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Lump-sum taxation in Switzerland explained simply – Tax lexicon

Switzerland presented new tax plans in 2013. These reforms brought major tax advantages for rich foreigners. The lump-sum taxation scheme helps foreign citizens who live in Switzerland and meet certain criteria to save taxes. It makes Switzerland more attractive for rich people.

Lump-sum taxation does not depend on worldwide income. Instead, people pay a fixed amount. This makes it easier and more attractive for rich foreigners to bring their money and investments to Switzerland.

Important findings

  • Lump-sum taxation has been a central element of Swiss tax policy since 2013.
  • It enables significant tax relief for wealthy foreigners.
  • This tax regulation is based on a fixed lump sum instead of global income.
  • The aim is to position Switzerland as a more attractive place of residence for wealthy private individuals.
  • Lump-sum taxation plays an important role in promoting investment in Switzerland.

What is lump-sum taxation?

Lump-sum taxation is a special tax system in Switzerland. It is aimed at foreigners who move to Switzerland and do not work there. Wealthy individuals use it to obtain tax advantages. The tax is calculated according to lifestyle or a minimum amount.

Definition and basic principles

In Switzerland, there is the “forfait fiscal” lump-sum taxation. It taxes income from abroad differently. Instead of taxing the entire income, a flat rate is levied. This depends on the standard of living. This makes taxation attractive for expats.

Historical background

Lump-sum taxation was introduced in the canton of Vaud in 1862. Geneva followed in 1928 and the whole of Switzerland in 1934. In 1948, the cantons agreed on common rules. It has been enshrined in federal law since 1995, with guidelines issued by the FTA.

In some cantons, such as Zug and Ticino, there is a flat rate. Other cantons, such as Zurich, have abolished them. The rules and the amount of tax may vary. They are adjusted every year to ensure fairness.

In 2018, 4557 people in Switzerland were taxed on a flat-rate basis. That is less than 0.1% of all taxpayers. Together they paid 821 million francs. A vote in 2014 wanted to abolish lump-sum taxation. However, 59.2% voted in favor of retaining them.

Requirements for lump-sum taxation in Switzerland

Foreign nationals who come to Switzerland for the first time or after at least ten years can benefit from lump-sum taxation. This form of tax is for people who do not work in Switzerland. It makes it possible to pay a simplified tax.

Who can benefit from this?

Foreign nationals who are not working in Switzerland and who meet the cantonal regulations are eligible. Cantons such as Thurgau and St.Gallen have their own strict rules. Each canton sets a minimum amount for taxation.

Necessary documentation and evidence

Anyone wishing to use this form of tax must submit several documents:

  • Proof of residence in Switzerland
  • Proof of nationality
  • Financial means to show that you can live without work

The documents are important for calculating the tax. The annual calculation considers income from Switzerland and abroad. This applies in particular if an agreement to avoid double taxation exists.

Canton Status of lump-sum taxation Remark
Zurich Abolished 2009 by referendum
Basel-Stadt Abolished Regional reform
Thurgau Retain Stricter regulations
Berne Retain Stricter regulations

How is lump-sum taxation calculated?

Wealthy foreigners who want to live in Switzerland find lump-sum taxation interesting. It is based on the cost of living, not global income. To find the taxes, you look at different things.

Valuation methods for foreign income

How much you pay depends on your lifestyle. Households often multiply the rental value by seven. For individuals, accommodation costs count threefold. This is how you calculate the taxes.

Calculation of the tax burden

There is a minimum amount of 400,000 francs. Every year, income from Switzerland and abroad is compared. If the flat-rate tax is lower than the normal tax, you pay the higher amount.

Lump-sum taxation calculation

This tax method is often simpler and cheaper for the rich. Switzerland attracts wealthy foreigners because of the security and low taxes.

  1. Individuals with households: seven times the annual rental value or property value
  2. Other individuals: three times the cost of accommodation and meals
  3. At least CHF 400,000 as the base amount
  4. Annual comparative calculation to determine the minimum tax

In cantons such as Zurich and Basel-Stadt, lump-sum taxation no longer exists. But places like Lucerne and Bern take it further, with stricter rules. The Federal Council wants to tighten the rules in order to achieve greater acceptance. So the topic remains interesting for foreigners.

Canton Current status of lump-sum taxation
Zurich Abolished after referendum in 2009
Basel-Stadt Abolished
Berne Retain with stricter rules
Schaffhausen Abolished
St. Gallen Retain with stricter rules

Valuation methods for foreign income

The rules for lump-sum taxation are reviewed every year. The aim is to ensure that newcomers pay enough tax.

Advantages of lump-sum taxation

Lump-sum taxation in Switzerland is very advantageous for foreign taxpayers. It is particularly appealing to wealthy foreigners who want to move to Switzerland. The tax base is often much lower than the actual global income.

This leads to a lower tax burden. Another advantage is that lump-sum taxation is offered in many Swiss cantons. It can also be adapted to individual requirements.

This tax regime is particularly popular in cantons such as Zug, Schwyz, Ticino, Graubünden and Bern. Taxpayers there also enjoy local benefits.

Tax benefits for foreigners

Lump-sum taxation offers many tax advantages to foreigners who do not work in Switzerland. Since January 1, 2023, the minimum tax has been CHF 421,700. This sum is the basis for the tax calculation.

This includes the rental value of real estate, the annual pension amount and income from Swiss assets. It is also important to note that income and assets from abroad are not taken into account.

Comparison with other tax regulations

Compared to normal tax rules, lump-sum taxation is much more advantageous. It attracts rich people from all over the world. This regulation is usually valid for five years, but can be extended.

There are special rules for foreign trusts with regard to lump-sum taxation. This tax relief helps Switzerland to attract wealthy foreigners. This promotes additional investment in the country.

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What is lump-sum taxation in Switzerland?

Lump-sum taxation is a special tax system. It is for foreigners who move to Switzerland and do not work. The tax is calculated on a fixed amount, not on the total income.

Who can benefit from lump-sum taxation?

Foreign nationals coming to Switzerland for the first time or returning after 10 years can benefit. The prerequisite is that they do not work in Switzerland.

What documentation and evidence is required?

Proof of residence, citizenship and finances are required. Some cantons require additional documents, such as confirmation of residence and a tax agreement.

How is lump-sum taxation calculated?

The calculation is based on seven times the rental value of the apartment or the cost of living. A minimum amount is set depending on the canton.

What valuation methods are there for foreign income?

Foreign income is not taxed directly in the case of lump-sum taxation. Instead, a lump sum is set based on the standard of living.

What tax advantages does lump-sum taxation offer foreigners?

This control system offers great advantages. In most cases, the tax base is lower than the actual income. This leads to lower taxes than with other tax systems.

What are the differences between lump-sum taxation and other tax regimes?

Compared to normal tax rules, lump-sum taxation is simpler and often cheaper. It is based on a fixed amount instead of the total income and assets.

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