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Moving to Switzerland for Retirement? Here’s What You Need to Know about US and Swiss Taxes

February 14, 2022

Are you a U.S. taxpayer moving to Switzerland for retirement? There are certain tax requirements of which you should be aware. Read on.

Switzerland is a beautiful country with good healthcare and a stable economy. Its taxes are relatively low compared to other European nations making it lucrative for some retirees. Switzerland does have a high cost of living and there are many things that a US taxpayer should know before choosing Switzerland for retirement.

In most instances, Swiss tax residents will pay income taxes on their worldwide income and wealth taxes on their worldwide net worth. Certain assets may be exempt from wealth tax, for example some US qualified retirement accounts.

  • Unlike most countries, the US retains the right to tax its citizens, permanent residents (aka green card holders), and tax residents on their worldwide income.
  • Most US taxpayers living in Switzerland will file their Swiss tax declaration first, and then their US tax return to take advantage of the foreign tax assessed by Switzerland.
  • It is typical to open a local bank account which may require informational reporting of bank and financial assets.

Income and Wealth Taxes

Swiss tax is assessed at three levels: federal, cantonal (state), and communal (municipality) on the calendar year.

  1. Federal – at this level income is taxed at graduated tax rates and there is no tax on net worth.
  2. Cantons – income and wealth taxes at graduated tax rates are assessed at the cantonal level.
  3. Commune – each canton is comprised of communes, which also assesses income and wealth taxes.

What US taxpayers need to know:

  • Income taxes assessed at the federal, cantonal, and communal level may be utilized as foreign tax credits.
  • Wealth taxes are not eligible for foreign tax credits. Depending on individual circumstances they may be considered deductible or a business expense.

Typical Types of Retirement Income

US Individual Retirement Accounts (IRA) – in most cases, the IRA distributions, whether lump-sum or required minimum distributions will be taxable in Switzerland. Some exceptions exist for former US government employees.

US Roth IRAs – distributions will be taxable in Switzerland as the treaty between the US and Switzerland does not recognize the same tax-free treatment upon distribution as the US.

US Social Security – Switzerland gives a foreign tax credit of 15% and then adjusts the taxable income downward on US Social Security by 1/3.

Investment Income – interest and dividends will be taxable in Switzerland with the Swiss providing a rebate on dividends of 15% due to the tax treaty (form DA-1 on the Swiss tax declaration.) For non-professional investors, Switzerland does not levy a capital gains tax.

What US taxpayers need to know:

  • Due to differences in the US and Swiss tax laws, the income subject to tax may be different in the US than in Switzerland.
  • Most people coming to Switzerland in retirement will have no Swiss tax withholding on non-Swiss source income and should work with a Swiss tax advisor to understand if they should make estimated payments.
  • Since there is no foreign tax credit to offset capital gains, US taxpayers should work with the US tax advisors to make estimated tax payments to the US.
  • Foreign tax credits can’t offset the Net Investment Income Tax (NIIT) of 3.8% on the US tax return

Retirement in Switzerland can be a great experience but will be even more rewarding with pre-move knowledge and tax planning. KLR International Tax Services is here to help, at our various offices in the US or at our office in Switzerland.

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