiss sources at the ordinary tax rate.
In practice, the living expenses are often agreed with the relevant cantonal authorities as a multiple of the annual rental payments or rental value due to difficulties in establishing the effective annual living expenses (Richner/Frei/Kaufmann/Meuter, Handkommentar zum DBG, Verlag Zürcher Steuerrecht, Zürich 2016, Art. 14 N 29). A minimum taxable amount of CHF400,000 applies for direct federal taxes even if the living expenses are lower than that amount. At cantonal level, minimum amounts of CHF100,000 to CHF600,000 are applied. The amount of the living expenses or the statutory minimum amount (if higher) has to be multiplied with the applicable tax rate to calculate the tax payable.
The lump sum taxation system may be modified for purposes of specific double taxation agreements under which a Swiss resident would otherwise not be entitled to the benefits because the foreign-source income is not taxed in Switzerland.
Lump sum taxation may be requested for direct federal taxes and in most cantons for the cantonal taxes. The canton of Zurich and four other cantons do not provide for lump sum taxation.
Gift and estate tax
The levy of gift and estate taxes lies within the competence of the cantons. All cantons except two levy a gift and estate tax (Schwyz does not levy gift and estate tax and Luzern only levies estate tax). However, the applicable rules and rates differ significantly among the cantons. Only the exemption of the spouse from gift and estate taxes is common to all cantons. Most cantons provide for an exemption for descendants and for reduced rates for certain other persons related to the donor or deceased. The relevant factor triggering gift and estate tax is residence in a specific canton of:
The donor at the time of the gift.
The deceased at the time of his death.
Gifts from a foreign resident donor or an inheritance from a deceased with his last residence abroad do usually not trigger gift and estate taxes in Switzerland unless the gift or estate includes real property or movable assets belonging to a business activity of the deceased located in Switzerland. However, the canton of Ticino levies a tax on gifts from foreign donors to recipients resident in Ticino.
Particular issues on immigration
Setting up trusts
Certain issues need to be considered before the immigration of individuals that have or intend to constitute trusts. Depending on the individual circumstances on and after immigration to Switzerland, various types of trust may be of interest for tax and estate planning purposes, for example:
Where the settlor will be subject to lump sum taxation in Switzerland following the immigration, it may be admissible to set up a revocable trust for which the settlor is treated as not having disposed of the funds. The capital and income of the trust is formally attributed to the settlor for tax purposes and not to any Swiss-resident beneficiary. The same advantages arise if the settlor does not move to Switzerland at all but only the beneficiaries are taking up residence in Switzerland.
Where some beneficiaries live outside Switzerland or if no periodic distributions to Swiss-resident beneficiaries are contemplated, it may be advisable to set up an irrevocable discretionary trust. In this case, income taxes are deferred until distributions to Swiss beneficiaries (if any) effectively take place and wealth tax is not levied at all as long as the assets are part of the trust fund.
See above, Taxation of trusts.
Matrimonial property regimes on Immigration
Immigration to Switzerland may have the effect of automatically changing the law applicable to the matrimonial property regime of a married couple. Under the Swiss conflicts of law rules, the matrimonial property regime of a couple is (in the absence of specific arrangements) governed by the law of the country of their common residence. Therefore, on becoming Swiss residents, a couple will be subject to the Swiss matrimonial property regime which, in default of another choice, implies a joint 50/50 interest in post-marriage property acquired by each spouse. The couple can adopt a different matrimonial property regime available under Swiss law under a marriage contract (such as separate property) on or after immigration.
The Swiss matrimonial property regime will not only apply as of the moment of immigration but with retroactive effect for the entire period of the marriage prior to immigration. By making the necessary dispositions before or on immigration to Switzerland, the Swiss matrimonial property regime may be declared applicable only from the time of immigration onwards. The application of Swiss law may also be excluded completely and the law of the home country of one of the spouses may be elected or the law previously applicable to the matrimonial property regime may be maintained. Existing marriage agreements continue to have effect on immigration to Switzerland. However, Swiss law becomes applicable to an existing marriage agreement if the agreement does not contain an express choice of the applicable law. It is therefore advisable to make such choice before immigration, if a marriage agreement does not already contain an express choice of law.
Estate planning on immigration
Immigration may have a similar effect on the law applicable to the estate of an individual. The estate of an individual that dies with his last residence in Switzerland is, by default, subject to Swiss law. This leads to the application of the Swiss forced heirship rules which provide for a statutory share for the children, spouse and parents in the estate of the deceased individual.
However, as mentioned, Swiss conflict of law rules allow a foreign national to make provisions for the application of the succession law of his home country on or after immigration to Switzerland.
Acquisition of real estate
The acquisition of real property in Switzerland as the main residence is possible, provided that a residence permit was already obtained and the intention to become Swiss resident can be shown. Certain restrictions with regard to size of a real property as the main residence as well as for the acquisition of secondary real property may apply to foreign nationals. The acquisition of a real property in Switzerland as the main residence will establish a personal connection to Switzerland and the relevant canton and lead to taxation on the worldwide income and wealth tax on his worldwide income and wealth, unless the conditions for lump sum taxation are fulfilled (see above, Taxation of individuals).
Switzerland remains an attractive destination and the lump sum taxation system continues to attract high net worth individuals to Switzerland. Due to the differences in the tax regimes between the various cantons and a possible modification to the current lumps sum taxation system, it is of paramount importance for any individual to well prepare its immigration to Switzerland. Following the ratification of the Convention, Switzerland has created greater legal certainty regarding trusts and positioned itself as a trust-friendly jurisdiction. Swiss law recognises trusts and, in particular for foreigners moving to or residing in Switzerland, the trust remains an attractive tool from an estate and tax planning perspective.
Swiss Federal Administrative Court, A-6871/2010 of 5 May 2011
UBS AG (UBS) and the Swiss federal authorities had agreed with the IRS to provide information regarding certain clients of UBS.
The question was whether a beneficiary of an irrevocable discretionary trust beneficially owned in whole, or in part, assets of the trust. If they did, the UBS would be obliged to disclose the information to the IRS under the terms of the agreement. Based on the terms of the trust deed, the Swiss Federal Administrative Court ruled that the beneficiaries of an irrevocable discretionary trust have a mere expectancy.
The court considered that under the trust deed, the trustees had the power to decide in their discretion, the timing, the amount and the identity (among a class) of potential beneficiaries of distributions.
The beneficiaries of an irrevocable discretionary trust did not control the assets of the trust. Therefore, they could not be considered to beneficially own the trust assets and the disclosure of information by UBS to the IRS was not permitted. This decision is important as it confirms that the Swiss courts will recognise a trust which has been properly set up and operated with integrity as a discretionary trust.
Lenz & Staehelin
Professional qualifications. Queensland, Australia, 1987; England and Wales, 1992
Areas of practice. Private clients; estate planning; trusts and foundations; tax; trust litigation; sports.
Lenz & Staehelin
Professional qualifications. Zurich, 2009
Areas of practice. Private clients; tax; contract and commercial; banking and finance; capital markets; charitable organisations; sports.
Lenz & Staehelin
Professional qualifications. Utrecht, 2002
Areas of practice. Private clients; trusts and foundations; tax; contract and commercial; private equity; trust litigation.